----

----

| o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|------------------------------------------------------------------------------------------------|

| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|--------------------------------------------------------------------------------------|

| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|------------------------------------------------------------------------------------------|

| o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|---------------------------------------------------------------------------------------------|

----

| N/A(Translation of Registrant’s name into English) | Israel(Jurisdiction of incorporation or organization) |
|----------------------------------------------------------|-------------------------------------------------------|

| Title of each class                          | Name of each exchange on which registered  |
|----------------------------------------------|-------------------------------------------------|
| Ordinary Shares par value NIS 0.01 per share | NYSE Amex                                       |

----

----

| PART I                                                                               | PAGE   |
|--------------------------------------------------------------------------------------|--------|
|                                                                                 |   |
| ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                         | 1      |
| ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                 | 1      |
| ITEM 3.KEY INFORMATION                                                               | 1      |
| ITEM 4.INFORMATION ON THE COMPANY                                                    | 12     |
| ITEM 4A.UNRESOLVED STAFF COMMENTS                                                    | 34     |
| ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                  | 35     |
| ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                    | 52     |
| ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             | 60     |
| ITEM 8.FINANCIAL INFORMATION                                                         | 63     |
| ITEM 9.THE OFFER AND LISTING                                                         | 66     |
| ITEM 10.ADDITIONAL INFORMATION                                                       | 67     |
| ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 75     |
| ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 78     |
|                                                                                 |   |
| PART II                                                                              |   |
|                                                                                 |   |
| ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 79     |
| ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 79     |
| ITEM 15.CONTROLS AND PROCEDURES                                                      | 79     |
| ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT                                            | 80     |
| ITEM 16B.CODE OF ETHICS                                                              | 80     |
| ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      | 80     |
| ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                  | 81     |
| ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      | 81     |
| ITEM 16F.CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT                                 | 81     |
| ITEM 16G.CORPORATE GOVERNANCE                                                        | 81     |
|                                                                                 |   |
| PART III                                                                             |   |
|                                                                                 |   |
| ITEM 17.FINANCIAL STATEMENTS                                                         | 81     |
| ITEM 18.FINANCIAL STATEMENTS                                                         | 81     |
| ITEM 19.EXHIBITS                                                                     | 82     |

----

----

PART I

ITEM 

ITEM 

ITEM 

| A. | Selected Financial Data |
|----|-------------------------|

| TABLE I                                          |   |   | Selected Financial Data in accordance with IFRS   |   |
|--------------------------------------------------|--------|--------|-------------------------------------------------------------|--------|
|                                             |   |   | Year Ended December 31,                                     |   |
|                                             |   |   | 2010                                              |   |   |   | 2009   |   |   |   | 2008   |   |   |   | 2007   |   |
| Income Statement Data:                           |   |   | (in thousands of NIS, except per share amounts)             |   |
| Sales                                            |   |   | 1,121,008                                                   |   |   |   | 891,995 |   |   |   | 673,484 |   |   |   | 583,650 |   |
| Income from ordinary operations                  |   |   | 61,295                                                      |   |   |   | 15,587 |   |   |   | 35,351 |   |   |   | 71,109 |   |
| Share in profits of associated companies, net    |   |   | 81,132                                                      |   |   |   | 87,359 |   |   |   | 51,315 |   |   |   | 856 |   |
| Net income                                       |   |   | 100,612                                                     |   |   |   | 91,748 |   |   |   | 67,960 |   |   |   | 31,535 |   |
| Selected Balance Sheet Data:                     |   |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                     |   |   | 2,773,634                                                   |   |   |   | 2,288,676 |   |   |   | 2,044,094 |   |   |   | 1,319,915 |   |
| Fixed assets                                     |   |   | 1,358,619                                                   |   |   |   | 1,134,234 |   |   |   | 767,542 |   |   |   | 405,231 |   |
| Long-term debt                                   |   |   | 813,631                                                     |   |   |   | 697,617 |   |   |   | 676,034 |   |   |   | 186,261 |   |
| Shareholders’ equity                       |   |   | 953,602                                                     |   |   |   | 858,429 |   |   |   | 757,629 |   |   |   | 669,971 |   |
| Per Share Data:                                  |   |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shares outstanding at end of year                |   |   | 5,078,156                                                   |   |   |   | 5,060,788 |   |   |   | 5,060,774 |   |   |   | 4,132,728 |   |
| Amount in NIS                                    |   |   | 50,782                                                      |   |   |   | 50,608 |   |   |   | 50,608 |   |   |   | 41,327 |   |
| Net income per NIS 1 par value:                  |   |   |                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Primary attributed to company shareholders       |   |   | 19.84                                                       |   |   |   | 18.03 |   |   |   | 13.77 |   |   |   | 7.63 |   |
| Fully diluted attributed to company shareholders |   |   | 19.68                                                       |   |   |   | 18.03 |   |   |   | 13.77 |   |   |   | 7.62 |   |

----

| TABLE II                                               |                                            | Selected Financial Data in accordance with Israeli GAAP |
|--------------------------------------------------------|-------------------------------------------------|--------------------------------------------------------------|
|                                                   |                                            | Year Ended December 31,                                      |
|                                                   |                                            | 2006                                                         |
| Income Statement Data:                                 |                                            |                                                         |   |
|                                                   | (in thousands of NIS, except per share amounts) |
| Sales                                                  |                                            |                                                         | 530,109 |   |
| Income from ordinary operations                        |                                            |                                                         | 50,501 |   |
| Share in profits (losses) of associated companies, net |                                            |                                                         | 1(26,202 | )  |
| Net income                                             |                                            |                                                         | 13,330 |   |
| Selected Balance Sheet Data:                           |                                            |                                                         |   |   |
| Total assets                                           |                                            |                                                         | 1,173,287 |   |
| Fixed assets                                           |                                            |                                                         | 400,823 |   |
| Long-term debt                                         |                                            |                                                         | 256,290 |   |
| Shareholders’ equity                             |                                            |                                                         | 430,842 |   |
| Per Share Data:                                        |                                            |                                                         |   |   |
| Shares outstanding at end of year                      |                                            |                                                         | 4,032,723 |   |
| Amount in NIS                                          |                                            |                                                         | 40,327 |   |
| Net income per NIS 1 par value:                        |                                            |                                                         |   |   |
| Primary attributed to company shareholders             |                                            |                                                         | 3.31 |   |
| Fully diluted attributed to company shareholders       |                                            |                                                         | 3.28 |   |
| Dividend declared per share                            |                                            |                                                         | 224.85 |   |

----

----

| TABLE III                                              |   | Selected Financial Data in accordance with U.S. GAAP        |
|--------------------------------------------------------|--------|-------------------------------------------------------------|
|                                                   |   | Year ended December 31                                      |
|                                                   |   | 2006                                                        |
| Income Statement and Balance Sheet Data:               |   |
|                                                   |   | (in thousands of re-measured NIS, except per share amounts) |
| Sales                                                  |   |                                                        | 530,109 |   |
| Income from ordinary operations                        |   |                                                        | 76,917 |   |
| Share in profits (losses) of associated companies, net |   |                                                        | (19,686 | ) |
| Net income                                             |   |                                                        | 23,909 |   |
| Total assets                                           |   |                                                        | 1,123,964 |   |
| Fixed assets                                           |   |                                                        | 362,539 |   |
| Long-term debt                                         |   |                                                        | 257,075 |   |
| Shareholders’ equity                             |   |                                                        | 374,768 |   |
| Per Share Data:                                        |   |                                                        |   |   |
| Shares outstanding at end of year                      |   |                                                        | 4,032,723 |   |
| Share outstanding to compute:                          |   |                                                        |   |   |
| Basic net income per share                             |   |                                                        | 4,025,181 |   |
| Diluted net income per share                           |   |                                                        | 4,055,628 |   |
| Amount in NIS                                          |   |                                                        | 40,327 |   |
| Net income per share (re-measured NIS)                 |   |                                                        |   |   |
| Basic                                                  |   |                                                        | 5.94 |   |
| Diluted                                                |   |                                                        | 5.89 |   |
| Dividend declared per share                            |   |                                                        | 324.85 |   |

----

----

| Month                            |   | High            |   | Low             |
|----------------------------------|--------|-----------------|--------|-----------------|
|                             |   | 1 U.S. dollar = |   | 1 U.S. dollar = |
| April 2011 (until April 7, 2011) |   | 3.473 NIS       |   | 3.438 NIS       |
| March 2011                       |   | 3.635 NIS       |   | 3.481 NIS       |
| February 2011                    |   | 3.713 NIS       |   | 3.602 NIS       |
| January 2011                     |   | 3.710 NIS       |   | 3.528 NIS       |
| December 2010                    |   | 3.665 NIS       |   | 3.549 NIS       |
| November 2010                    |   | 3.684 NIS       |   | 3.580 NIS       |
| October 2010                     |   | 3.645 NIS       |   | 3.569 NIS       |

| Period                                    |   | Exchange Rate |
|-------------------------------------------|--------|---------------|
| January 1, 2011 – March 31, 2011    |   | 3.601 NIS/$1  |
| January 1, 2010 – December 31, 2010 |   | 3.733 NIS/$1  |
| January 1, 2009 – December 31, 2009 |   | 3.933 NIS/$1  |
| January 1, 2008 – December 31, 2008 |   | 3.588 NIS/$1  |
| January 1, 2007 – December 31, 2007 |   | 4.108 NIS/$1  |
| January 1, 2006 – December 31, 2006 |   | 4.456 NIS/$1  |

| B. | Capitalization and Indebtedness |
|----|---------------------------------|

| C. | Reason for the Offer and Use of Proceeds |
|----|------------------------------------------|

| D. | Risk Factors |
|----|--------------|

----

----

----

----

----

----

----

----

ITEM 

| A. | History and Development of the Company |
|----|----------------------------------------|

----

----

| 1 | In addition, the Company has holdings in the following companies: Integrated Energy Ltd. (100.0%); Bondex Technologies Ltd. (18.97%) and Cycle-Tech Recycling Technology Ltd. (30.18%) (an inactive company). |   |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|

| 2  | Frenkel CD Ltd. has two types of shares. The Company’s direct and indirect ownership of voting rights is 57.82%. |
|---------|------------------------------------------------------------------------------------------------------------------------|

----

----

| - | Investment of approximately NIS 2.7 million (approximately $0.7 million) in improvement of power plant. |
|---|---------------------------------------------------------------------------------------------------------|

| - | An investment of approximately NIS 3.8 million (approximately $1.0 million) in a conversion to a gas system. |
|---|--------------------------------------------------------------------------------------------------------------|

| - | Investments of approximately NIS 96.3 million (approximately $25.8 million) in Machine 8. |
|---|-------------------------------------------------------------------------------------------|

| - | Investments in the aggregate of approximately NIS 77.0 million (approximately $20.7 million) in buildings, equipment, transportation and information technology. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Investment of approximately NIS 4.2 million (approximately $1.1 million) in improvement of power plant. |
|---|---------------------------------------------------------------------------------------------------------|

| - | Investments of approximately NIS 333.0 million (approximately $84.7 million) in Machine 8. |
|---|--------------------------------------------------------------------------------------------|

| - | Investments in the aggregate of approximately NIS 101.3 million (approximately $25.6 million) in buildings, equipment, transportation and information technology. |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Investments of approximately NIS 7.7 million (approximately $2.0 million) in environmental expenditures. |
|---|----------------------------------------------------------------------------------------------------------|

| - | An investment of approximately NIS 4.7 million (approximately $1.2 million) in a conversion to a gas system. |
|---|--------------------------------------------------------------------------------------------------------------|

| - | Investments of approximately NIS 6.7 million (approximately $1.8 million) in conversion and improvement of steam tanks. |
|---|-------------------------------------------------------------------------------------------------------------------------|

| - | Investments of approximately NIS 191.0 million (approximately $49.7 million) in Machine 8. |
|---|--------------------------------------------------------------------------------------------|

| - | Investments in the aggregate of approximately NIS 53.6 million (approximately $14.6 million) in buildings, equipment, transportation and information technology. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

----

----

|   | 1. | Cardboard - The Company is engaged, via Carmel, in the production of cardboard products in three categories: |
|--------|----|--------------------------------------------------------------------------------------------------------------|

|   | a. | Corrugated board products – the corrugated board products, that constitute an essential part of this sector of operations, are manufactured and processed in line with the customers’ specific requirements, which are determined according to the type of stored goods, the type of packaging, the expected weights on the packaging during transportation, temperature and humidity conditions during the storage and transportation, the graphic design of the packaging, etc. The manufactured and processed corrugated cardboard products include: (i) “standard” corrugated board containers, i.e., boxes manufactured in different sizes, which are closed by sealing the upper flaps and bottom of the box; (ii) containers and boxes in different geometric shapes that can be “positioned” by manually folding the cardboard plate without sealing or mechanically folding the flaps using warm glue. These products are primarily sold to machinery-intensive industries that operate at high rates, such as the soft beverage industry; and (iii) cardboard crates for agriculture, i.e., trays that are folded only using tray folding machines with matching molds as much as possible, in geographic proximity to the final customers. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Corrugated cardboard sheets – these are used as raw materials and marketed to corrugated cardboard processors, who use them as raw materials for the manufacture of packaging. Cardboard processors are small processing plants, which sell their products to small and medium-sized customers. Carmel and another competitor specialize in the manufacture of triple-wall sheets that are used for specialized packaging, among others by Tri-Wall, mainly for the high-tech industry. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | Digital printing (advertising) products  - planning, design and production of digital prints for diverse applications in sales promotion, display stands, decoration of pavilions in trade exhibitions and on billboards. High printing quality using a technology of ink injection on the work surface, while the cutting is shape-based, with no need for dye casts and printing blocks. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Cardboard shelf packaging – Frenkel CD designs, produces and markets shelf packaging and display stands. |
|--------|----|---------------------------------------------------------------------------------------------------------------------|

|   | 3. | Containers and pallets - The Company is engaged, through Tri-Wall, in the production of the following products: |
|--------|----|-----------------------------------------------------------------------------------------------------------------|

|   | a. | Triple-wall cardboard packaging which are mainly used for the export of heavy bulky products such as chemicals, electronic equipment, high-tech equipment, medical equipment, security equipment, etc. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Complex packaging primarily for the export of high-tech products, which are made of wood, plywood, triple-wall cardboard, padding materials, metals and other materials. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | Regular and unique wooden surfaces and pallets which are used as a basis for the above packaging and wooden pallets for transportation. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | 1. | Pulp - The principal raw material used in the production of paper is pulp. Engagement for purchase of pulp is performed in a centralized manner for Hadera Paper Printing and for MBP (the parent company) and for other plants in Europe, allowing for a constant supply of pulp as well as economies of scale. Under the annual negotiations that are conducted between MBP (in coordination and in cooperation with the responsible officer at Hadera Paper Printing) and pulp suppliers, framework agreements are made between them and MBP which obligate them to supply a certain amount of pulp to the MBP Group (with Hadera Paper Printing included therein). These agreements do not set pulp prices, which are set in a routine manner according to pulp’s global market prices every month. Hadera Paper Printing pays the pulp price directly to the supplier and pays a commission to MBP exclusively in order to cover its costs. Hadera Paper Printing purchases approximately 116,500 tons of pulp per year, of three principal types. All the pulp is purchased overseas within the framework of long-term contracts, which include mechanisms for price adjustment and suppliers’ undertakings to ensure the supply of pulp from alternative sources in the event that the supplier cannot provide the agreed quantity. There is a relative flexibility in the demand for types of pulp, with shifting from one type of pulp to another, and as the world pulp market is quite a large one relative to Hadera Paper Printing use. Hadera Paper Printing is in effect not dependent on any particular supplier or on any particular type of pulp. If need be, it would be possible to purchase any type of pulp in any quantity immediately on the free market. The principal pulp supplier for Hadera Paper Printing is International Forest Products Corporation. The supplier is located in the United States (supplying pulp from various mills in the Americas) and the volume of purchasing from the supplier the years 2010 and 2009 amounted to 41% and 39% respectively, out of total pulp purchases, and represented 24% and 14%, respectively, out of the total purchases made by Hadera Paper Printing from all suppliers of raw materials during these years. The sector is not dependent upon any particular pulp supplier and is exposed to fluctuations in the price of pulp, used as the main raw material in the production of paper. Unusual rises in the prices of pulp could harm profits, unless the company can realize such rises in the sale price of its products. In the course of 2010, pulp prices rose sharply and then proceeded to grow more moderate only towards the end of the year, as pulp prices started to decrease moderately in the fourth quarter. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Coated paper – Hadera Paper Printing imports coated paper mainly from APP Group (“APP”) and from Stora Enso. Hadera Paper Printing has no dependency on either APP or Stora Enso as paper suppliers. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | PCC - Another important raw material in the production of fine paper is PCC (Precipitated Calcium Carbonate). In 2005, an agreement was signed between Hadera Paper Printing and the Swiss company Omya International AG, or Omya, for the supply of PCC. In accordance with the aforesaid agreement Omya constructed and operates a PCC plant in Israel. In September 2005, the agreement was assigned to an Israeli fully-owned subsidiary of Omya, called Omya Shefaya Ltd. The original agreement was signed for a period of 10 years. In early 2009, the parties signed an amendment to the original agreement. This amendment stipulates that the original agreement would be extended by a further four years through December 31, 2020, and is based on a different price mechanism which was put in place, compared to the original agreement. The PCC purchased from Omya replaced a former PCC purchase from another PCC supplier, and led to a significant savings in PCC purchase costs and improved product quality. Hadera Paper Printing is dependent on Omya as a single supplier of PCC. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | Starch – Hadera Paper Printing purchases starch from Galam Ltd., or Galam, used by Hadera Paper Ltd. in paper production. Until 2009, Hadera Paper Printing was dependent on Galam as a single producer of starch in Israel, however, following the entry into Israel of competing imports of starch, at prices competitive to those of Galam, this dependence has now decreased. Should sales from Galam to Hadera Paper Printing cease, Hadera Paper Printing would be required to import starch, which might increase its expenses. However, as mentioned above, due to competing imports, it appears that the expense for acquiring starch will not rise significantly. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

----

----

|                   |   | Paper and recycling |   | Marketing of office supplies |    |   | Packaging and carton products |   |    | Hogla Kimberly |   |   | Hadera PaperPrinting |   |   | Adjustments to consolidation |    |   | Total  |   |
|------------------------|--------|---------------------|--------|------------------------------|---------|--------|-------------------------------|--------|---------|----------------|--------|--------|----------------------|--------|--------|------------------------------|---------|--------|--------|--------|
|                   |   |                |   |  NIS in thousands       |    |
| 2010                   |   |                |   |                         |    |   |                          |   |    |           |   |   |                 |   |   |                         |    |   |   |   |
| Sales                  |   | 393,439             |   |                         | 176,580 |   |                          |   | 489,543 |           |   |   | 1,691,918            |   |   |                         | 691,069 |   |   |   | (2,382,986 | ) |   |   | 1,059,563 |   |
| Sales between Segments |   | 117,927             |   |                         | 2,267   |   |                          |   | 20,102  |           |   |   | 5,591                |   |   |                         | 37,633  |   |   |   | (122,075 | ) |   |   | 61,445 |   |
| Sales – net      |   | 511,366             |   |                         | 178,847 |   |                          |   | 509,645 |           |   |   | 1,697,509            |   |   |                         | 728,702 |   |   |   | (2,505,061 | ) |   |   | 1,121,008 |   |
| 2009                   |   |                |   |                         |    |   |                          |   |    |           |   |   |                 |   |   |                         |    |   |   |   |   |   |   |   |   |   |
| Sales                  |   | 219,866             |   |                         | 149,107 |   |                          |   | 468,339 |           |   |   | 1,722,613            |   |   |                         | 645,972 |   |   |   | (2,368,582 | ) |   |   | 837,315 |   |
| Sales between Segments |   | 119,433             |   |                         | 1,904   |   |                          |   | 15,965  |           |   |   | 4,014                |   |   |                         | 23,250  |   |   |   | (109,886 | ) |   |   | 54,680 |   |
| Sales – net      |   | 339,299             |   |                         | 151,011 |   |                          |   | 484,304 |           |   |   | 1,726,627            |   |   |                         | 669,222 |   |   |   | (2,478,468 | ) |   |   | 891,995 |   |
| 2008                   |   |                |   |                         |    |   |                          |   |    |           |   |   |                 |   |   |                         |    |   |   |   |   |   |   |   |   |   |
| Sales                  |   | 273,436             |   |                         | 129,068 |   |                          |   | 500,069 |           |   |   | 1,605,376            |   |   |                         | 717,424 |   |   |   | (2,660,433 | ) |   |   | 564,940 |   |
| Sales between Segments |   | 133,331             |   |                         | 2,046   |   |                          |   | 12,508  |           |   |   | 3,200                |   |   |                         | 14,923  |   |   |   | (57,464 | ) |   |   | 108,544 |   |
| Sales – net      |   | 406,767             |   |                         | 131,114 |   |                          |   | 512,577 |           |   |   | 1,608,576            |   |   |                         | 732,347 |   |   |   | (2,717,897 | ) |   |   | 673,484 |   |

| C.  | Organizational Structure |
|----------|--------------------------|

----

| Name of the Company Subsidiaries                                                                                                            | Ownership and Voting |   | Country of  Incorporation |
|--------------------------------------------------------------------------------------------------------------------------------------------------|----------------------|--------|-------------------------------------|
|                                                                                                                                             |                 |   |                                |
| Amnir Recycling Industries Ltd.                                                                                                                  | 100.00%              |   | Israel                              |
| Graffiti Office Supplies & Paper Marketing Ltd.                                                                                              | 100.00%              |   | Israel                              |
| Hadera Paper – Packaging Paper and Recycling Ltd.                                                                                          | 100.00%              |   | Israel                              |
| Hadera Paper - Development and Infrastructure Ltd.                                                                                               | 100.00%              |   | Israel                              |
| Carmel Containers Systems Ltd.                                                                                                                   | 100.00%              |   | Israel                              |
| Hadera Paper-printing and writing paper Ltd.                                                                                                     | 75.00%               |   | Israel                              |
| Frenkel CD Ltd. (directly and indirectly through Carmel)                                                                                         |   57.84%*       |   | Israel                              |
|                                                                                                                                             |                 |   |                                |
| Associated Companies                                                                                                                             |                 |   |                                |
| Hogla-Kimberly Ltd.                                                                                                                              | 49.90%               |   | Israel                              |
| Kimberly – Clark Tuketim  Mallari Sanayi Ve Ticaret A.S. (held through Hogla-Kimberly Ltd., which holds 100.00% of this company) | 49.90%               |   | Turkey                              |

| D.  | Property, Plants and Equipment |
|----------|--------------------------------|

----

----

----

ITEM 

----

ITEM 

----

| 1.  | Dividends from associated companies |
|----------|-------------------------------------|

----

|                                                |   | Year ended December 31, 2010 compared to the year ended December 31, 2009 |    |
|-----------------------------------------------------|--------|---------------------------------------------------------------------------|---------|
|                                                |   | ChangesNIS                                                                |    |   | Changes% |   |
| Net sales                                           |   |                                                                      | 229,013 |   |   |   | 25.7 |   |
| Cost of sales                                       |   |                                                                      | 179,745 |   |   |   | 23.5 |   |
| Gross profit                                        |   |                                                                      | 49,268  |   |   |   | 39.0 |   |
| Selling, administrative, general and other expenses |   |                                                                      | 3,560   |   |   |   | 3.2 |   |
| Income from ordinary operations                     |   |                                                                      | 45,708  |   |   |   | 293.2 |   |
| Financial income                                    |   |                                                                      | 4,587   |   |   |   | 97.0 |   |
| Financial expenses                                  |   |                                                                      | 31,087  |   |   |   | 135.2 |   |
| Profit after financial expenses                     |   |                                                                      | 19,208  |   |   |   | 717.3 |   |
| Share in profits of associated companies, net       |   |                                                                      | (6,227  | ) |   |   | (7.1 | ) |
| Income before taxes on income                       |   |                                                                      | 12,981  |   |   |   | 15.3 |   |
| Taxes on income                                     |   |                                                                      | (4,117  | ) |   |   | (58.3 | ) |
| Profit for the year                                 |   |                                                                      | 8,864   |   |   |   | 9.7 |   |
|                                                |   |                                                                      |    |   |   |   |   |   |
| Attributed to:                                      |   |                                                                      |    |   |   |   |   |   |
| Company shareholders                                |   |                                                                      | 9,498   |   |   |   | 10.4 |   |
| Non controlling interests                           |   |                                                                      | (634    | ) |   |   | (122.4 | ) |

| * | The statements of income for the year ended December 31, 2010, and the applicable period in 2009 are presented in New Israeli Shekels as more fully described in Note 1 of our consolidated financial statements contained elsewhere in this Annual Report. |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| I. | Overview of Results of Operations |
|----|-----------------------------------|

|   | 1. | Consolidated Data |
|--------|----|-------------------|

----

|   | 2. | Net profit and the Earnings per Share Attributed to the Company’s Shareholders |
|--------|----|--------------------------------------------------------------------------------------|

| II.  | The Business Environment |
|-----------|--------------------------|

----

----

| III.  | Analysis of Operations and Profitability |
|------------|------------------------------------------|

| 1. | Sales |
|----|-------|

----

| 2. | Cost of Sales |
|----|---------------|

| 3. | Selling, General and Administrative Expenses |
|----|----------------------------------------------|

----

| 4. | Operating Profit |
|----|------------------|

| 5. | Financial Expenses |
|----|--------------------|

| 6. | Taxes on Income |
|----|-----------------|

----

| 7. | Company’s Share in Earnings of Associated Companies |
|----|-----------------------------------------------------------|

|   | - | The Company’s share in the net profit of Hadera Paper Printing (49.9%) in 2010 amounted to NIS 11.1 million compared to NIS 14.1 million in 2009, a decrease of NIS 3.0 million. The decrease in the profit originated primarily from the decrease in the operating profit of Hadera Paper Printing that decreased from NIS 40.5 million last year to NIS 31.1 million this year. The decrease in operating profit in 2010 originated primarily from the sharp rise in the prices of raw materials in relation to last year, despite taking measures to raise prices in the course of the year and the improved gross margin of part of the product range. The decrease in net income was also affected by the growth in tax expenditures in the amount of NIS 6.7 million in 2010, compared to the recording of tax revenues of approximately NIS 6 million last year as a result of the change in the tax rate, that were offset by the reduction in financial expenses in the amount of NIS 9.7 million. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | The Company’s share in the net profit of Hogla Kimberly in Israel (49.9%) in 2010 amount to NIS 75.0 million as compared with NIS 83.0 million in 2009. The decrease in the sum of NIS 8.0 million, originated primarily from the decrease in operating profit from NIS 210.0 million to NIS 193.8 million this year. The decrease in the operating income is primarily attributed to the erosion of the selling prices in some sectors of operation, coupled with the rise in the prices of some principal inputs at the company, that were offset by far-reaching efficiency measures that were implemented across the company, continuing savings in purchasing and the strengthening of the company brands, led to a reduction in the erosion of earnings in 2010. |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | The Company’s share in the losses of KCTR Turkey (49.9%) in 2010, amounted to NIS 2.7 million, compared to NIS 7.6 million in 2009, representing a decrease of NIS 4.9 million. This reduction in loss, despite the slight decrease in the volumes of operation, is primarily attributed to the sale of the PEDO brand to a local chain which generated non-recurring revenues of NIS 3.1 million in 2010 and contributed to the continued reduction of the net loss from NIS 15.1 million last year, to NIS 5.4 million in 2010. In addition, the loss was reduced as a result of recording financial revenues from the valuation of operational balances. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| I. | Overview of Results of Operations |
|----|-----------------------------------|

| 1. | Consolidated Data |
|----|-------------------|

| 2. | Net profit and the Earnings per Share Attributed to the Company’s Shareholders |
|----|--------------------------------------------------------------------------------------|

----

| 3. | The Business Environment |
|----|--------------------------|

| 4. | Impact of the Business Environment on Company Operations |
|----|----------------------------------------------------------|

----

| 5. | Analysis of Operations and Profitability |
|----|------------------------------------------|

| 6. | Sales |
|----|-------|

----

| 7. | Cost of Sales |
|----|---------------|

| 8. | Labor Wages |
|----|-------------|

| 9. | Selling, General and Administrative Expenses |
|----|----------------------------------------------|

----

| 10. | Operating Profit |
|-----|------------------|

| 11. | Financial Expenses |
|-----|--------------------|

| 12. | Taxes on Income |
|-----|-----------------|

----

| 13. | Company’s Share in Earnings of Associated Companies |
|-----|-----------------------------------------------------------|

|   | - | The Company’s share in the net profit of Hadera Paper Printing (49.9% in 2009) rose by NIS 4.5 million. The increase in profits originated primarily from an increase in the operating profit of Hadera Paper Printing that grew from NIS 34.1 million in 2008, to NIS 40.5 million in 2009, despite the erosion of prices impacted by imported goods priced at dumping prices. This increase in profits resulted from the implementation of an aggressive efficiency program in operations and purchasing, as well as a decrease in input prices. The net profit also grew, as the tax rate was changed, after which the Company, subsequently, recorded tax revenues in the sum of NIS 6.4 million which was offset by the increase in financial expenses during the reported period compared to 2008. The increase in the financial expenses resulted primarily from the devaluation of the NIS against the U.S. dollar. |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | The Company’s share in the net profit of H-K Israel (49.9% in 2009) increased by NIS 21.5 million. H-K’s operating profit grew from NIS 169.0 million to NIS 210.0 million in 2009. The improved operating profit originated from a quantitative increase in sales, improved selling prices in some of the sectors of operation, innovation of products and empowerment of the H-K’s brands, a decrease in the prices of certain companies inputs on account of the erosion of global commodity prices, continued implementation of efficiency measures throughout the Company and growing savings which also contributed significantly to the improved profit. |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | The Company’s share in the losses of KCTR Turkey (49.9% in 2009) was reduced by NIS 8.1 million. The significant decrease in the loss is attributed primarily to growth in the volumes of operation (see above - “Strategic Investment in Turkey”) that led to the continued reduction in the operating loss, from NIS 33.4 million in 2008 to approximately NIS 14.7 million in 2009. Moreover, due to the increase in the shareholders’ equity of KCTR through a financial influx from H-K in 2008 and during the reported period of the 2009 Annual Report, as well as the repayment of bank loans, the financial expenses were reduced, thereby leading to an additional reduction in the net loss. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5B.  | Liquidity and Capital Resources |
|-----------|---------------------------------|

| 1. | Cash Flows |
|----|------------|

----

| 2. | Financial Liabilities |
|----|-----------------------|

|   | - | On December 21, 2003, the Company issued notes through tender by private placement to institutional investors in the aggregate amount of NIS 200 million. These notes carry an interest rate of 5.65% per annum (a margin of 1.45% above government notes with a comparable average maturity at the time). The unpaid balance of the notes as of December 31, 2010, in the amount of NIS 101 million are to be repaid in three equal annual installments, each on December 21st of the years 2011-2013, with both the principal and the interest being linked to the CPI. The notes are not convertible into the Company’s ordinary shares and shall not be registered for trade on a public exchange. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | On July 14, 2008, the Company contemplated a public offering pursuant to the shelf prospectus published by the Company in Israel on May 26, 2008, of a new series of debentures. The Company has offered an aggregate principal amount of NIS 187.5 million of debentures issued in return for approximately NIS 187.5 million bearing an interest rate of 4.65% per annum. The unpaid balance of the notes (Series 3) as of December 31, 2010, in the amount of NIS 179.8 million is payable annually, in 8 equal annual installments, each on July 10th of the years 2011-2018. The notes, principal and interest, are linked to the CPI (base CPI of May 2008). The debentures are not convertible into shares of the Company. |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | On July-August, 2008, the Company contemplated a public offering pursuant to the shelf prospectus published by the Company in Israel on May 26, 2008. The Company offered an aggregate principal amount of approximately NIS 235.6 million of debentures issued in return for approximately NIS 240.4 million bearing an interest rate of 7.45%, per annum. The unpaid balance of the notes (Series 4) as of December 31, 2010, in the amount of NIS 196.3 million is payable annually, in 5 equal annual installments, each on July 10th of the years 2011-2015. The debentures are not convertible into shares of the Company. |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | On May, 23 2010, the Company contemplated a public offering pursuant to the shelf prospectus published by the Company in Israel on May 26, 2008. The Company offered an aggregate principal amount of NIS 181.5 million of debentures issued in return for approximately NIS 179.9 million, bearing an interest rate of 5.85%, per annum. The unpaid balance of the notes (Series 5) as of December 31, 2010, in the amount of NIS 181.5 million is payable annually, in 5 equal annual installments, each on November 30th of the years 2013-2017. The interest is payable half annually each on May 31st and November 30th of the years 2011-2017. The debentures are not convertible into shares of the Company. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | - | Short-term credit from banks – the Company has a bank credit facility of approximately NIS 649.6 million, of which, as of December 31, 2010, some NIS 144.6 million were utilized. The Company does not have any credit limitations (i.e. – financial covenants) other than this. See Notes 10b, 10c and 15c of our consolidated financial statements contained elsewhere in this Annual Report. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | Notes – see Note 10a of our consolidated financial statements contained elsewhere in this Annual Report. |
|--------|---|----------------------------------------------------------------------------------------------------------------|

|   | - | Long Term Loans – see Note 10b of our consolidated financial statements contained elsewhere in this Annual Report. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------|

|   | - | Financial Parameters and Covenant – see Note 10c of our consolidated financial statements contained elsewhere in this Annual Report. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | Financial Liabilities at Fair Value through the Statement of Income |
|----|---------------------------------------------------------------------|

| 4. | Material Commitments for Capital Expenditures |
|----|-----------------------------------------------|

|   | - | In the last quarter of 2007, the Company entered into an agreement with a gas company for the delivery of gas for a period of six years with a two-year extension option. The total financial value of the transaction is NIS 13.8 million. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | During the years 2008 and 2009, the Company engaged in a contract with the main equipment suppliers for the new manufacturing facility of packaging papers (“Machine No. 8”), for the total sum of €62.3 million. Most of the equipment was supplied during 2008, 2009 and 2010. The balance as of December 31, 2010 is approximately 4 million Euro. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | - | On November 3, 2008, the general meeting of the Company approved the validity of a lease agreement signed on September 18, 2008 between the Company and Gav-Yam Lands Ltd. (“Lessor”), a public company indirectly controlled by the controlling shareholder of the Company, pursuant to which the Company rented a plot in Modi’in, with a space of 74,500 square meters, and buildings that the lessor plans to build for the Company, covering a total space of 21,300 square meters, which is used as a center for the purposes of logistics, industry and office (“Logistic Center”) for subsidiaries and associated companies of the Company and in part substitutes existing lease agreements. The term of the lease is 15 years from the date of the transfer of possession of the leased property. In addition the Company has an option to extend the lease for an additional 9 years and 11 months. The cost of the annual lease amounts to NIS 13.6 million linked to the Consumer Price Index of July 2008. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | In December 2006 Natural Gas Lines informed the Company that owners of lands close to the gas transportation lines initiated a damages claim against Natural Gas Lines in regard to impairment. It should be noted that the agreement between the Company and Natural Gas Lines addresses the indemnification of Natural Gas Lines as part of the payment of compensation due to harm to adjacent land. The proceeding was conducted before the appeals committee and the Company was not a party to the proceedings. On February 25, 2010, the Company received the committee’s decision to set the damages at NIS 2.67 million. Natural Gas Lines and the land owners appealed the committee’s decision. On December 10, 2010, these appeals were rejected. The Company received a payment demand from Natural Gas Lines and recorded a provision on its financial statements as of December 31, 2010. |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| C. | Research and Development, Patents and Licenses, etc. |
|----|------------------------------------------------------|

| D.  | Trend Information |
|----------|-------------------|

| E.  | Off Balance Sheet Arrangements |
|----------|--------------------------------|

| F.  | Contractual Obligations |
|----------|-------------------------|

|                        | Payment due by Period                |
|-----------------------------|--------------------------------------|
| in millions of NIS          | Total                                | Less than 1 year | 1-3 years | 4-5 years | More than 5 years |
| Long term debt obligations* | 1,180.6                              | 230.9 | 440.2 | 307.7 | 201.8 |
| Purchase obligations        |       553.6 |   74.7 | 103.4 |   76.3 |  299.2 |

----

ITEM 

| 6.A | Directors and Senior Management |
|-----|---------------------------------|

| Name                                                  | Age    | Position/Principal Occupation                                             |
|-------------------------------------------------------|--------|---------------------------------------------------------------------------|
| Senior management of the Company and its subsidiaries |   |                                                                      |
| Ofer Bloch                                            | 51     | Chief Executive Officer and Chairman of the Company’s subsidiaries  |
| Shaul Gliksberg                                       | 49     | VP Finance and Business Development                                       |
| Lea Katz                                              | 60     | Legal counsel and Corporate Secretary (until October 31, 2010)            |
| Yael Nevo                                             | 43     | Legal counsel and Corporate Secretary (from November 1, 2010)             |
| Gur Ben David                                         | 59     | General Manager of Packaging, Paper and Recycling Division.               |
| Gideon Liberman                                       | 61     | General Manager of Development and Infrastructure Division, VP Operations |
| Amir Moshe                                            | 45     | General Manager, Graffiti Office Supplies & Paper Marketing Ltd.      |
| Uzi Carmi                                             | 55     | General Manager, Amnir Recycling Industries Ltd.                          |
| Simcha Kenigsbuch                                     | 53     | Chief Information Officer                                                 |
| Doron Kempler                                         | 61     | General Manager, Carmel Container Systems Ltd.                            |
| David Basson                                          | 51     | VP Group Supply Chain                                                     |
| Zvi Abramovits                                        | 51     | VP Human Resources (from March 1, 2011)                                   |
| Michal Mendelson                                      | 52     | Group Marketing Manager                                                   |
| Noga Alon                                             | 46     | Group Organizational Development Manager                                  |
| Abraham Tenenboum                                     | 59     | Development and Innovation Manager                                        |
| Shmuel Molad                                          | 58     | Accountant                                                                |
| Eli Greenbaum                                         | 59     | Internal Auditor                                                          |
| Avner Solel                                           | 56     | General Manager, Hadera Paper Printing and Writing Paper Ltd.             |
|                                                  |   |                                                                      |
| Senior management of the associated companies         |   |                                                                      |
| Ari Melamud                                           | 43     | General Manager, Hogla-Kimberly Ltd.                                      |
|                                                  |   |                                                                      |
| Directors of the Company                              |   |                                                                      |
| Zvi Livnat(1)                                         | 58     | Chairman of the Board                                                     |
| Amos Mar-Haim(2)                                      | 72     | Director                                                                  |
| Isaac Manor(3)                                        | 69     | Director                                                                  |
| Adi Rozenfeld(4)                                      | 54     | Director                                                                  |
| Roni Milo(5)                                          | 60     | Director                                                                  |
| Samuel Avital(6)                                      | 60     | Director (from December 22, 2010)                                         |
| Avi Yehezkel(7)                                       | 51     | Director (until November 7, 2010)                                         |
| Avi Fischer(8)                                        | 55     | Director (until December 12, 2010)                                        |
| Atalya Arad(9)                                        | 56     | External Director                                                         |
| Aliza Rotbard(10)                                     | 65     | External Director (from March 21, 2011)                                   |
| Dan Vardi(11)                                         | 71     | Director (from December 22, 2010)                                         |
| Amir Makov(12)                                        | 76     | External Director (until March 1, 2011)                                   |

| (1) | Mr. Livnat has been a member of our Board of Directors since 2003 and was appointed Chairman of our Board of Directors in 2006. |
|-----|---------------------------------------------------------------------------------------------------------------------------------|

| (2) | Mr. Mar-Haim has been a member of our Board of Directors since 1984. |
|-----|----------------------------------------------------------------------|

| (3) | Mr. Manor has been a member of our Board of Directors since 2003. |
|-----|-------------------------------------------------------------------|

| (4) | Mr. Rozenfeld has been a member of our Board of Directors since 2004. |
|-----|-----------------------------------------------------------------------|

| (5) | Mr. Milo has been a member of our Board of Directors since 2007. |
|-----|------------------------------------------------------------------|

| (6) | Mr. Samuel Avital has been a member of our Board of Directors since December 22, 2010. |
|-----|----------------------------------------------------------------------------------------|

| (7) | Mr. Yehezkel has been a member of our Board of Directors since 2003. |
|-----|----------------------------------------------------------------------|

| (8) | Mr. Fischer has been a member of our Board of Directors since 2004. |
|-----|---------------------------------------------------------------------|

| (9) | Mrs. Arad has been a member of our Board of Directors since 2008. |
|-----|-------------------------------------------------------------------|

| (10) | Ms. Aliza Rotbard has been a member of our Board of Directors since March 21, 2011. |
|------|-------------------------------------------------------------------------------------|

| (11) | Mr. Vardi has been a member of our Board of Directors since December 22, 2010. |
|------|--------------------------------------------------------------------------------|

| (12) | Mr. Makov has been a member of our Board of Directors since 2005. |
|------|-------------------------------------------------------------------|

----

----

----

| 6.B |  Compensation |
|-----|--------------------|

*

| Recipient Details |                                                      | Remuneration for Services (in NIS thousands) | Total in NIS Thousands                        |
|-------------------|-----------------------------------------------------------|----------------------------------------------|-----------------------------------------------|
| Name              | Position                                                  | Scope of employment                          | Holding rate in company equity, fully diluted | Salary | Bonus |   Other | Share-based payment in respect of options * | Total |
| Ofer Bloch1       | Group CEO                                                 | 100%                                         | -                                             | 1,8792 | 7503 |   |   | 2,629 |
| Shaul Glicksberg4 | VP Finance and Business Development                       | 100%                                         | 0.11%                                         | 1,3895 | 3506 |   | 387   | 1,777 |
| Gideon Lieberman8 | COO                                                       | 100%                                         | 0.11%                                         | 1,1349 | 30010 |   | 3811 | 1,472 |
| Shimon Biton12    | Combined Energy CEO                                       | 100%                                         | 0.05%                                         | 1,15213 | 20014 |   | 3815 | 1,390 |
| Gur Ben David16   | General Manager, Packaging Paper & Recycling Division | 100%                                         | 0.13%                                         | 1,03217 | 30018 |   | 3819 | 1,370 |

----

----

|   | § | The offeree will be eligible to exercise into options one quarter of the quantity of the stock options (starting one year after January 14, 2008) (the “Determining Date”) and up to four years from the Determining Date. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | The offeree will be eligible to exercise into shares one additional (second) quarter of the quantity of option warrants, starting two years from the Determining Date and up to four years from the Determining Date. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | The offeree will be eligible to exercise into shares an additional (third) quarter of the total sum of stock options, starting with the end of three years from the Determining Date and until the end of five years from the Determining Date. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | The offeree would be eligible to exercise into shares an additional (fourth) quarter of the total sum of stock options allocated to him according to the plan, starting with the end of four years from the Determining Date and until the end of six years from the Determining Date. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 1.  | Mr. Ofer Bloch began his tenure as CEO of the Company on January 1, 2010. According to the employment contract, any one of the parties is eligible to terminate the engagement at any time while providing advanced notice of three months. |
|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.  | The wage component appearing in the above table includes all the following components: Labor wages, social and additional deductions as normally accepted, bonus 13th paycheck annually and company car. |
|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.  | The sum appearing in the column “bonus” is a provision on account of some of the annual bonus approved the Board of Directors of the Company for payment to Mr. Ofer Bloch for the year 2010 and that will actually be paid in 2011. According to the employment agreement, the annual bonus of the CEO the equal to 6-9 monthly salaries, according to the discretion of the Board of Directors of the Company. |
|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.  | Shaul Glicksberg has been employed as VP Finance at the Company since January 1, 2008. According to the employment agreement,  each one of the parties may terminate the engagement at any time while providing advanced notice of three months. |
|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5.  | The wage component appearing above includes all of the following components: basic salary, social and additional deductions as normally accepted, bonus 13th paycheck annually and company car. |
|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 6.  | The sum appearing under the “bonus” column is the bonus that the Company decided to pay to Shaul Glicksberg in the March 2011 paycheck, on account of 2010. Shaul Glicksberg does not have a guaranteed bonus and the sums of the bonuses were determined according to the discretion of the Board of Directors, in appreciation of the contribution of Shaul Glicksberg to the results of operation of the Company. |
|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 7.  | On March 10, 2008, Shaul Glicksberg was allocated 11,000 option warrants, exercisable into up to 11,000 ordinary shares of the Company, in accordance with the terms of the employee stock option plan adopted by the Company. |
|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 8.  | Gideon Lieberman, has been employed as COO of the Company since August 25, 1975. According to the employment agreement, each of the parties may terminate the engagement at any time by providing advanced notice of three months. |
|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 9.  | The wage component appearing in the above table includes all the following components: Labor wages, social and additional deductions as normally accepted, bonus 13th paycheck annually and company car. |
|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10. | The sum appearing under the “bonus” column is the bonus that the Company decided to pay to Gideon Lieberman in the March 2011 paycheck, on account of 2010. Gideon Lieberman does not have a guaranteed bonus and the sums of the bonuses were determined according to the discretion of the Board of Directors, in appreciation of the contribution of Gideon Lieberman to the results of operation of the Company. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 11. | On March 10, 2008, Gideon Lieberman was allocated 11,000 option warrants as part of the terms of his employment, to be exercised into up to 11,000 ordinary shares of the Company, according to the terms of the employee stock option plan adopted by the Company. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 12.  | Shimon Biton, CEO of Combined Advanced Energy Ltd. has been working for the Company since July 1977. According to the employment agreement, each one of the parties may terminate the engagement at any time while providing advanced notice of three months. |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 13.  | The salaries component appearing above includes all of the following components: Basic salary, social and additional deductions as normally accepted, bonus 13th paycheck annually and company car. |
|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 14.  | The sum appearing under the “bonus” column is the bonus that the Company decided to pay to Shimon Biton in the March 2011 paycheck, on account of 2010. Shimon Biton does not have a guaranteed bonus and the sums of the bonuses were determined according to the discretion of the Board of Directors, in appreciation of the contribution of Shimon Biton to the results of operation of the Company. |
|-----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 15.  | On March 10, 2008, Shimon Biton was allocated 11,000 option warrants as part of the terms of his employment, to be exercised into up to 11,000 ordinary shares of the Company, according to the terms of the employee stock option plan adopted by the company. |
|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 16.  | Gur Ben-David, CEO of the Packaging Paper Division has been employed by the Company since August 1, 2006. According to the employment agreement, each one of the parties may terminate the engagement at any time while providing advanced notice of three months. |
|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 17.  | The salaries component appearing above includes all of the following components: Basic salary, social and additional deductions as normally accepted, bonus 13th paycheck annually and company car. |
|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 18.  | The sum appearing under the “bonus” column is the bonus that the Company decided to pay to Gur Ben-David in the March 2011 paycheck, on account of 2010. Gur Ben-David does not have a guaranteed bonus and the sums of the bonuses were determined according to the discretion of the Board of Directors, in appreciation of the contribution of Gur Ben-David to the results of operation of the Company. |
|-----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 19.  | On March 10, 2008, Gur Ben-David was allocated 11,000 option warrants as part of the terms of his employment, to be exercised into up to 11,000 ordinary shares of the Company, according to the terms of the employee stock option plan adopted by the Company. |
|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| 6.C | Board Practices |
|-----|-----------------|

----

| 6.D | Employees |
|-----|-----------|

| 6.E | Share Ownership |
|-----|-----------------|

----

ITEM 

| 7.A | Major shareholders |
|-----|--------------------|

| Name and Address:                                                                                                |   | Amount Beneficially Owned Directly or Indirectly* |      |   | Percent of Class Outstanding |   |
|------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------|-----------|--------|------------------------------|--------|
| Clal Industries and Investments Ltd. (“Clal”) 3 Azrieli Center, the Triangle Tower, Tel Aviv, Israel |   |                                                   | 3,007,621 | (1)    |                         |   | 59.09 | %(1) |
| Clal Insurance Holdings Ltd. (“Clal Holdings”)                                                       |   |                                                   | 230,819   | (2)    |                         |   | 4.53 | %(2) |
| Clal Finance Ltd. (“Clal Finance”)                                                                   |   |                                                   | 35,213    | (3)    |                         |   | 0.69 | %(3) |
| All officers and directors as a group                                                                            |   |                                                   | **        |   |                         |   | ** |   |

| * | Beneficial ownership is calculated in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. |
|---|-------------------------------------------------------------------------------------------------------------------------|

| ** | The officers and directors of the Company own, in the aggregate, less than 1% of the Company’s outstanding ordinary shares, except for, Isaac Manor and Zvi Livnat whose ownership is set forth in footnote (1) below. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (1) | Clal is a public company. To the best of the Company’s knowledge, as of the date of this Annual Report, IDB Development Co., Ltd., or IDB Development, a reporting company is a wholly owned (directly and indirectly) subsidiary of IDB Holding Company Ltd., (“IDB Holdings”). To the best of our knowledge, IDB Development Corporation Ltd. owns of 60.54% of Clal. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | To the best of the Company’s knowledge, IDB Holdings is a public company whose shares are listed for trade on the TASE, whose shareholders are: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Ganden Holdings Ltd., (“Ganden Holdings”), a private company incorporated in Israel, which holds directly and via Ganden Investments IDB Ltd., (“Ganden”), a private company incorporated in Israel wholly owned by it (indirectly), 54.72% of the equity and voting rights of IDB Holdings (approximately 54.36%, on a fully diluted basis), as follows: Ganden holds 37.22% of the equity and voting rights of IDB Holdings(approximately 36.98%, on a fully diluted basis), and Ganden Holdings directly holds 17.50% of the equity and voting rights of IDB Holdings (approximately 17.38%, on a fully diluted basis). The controlling shareholders of Ganden Holdings are as described below. In addition, Shelly Bergman (one of the controlling shareholders of Ganden Holdings) holds, via a wholly-owned private company incorporated in Israel, approximately 4.17% of the equity and voting rights of IDB Holdings (approximately 4.14%, on a fully diluted basis). |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Manor Holdings B.A. Ltd., (“Manor Holdings”), a private company incorporated in Israel, which holds directly and via Manor Investments - IDB Ltd., (“Manor”), its subsidiary which is a private company incorporated in Israel, 13.30% of the equity and voting rights of IDB Holdings (approximately 13.22%, on a fully diluted basis), as follows: Manor holds 10.25% of the equity and voting rights of IDB Holdings (approximately 10.18%, on a fully diluted basis) and Manor Holdings directly holds 3.05% of the equity and voting rights of IDB Holdings (approximately 3.03%, on a fully diluted basis). The controlling shareholders (and other material shareholders) of Manor Holdings are as described below. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Avraham Livnat Ltd., a private company incorporated in Israel, holds directly and via Avraham Livnat Investments (2002) Ltd. (“Livnat”), a wholly-owned private company incorporated in Israel, approximately 13.31% of the equity and voting rights of IDB Holdings (approximately 13.23%, on a fully diluted basis), as follows: Livnat holds 10.20% of the equity and voting rights of IDB Holdings (approximately 10.13%, on a fully diluted basis), and Avraham Livnat Ltd. directly holds 3.11% of the equity and voting rights of IDB Holdings (approximately 3.09%, on a fully diluted basis). The controlling shareholders (and other material shareholders) of Avraham Livnat Ltd. are as described below. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (2) | Clal Insurance Holdings Ltd., a public company whose shares are listed for trading on the TASE, which is controlled, as of the date of this Annual Report, by IDB Development. To the best of the Company’s knowledge, Clal Holdings is an interested party in the Company since it is controlled by IDB Development, the controlling shareholder of Clal. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Clal Finance Ltd., a public company whose shares are listed for trading on the TASE, which is controlled, as of the date of this Annual Report, by Clal Holdings. To the best of the Company’s knowledge, Clal Finance is an interested party in the Company, since it is controlled by IDB Development, the controlling shareholder of Clal. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 7.B | Related Party Transactions |
|-----|----------------------------|

----

| 7.C | Interests of Experts and Counsel |
|-----|----------------------------------|

ITEM 

| 8.A | Consolidated Statements and Other Financial Information |
|-----|---------------------------------------------------------|

----

| 8.B  | Significant Changes |
|-----------|---------------------|

----

----

ITEM 

| 9.A  | LISTING DETAILS |
|-----------|-----------------|

|                                  |   | NYSE Amex |   | Tel Aviv Stock Exchange |
|---------------------------------------|--------|-----------|--------|-------------------------|
|                                  |   | High      |   |                    | Low |   |   | High |   |   | Low |   |   | High |   |   | Low |   |
|                                  |   | $         |   |                    | NIS |   |   | $* |   |
| Yearly Highs and Lows                 |   |      |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2010                                  |   |      | 86.0   |                    |   |   | 67.42 |   |   |   | 317.90 |   |   | 252.50 |   |   |   | 87.38 |   |   |   | 67.80 |   |
| 2009                                  |   |      | 71.5   |                    |   |   | 29.6 |   |   |   | 272.00 |   |   | 117.30 |   |   |   | 71.64 |   |   |   | 29.73 |   |
| 2008                                  |   |      | 80.80  |                    |   |   | 26.55 |   |   |   | 270.20 |   |   | 104.50 |   |   |   | 83.58 |   |   |   | 26.98 |   |
| 2007                                  |   |      | 67.50  |                    |   |   | 41.90 |   |   |   | 259.40 |   |   | 185.00 |   |   |   | 65.60 |   |   |   | 43.65 |   |
| 2006                                  |   |      | 52.12  |                    |   |   | 38.50 |   |   |   | 237.00 |   |   | 168.50 |   |   |   | 53.01 |   |   |   | 38.42 |   |
|                                  |   |      |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Quarterly Highs and Lows              |   |      |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2011                                  |   |      |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Second Quarter (until April 10, 2011) |   |      | 74.01  |                    |   |   | 73.80 |   |   |   | 261.10 |   |   | 254.60 |   |   |   | 75.35 |   |   |   | 73.78 |   |
| First Quarter                         |   |      | 84.39  |                    |   |   | 68.01 |   |   |   | 300.30 |   |   | 248.20 |   |   |   | 84.95 |   |   |   | 69.68 |   |
|                                  |   |      |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2010                                  |   |      |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fourth Quarter                        |   |      | 86.00  |                    |   |   | 76.51 |   |   |   | 317.90 |   |   | 272.70 |   |   |   | 87.38 |   |   |   | 75.94 |   |
| Third Quarter                         |   |      | 79.00  |                    |   |   | 67.60 |   |   |   | 290.00 |   |   | 258.40 |   |   |   | 76.88 |   |   |   | 67.96 |   |
| Second Quarter                        |   |      | 83.00  |                    |   |   | 67.42 |   |   |   | 309.90 |   |   | 260.20 |   |   |   | 83.03 |   |   |   | 67.60 |   |
| First Quarter                         |   |      | 82.25  |                    |   |   | 68.53 |   |   |   | 311.30 |   |   | 252.50 |   |   |   | 82.40 |   |   |   | 67.80 |   |
|                                  |   |      |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2009                                  |   |      |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fourth Quarter                        |   |      | 71.50  |                    |   |   | 54.19 |   |   |   | 272.0 |   |   | 206.2 |   |   |   | 71.64 |   |   |   | 55.18 |   |
| Third Quarter                         |   |      | 58.36  |                    |   |   | 41.25 |   |   |   | 218.90 |   |   | 165.60 |   |   |   | 57.67 |   |   |   | 41.86 |   |
| Second Quarter                        |   |      | 44.30  |                    |   |   | 35.00 |   |   |   | 177.80 |   |   | 147.70 |   |   |   | 45.17 |   |   |   | 35.11 |   |
| First Quarter                         |   |      | 39.48  |                    |   |   | 29.62 |   |   |   | 164.0 |   |   | 117.3 |   |   |   | 39.16 |   |   |   | 29.73 |   |
|                                  |   |      |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Monthly Highs and Lows                |   |      |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| April 2011(until April 10, 2011)      |   |      | 74.01  |                    |   |   | 73.80 |   |   |   | 261.10 |   |   | 254.60 |   |   |   | 75.35 |   |   |   | 73.78 |   |
| March 2011                            |   |      | 77.52  |                    |   |   | 68.01 |   |   |   | 278.90 |   | ` | 248.20 |   |   |   | 77.52 |   |   |   | 69.68 |   |
| February 2011                         |   |      | 78.30  |                    |   |   | 73.05 |   |   |   | 286.40 |   |   | 262.40 |   |   |   | 79.27 |   |   |   | 71.15 |   |
| January 2011                          |   |      | 84.39  |                    |   |   | 76.50 |   |   |   | 300.30 |   |   | 271.10 |   |   |   | 84.95 |   |   |   | 73.07 |   |
| December 2010                         |   |      | 82.70  |                    |   |   | 76.82 |   |   |   | 301.80 |   |   | 277.00 |   |   |   | 83.88 |   |   |   | 75.58 |   |
| November 2010                         |   |      | 84.05  |                    |   |   | 77.44 |   |   |   | 308.20 |   |   | 276.00 |   |   |   | 84.97 |   |   |   | 75.00 |   |
| October 2010                          |   |      | 86.00  |                    |   |   | 76.51 |   |   |   | 317.90 |   |   | 272.70 |   |   |   | 87.38 |   |   |   | 75.94 |   |

| * | Share prices have been translated from New Israeli Shekels (NIS) to U.S. Dollars at the representative rate of exchange, as reported by the Bank of Israel, on the dates when such high or low prices in NIS were recorded. |   |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|

| 9.B | Plan of Distribution |
|-----|----------------------|

| 9.C | Markets |
|-----|---------|

| 9.D | Selling Shareholders |
|-----|----------------------|

| 9.E | Dilution |
|-----|----------|

| 9.F | Expenses of the Issue |
|-----|-----------------------|

----

ITEM 

| 10.A  | Share Capital |
|------------|---------------|

| 10.B  | Memorandum and Articles of Association |
|------------|----------------------------------------|

----

----

----

----

| 10.C | Material Contracts |
|------|--------------------|

----

----

| 10.D  | Exchange Controls |
|------------|-------------------|

| 10.E  | Taxation |
|------------|----------|

----

----

| 10.F  | Dividends and Paying Agents |
|------------|-----------------------------|

| 10.G  | Statement by Expert |
|------------|---------------------|

| 10.H  | Documents on Display |
|------------|----------------------|

ITEM 

----

|                |   | Maturity         |   |
|---------------------|--------|------------------|--------|
|                |   | In NIS thousands |   |
|                |   | 2011             |   |   |   | 2012-13 |   |   |   | 2013-14 |   |   | More than 5 years |   |   | Total book value |   |   | Total fair value |   |
| Series 2 debentures |   |             | 33,673 |   |   |   | 67,347 |   |   |   | - |   |   |   | - |   |   |   | 101,020 |   |   |   | 104,144 |   |
| Series 3 debentures |   |             | 22,481 |   |   |   | 44,962 |   |   |   | 44,962 |   |   |   | 67,443 |   |   |   | 179,848 |   |   |   | 184,231 |   |
| Series 4 debentures |   |             | 39,260 |   |   |   | 78,518 |   |   |   | 78,518 |   |   |   | - |   |   |   | 196,296 |   |   |   | 212,453 |   |
| Series 5 debentures |   |             | -      |   |   |   | 36,304 |   |   |   | 72,608 |   |   |   | 72,608 |   |   |   | 181,520 |   |   |   | 197,494 |   |

|                    |                         | Sensitivity to Interest Rates |   |
|-------------------------|------------------------------|-------------------------------|--------|
| Sensitive Instruments   |                         | Profit (loss) from changes    |   |   | Fair value as of December 31, 2010 |   |   | Profit (loss) from changes |   |
|                    |                         | Interest rise10%              |   |   | Interest rise5% |   |   | Interest decrease5% |   |   | Interest decrease10% |   |
|                    |   In NIS thousands |
| Series 2 Debentures     |                         |                          | 772    |   |   |   | 387 |   |   |   | (104,144 | ) |   |   | (390 | ) |   |   | (782 | ) |
| Series 3 Debentures     |                         |                          | 2,547  |   |   |   | 1,281 |   |   |   | (184,231 | ) |   |   | (1,296 | ) |   |   | (2,607 | ) |
| Series 4 Debentures     |                         |                          | 1,865  |   |   |   | 936 |   |   |   | (212,453 | ) |   |   | (944 | ) |   |   | (1,896 | ) |
| Series 5 Debentures     |                         |                          | 3,256  |   |   |   | 1,638 |   |   |   | (197,494 | ) |   |   | (1,657 | ) |   |   | (3,333 | ) |
| Loan A - fixed interest |                         |                          | 74     |   |   |   | 37 |   |   |   | (16,052 | ) |   |   | (37 | ) |   |   | (75 | ) |
| Loan B - fixed interest |                         |                          | 1,165  |   |   |   | 585 |   |   |   | (99,647 | ) |   |   | (591 | ) |   |   | (1,189 | ) |
| Loan C- fixed interest  |                         |                          | 110    |   |   |   | 55 |   |   |   | (18,112 | ) |   |   | (55 | ) |   |   | (111 | ) |

----

|    |   |
|--------------|--------|

|                                 |   | Sensitivity of €-linked instruments to changes in the € exchange rate |    |
|--------------------------------------|--------|-----------------------------------------------------------------------------------|---------|
| Sensitive Instruments                |   | Profit (loss) from changes                                                        |    |   | Fair value as of December 31, 2010 |   |   | Profit (loss) from changes |   |
|                                 |   | Rise in €10%                                                                |    |   | Rise in €5% |   |   | Decrease in € 5% |   |   | Decrease in € 10% |   |
|                                 |   | In NIS thousands                                                                  |    |
| Cash and cash equivalents            |   |                                                                              | 4,892   |   |   |   | 2,446 |   |   |   | 48,920 |   |   |   | (2,446 | ) |   |   | (4,892 | ) |
| Other accounts receivable            |   |                                                                              | 1,014   |   |   |   | 507 |   |   |   | 10,140 |   |   |   | (507 | ) |   |   | (1,014 | ) |
| Accounts payable and credit balances |   |                                                                              | (10,686 | ) |   |   | (5,344 | ) |   |   | (106,883 | ) |   |   | 5,344 |   |   |   | 10,688 |   |
| Forward                              |   |                                                                              | 1,548   |   |   |   | 625 |   |   |   | (311 | ) |   |   | (1,220 | ) |   |   | (2,143 | ) |

|                                 |   | Sensitivity to the U.S. Dollar Exchange Rate |
|--------------------------------------|--------|----------------------------------------------|
| Sensitive Instruments                |   | Profit (loss) from changes                   |   |   | Fair value as of December 31, 2010 |   |   | Profit (loss) from changes |
|                                 |   | Rise in $ 10%                                |   |   | Rise in $ 5% |   |   | Decrease in of $ 10% |   |   | Decrease in $ 5% |
|                                 |   | In NIS thousands                             |   |
| Cash and cash equivalents            |   |                                         | 2,776 |   |   |   | 1,388 |   |   |   | 27,756 |   |   |   | (1,388 | ) |   |   | (2,776 | ) |
| Other accounts receivable            |   |                                         | 3,628 |   |   |   | 1,814 |   |   |   | 36,277 |   |   |   | (1,814 | ) |   |   | (3,628 | ) |
| Accounts payable and credit balances |   |                                         | (10,665 | ) |   |   | (5,333 | ) |   |   | (106,654 | ) |   |   | 5,333 |   |   |   | 10,665 |   |
| NIS/US$ forward transaction          |   |                                         | 547 |   |   |   | 175 |   |   |   | (29 | ) |   |   | (571 | ) |   |   | (943 | ) |

|                         |   | Sensitivity to the Consumer Price Index |   |
|------------------------------|--------|-----------------------------------------|--------|
| Sensitive Instruments        |   | Profit (loss) from changes              |   |   | Fair value as of December 31, 2010 |   |   | Profit (loss) from changes |   |
|                         |   | Rise in CPI2%                           |   |   | Rise in CPI1% |   |   |   |   | Decrease in CPI1% |   |   | Decrease in CPI 2% |   |
|                         |   | In NIS thousands                        |   |
| NIS-CPI forward transactions |   |                                    | 600    |   |   |   | 300 |   |   |   | (240 | ) |   |   | (300 | ) |   |   | (600 | ) |
| Series 2 debentures          |   |                                    | (2,083 | ) |   |   | (1,041 | ) |   |   | (104,144 | ) |   |   | 1,041 |   |   |   | 2,083 |   |
| Series 3 debentures          |   |                                    | (3,685 | ) |   |   | (1,842 | ) |   |   | (184,231 | ) |   |   | 1,842 |   |   |   | 3,685 |   |
| Other accounts receivable    |   |                                    | 39     |   |   |   | 20 |   |   |   | 1,950 |   |   |   | (20 | ) |   |   | (39 | ) |

|                   |                | Sensitivity to the exchange rate of the yen |   |
|------------------------|---------------------|---------------------------------------------|--------|
| Sensitive Instruments  |                | Profit (loss) from changes                  |   |   | Fair value as of December 31, 2010 |   |   | Profit (loss) from changes |   |
|                   | Rise in the yen 10% |                                        |   | Rise in the yen 5% |   |   | Decrease inthe yen 5% |   |   | Decrease inthe yen 10% |   |
|                   |                | In NIS thousands                            |   |
|  Accounts Payable |                |                                        | (367   | ) |   |   | (184 | ) |   |   | (3,672 | ) |   |   | 184 |   |   |   | 367 |   |

|                      | Sensitivity to other currencies (GBP) |                       |
|---------------------------|---------------------------------------|----------------------------|
| Sensitive Instruments     |                                  | Profit (loss) from changes |   |   | Fair value as at Dec-31-10 |   |   | Profit (loss) from changes |   |
|                      |                                  | Rise of10%                 |   |   | Rise of5% |   |   | Decrease of5% |   |   | Decrease of10% |   |
|                      |                                  |                       | In NIS thousands |   |
| Other accounts receivable |                                  |                       | 86 |   |   |   | 43 |   |   |   | 864 |   |   |   | (43 | ) |   |   | (86 | ) |

----

| NIS millions                                                   |   | Unlinked |    |   | CPI-linked |   |   | In foreign currency, or linked thereto (primarily US$) |   |   | €-linked |   |   | Non-Monetary Items |   |   | Total  |   |
|----------------------------------------------------------------|--------|----------|---------|--------|------------|--------|--------|--------------------------------------------------------|--------|--------|----------------|--------|--------|--------------------|--------|--------|--------|--------|
| Assets                                                         |   |     |    |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   |
| Cash and cash equivalents                                      |   |     | 44.3    |   |       |   |   |                                                   |   | 27.8   |           |   |   | 48.9               |   |   |   |   |   |   | 121.0 |   |
| Other accounts receivable                                      |   |     | 564.1   |   |       |   | 2.0    |                                                   |   |   | 37.1           |   |   |               | 9.8    |   |   |   | 9.0 |   |   |   | 622.0 |   |
| Inventories                                                    |   |     |    |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 343.5 |   |   |   | 343.5 |   |
| Investments in Associated Companies                            |   |     | 19.2    |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 218.3 |   |   |   | 237.5 |   |
| Deferred taxes on income                                       |   |     |    |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 2.2 |   |   |   | 2.2 |   |
| Fixed assets, net                                              |   |     |    |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 1,358.6 |   |   |   | 1,358.6 |   |
| Investment property (real estate)                              |   |     |    |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 24.5 |   |   |   | 24.5 |   |
| Intangible Assets                                              |   |     |    |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 35.7 |   |   |   | 35.7 |   |
| Land under lease                                               |   |     |    |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 24.8 |   |   |   | 24.8 |   |
| Financial assets available for sale                            |   |     |    |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 1.6 |   |   |   | 1.6 |   |
| Other assets                                                   |   |     |    |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 1.4 |   |   |   | 1.4 |   |
| Assets on account of employee benefits                         |   |     | 0.8     |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   |   |   |   |   | 0.8 |   |
| Total Assets                                                   |   |     | 628.4   |   |       |   | 2.0    |                                                   |   |   | 64.9           |   |   |               | 58.7   |   |   |   | 2,019.6 |   |   |   | 2,773.6 |   |
| Liabilities                                                    |   |     |    |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   |   |   |   |   |   |   |
| Short-term credit from banks                                   |   |     | 144.6   |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   |   |   |   |   | 144.6 |   |
| Accounts payable and credit balances                           |   |     | 318.4   |   |       |   |   |                                                   |   |   | 110.3          |   |   |               | 106.9  |   |   |   | 6.6 |   |   |   | 542.2 |   |
| Current tax liabilities                                        |   |     | 20.0    |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   |   |   |   |   | 20.0 |   |
| Deferred taxes on income                                       |   |     |    |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 45.3 |   |   |   | 45.3 |   |
| Long-Term Loans                                                |   |     | 313.6   |   |       |   | 18.3   |                                                   |   |   |           |   |   |               |   |   |   |   |   |   |   |   | 331.9 |   |
| Notes (debentures) – including current maturities        |   |     | 378.0   |   |       |   | 279.8  |                                                   |   |   |           |   |   |               |   |   |   |   |   |   |   |   | 657.7 |   |
| Liabilities on account of employee benefits                    |   |     | 46.7    |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   |   |   |   |   | 46.7 |   |
| Put option to holders of non-controlling interests             |   |     | 31.5    |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   |   |   |   |   | 31.5 |   |
| Shareholders’ equity, reserves and retained earnings     |   |     |    |   |       |   |   |                                                   |   |   |           |   |   |               |   |   |   |   | 953.6 |   |   |   | 953.6 |   |
| Total liabilities and equity                                   |   |     | 1,252.8 |   |       |   | 298.1  |                                                   |   |   | 110.3          |   |   |               | 106.9  |   |   |   | 1,005.5 |   |   |   | 2,773.6 |   |
| Surplus financial assets (liabilities) as at December 31, 2010 |   |     | (624.4  | )      |       |   | (296.1 | )                                                      |   |   | (45.4          | )      |   |               | (48.2  | )      |   |   | 1,014.1 |   |   |   | 0.0 |   |

ITEM 

----

PART 

ITEM 

ITEM 

ITEM 

| (a) | Disclosure Controls and Procedures |
|-----|------------------------------------|

| (b) | Management’s Report on Internal Control over Financial Reporting |
|-----|------------------------------------------------------------------------|

|   | — | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions;                                                                                                                                                                                        |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                          |
|   | — | provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
|   |    |                                                                                                                                                                                                                                                                                                                          |
|   | — | provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.                                                                                                                            |

----

| (c) | Attestation report of the registered public accounting firm |
|-----|-------------------------------------------------------------|

| (d) | Changes in Internal Control Over Financial Reporting |
|-----|------------------------------------------------------|

ITEM 

ITEM 

ITEM 

----

|                                                         |   | U.S. $ in thousands |   |
|--------------------------------------------------------------|--------|---------------------|--------|
|                                                         |   | 2010                |   |   | 2009 |   |
| Audit fees                                                   |   |                |   |   |   |   |
| Audit of financial statements (including special audit jobs) |   |                | 206    |   |   |   | 135 |   |
| Audit-related Fees                                           |   |                |   |   |   |   |   |   |
| ICFR audit                                                   |   |                | 67     |   |   |   | 66 |   |
| Tax Fees                                                     |   |                | -      |   |   |   | - |   |
| All Other Fees                                               |   |                |   |   |   |   |   |   |
| Differentials                                                |   |                | 7      |   |   |   | 19 |   |
| Total                                                        |   |                | 280    |   |   |   | 220 |   |

ITEM 

ITEM 

ITEM 

ITEM 

PART 

IT

ITEM 

----

ITEM 

|   | (a) | The following financial statements and supporting documents are filed with this report: |
|--------|-----|-----------------------------------------------------------------------------------------|

|   | (i) | Consolidated Audited Financial Statements of the Company for the year ended December31, 2010 (including Reports of Independent Registered Public Accounting Firms). |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (ii) | Financial statements of Hadera Paper Printing and Writing Paper Ltd. for the year ended December 31, 2010. |
|--------|------|------------------------------------------------------------------------------------------------------------|

|   | (iii) | Financial statements of Hogla-Kimberly Ltd. for the year ended December 31, 2010. |
|--------|-------|-----------------------------------------------------------------------------------|

|   | (b) | For additional documents filed with this report see Exhibit Index. |
|--------|-----|--------------------------------------------------------------------|

----

|   | HADERA PAPER LTD. |                                                  |
|--------|-------------------|-------------------------------------------------------|
|   |              |                                                  |   |
|   | By:               | /s/ Shaul Gliksberg                              |   |
|   |              | Shaul Gliksberg                                       |   |
|   |              | Chief Financial and Business Development Officer |   |
|   |              |                                                  |   |

----

| ExhibitNumber |   | Description                                                                                                                                                                                                                                                                                 |
|---------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.1           |   | Memorandum of Association of the Company (incorporated by reference to the Company’s Annual Report on Form 20-F for the year ended December 31, 1987).                                                                                                                                |
| 1.2           |   | Articles of Association of the Company (incorporated by reference to the Company’s Annual Report on Form 20-F for the year ended December 31, 2008).                                                                                                                                  |
| 3.1           |   | Voting Agreement dated February 5, 1980 by and among Clal Industries Ltd., PEC Israel Economic Corporation and Discount Bank Investment Corporation Ltd. (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 20-F for the year ended December 31, 1987). |
| 12.1          |   | Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to § 302 of the Sarbanes-Oxley Act.*                                                                                                                                                    |
| 12.2          |   | Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to § 302 of the Sarbanes-Oxley Act.*                                                                                                                                                    |
| 13.1          |   | Certification of Chief Executive Officer pursuant to 18 U.S.C.ss.1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act.*                                                                                                                                                        |
| 13.2          |   | Certification of Chief Financial Officer pursuant to 18 U.S.C.ss.1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act.*                                                                                                                                                        |

----

----

|                                                       | Page       |
|------------------------------------------------------------|------------|
| Auditor's                                                  | F-1-F-3    |
| Consolidated Financial Statements                          |       |
| Consolidated statements of financial position              | F-4- F-5   |
| Consolidated Income Statements                             | F-6        |
| Consolidated Statements of comprehensive income            | F-7        |
| Consolidated Statements of changes in shareholders' equity | F-8- F-10  |
| Consolidated Statements of Cash Flows                      | F-11- F-12 |
| Notes to the Consolidated Financial Statements             | F-13- F-91 |

----

|                                                                                                             | Brightman Almagor ZoharHaifa office5 Ma’aleh Hashichrur StreetP.O.B. 5648, Haifa 31055IsraelTel:      +972 (4) 860 7333Fax:      +972 (4) 867 2528info-haifa@deloitte.co.ilwww.deloitte.co.il |
|------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  Report of Independent Registered Public Accounting Firm To the shareholders of Hadera Paper ltd. |

----

|                                                                                          | Brightman Almagor ZoharHaifa office5 Ma’aleh Hashichrur StreetP.O.B. 5648, Haifa 31055IsraelTel:      +972 (4) 860 7333Fax:      +972 (4) 867 2528info-haifa@deloitte.co.ilwww.deloitte.co.il |
|-----------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders ofHadera Paper Ltd |

----

|   | Brightman Almagor ZoharHaifa office5 Ma’aleh Hashichrur StreetP.O.B. 5648, Haifa 31055IsraelTel:      +972 (4) 860 7333Fax:      +972 (4) 867 2528info-haifa@deloitte.co.ilwww.deloitte.co.il |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |

----

HADERA 

|                                              |   |   |   |   | December 31      |   |
|---------------------------------------------------|--------|--------|--------|--------|------------------|--------|
|                                              |   | Note   |   |   | 2 0 10           |   |   | 2 0 0 9 |   |
|                                              |   |   |   |   | NIS in thousands |   |
|                                              |   |   |   |   |             |   |   |   |   |
| Assets                                            |   |   |   |   |             |   |   |   |   |
| Current Assets                                    |   |   |   |   |             |   |   |   |   |
| Cash and cash equivalents                         |   |   | 2f     |   |             |   | 120,992 |   |   |   | 26,261 |   |
| Designated deposits                               |   |   | 2f     |   |             |   | - |   |   |   | 127,600 |   |
|    Trade receivables               |   |   | 15a    |   |             |   | 564,929 |   |   |   | 323,882 |   |
|    Other receivables               |   |   | 15a    |   |             |   | 57,059 |   |   |   | 98,897 |   |
| Inventories                                       |   |   | 15b    |   |             |   | 343,519 |   |   |   | 175,944 |   |
| Total Current Assets                              |   |   |   |   |             |   | 1,086,499 |   |   |   | 752,584 |   |
|                                              |   |   |   |   |             |   |   |   |   |   |   |   |
| Non-Current Assets                                |   |   |   |   |             |   |   |   |   |   |   |   |
| Fixed assets, net                                 |   |   | 6      |   |             |   | 1,358,619 |   |   |   | * 1,134,234 |   |
| Investments in associated companies               |   |   | 5      |   |             |   | 237,498 |   |   |   | 340,975 |   |
| Deferred tax assets                               |   |   | 13     |   |             |   | 2,165 |   |   |   |   ** 2,096 |   |
| Prepaid expenses in respect of an operating lease |   |   | 7      |   |             |   | 24,836 |   |   |   | * 29,756 |   |
| Other intangible assets                           |   |   | 9      |   |             |   | 35,714 |   |   |   | 27,084 |   |
| Investment property                               |   |   | 8      |   |             |   | 24,500 |   |   |   | - |   |
| Financial assets - available for sale             |   |   | 15a    |   |             |   | 1,646 |   |   |   | - |   |
| Other assets                                      |   |   |   |   |             |   | 1,364 |   |   |   | 1,298 |   |
| Employee benefit assets                           |   |   | 11     |   |             |   | 793 |   |   |   | 649 |   |
| Total Non-Current Assets                          |   |   |   |   |             |   | 1,687,135 |   |   |   | 1,536,092 |   |
|                                              |   |   |   |   |             |   |   |   |   |   |   |   |
| Total Assets                                      |   |   |   |   |             |   | 2,773,634 |   |   |   | 2,288,676 |   |

|                               |   |                    |   |                                            |
|------------------------------------|--------|-------------------------|--------|-------------------------------------------------|
| Z. Livnat                          |   | O. Bloch                |   | S. Gliksberg                                    |
| Chairman of the Board of Directors |   | Chief Executive Officer |   | Chief Financial and BusinessDevelopment Officer |

----

|                                                                                    |   |   |     |   | December 31      |   |
|-----------------------------------------------------------------------------------------|--------|--------|----------|--------|------------------|--------|
|                                                                                    |   | Note   |     |   | 2 010            |   |   | 2 00 9 |   |
|                                                                                    |   |   |     |   | NIS in thousands |   |
|                                                                                    |   |   |     |   |             |   |   |   |   |
| Liabilities and Equity                                                                  |   |   |     |   |             |   |   |   |   |
| Current Liabilities                                                                     |   |   |     |   |             |   |   |   |   |
| Credit from banks and others                                                            |   |   | 10b, 15c |   |             |   | 144,622 |   |   |   | 131,572 |   |
| Current maturities of long-term notes and long term loans                               |   |   | 10a, b   |   |             |   | 175,936 |   |   |   | 149,940 |   |
| Trade payables                                                                          |   |   | 15d      |   |             |   | 370,065 |   |   |   | 255,895 |   |
| Other payables                                                                          |   |   | 15d      |   |             |   | 172,295 |   |   |   | 112,745 |   |
| Short term employee benefit liabilities                                                 |   |   | 11       |   |             |   | 27,586 |   |   |   | 22,421 |   |
| Financial liabilities at fair value through profit and loss                             |   |   | 2t(2)    |   |             |   | - |   |   |   | 11,982 |   |
| Current tax liabilities                                                                 |   |   |     |   |             |   | 19,951 |   |   |   | 2,760 |   |
| Total Current Liabilities                                                               |   |   |     |   |             |   | 910,455 |   |   |   | 687,315 |   |
|                                                                                    |   |   |     |   |             |   |   |   |   |   |   |   |
| Non-Current Liabilities                                                                 |   |   |     |   |             |   |   |   |   |   |   |   |
| Loans from banks and others                                                             |   |   | 10b      |   |             |   | 251,283 |   |   |   | 225,802 |   |
| Notes                                                                                   |   |   | 10a      |   |             |   | 562,348 |   |   |   | 471,815 |   |
| Deferred tax liabilities                                                                |   |   | 13       |   |             |   | 45,302 |   |   |   | *30,404 |   |
| Employee benefit liabilities                                                            |   |   | 11       |   |             |   | 19,132 |   |   |   | 14,911 |   |
| Financial liability with respect to Put option granted to the non-controlling interests |   |   | 2t2      |   |             |   | 31,512 |   |   |   | - |   |
| Total Non-Current Liabilities                                                           |   |   |     |   |             |   | 909,577 |   |   |   | 742,932 |   |
|                                                                                    |   |   |     |   |             |   |   |   |   |   |   |   |
| Capital and reserves                                                                    |   |   | 12       |   |             |   |   |   |   |   |   |   |
| Issued capital                                                                          |   |   |     |   |             |   | 125,267 |   |   |   | 125,267 |   |
| Reserves                                                                                |   |   |     |   |             |   | 298,258 |   |   |   | 307,432 |   |
| Retained earnings                                                                       |   |   |     |   |             |   | 506,445 |   |   |   | 399,346 |   |
| capital and reserves attributed to shareholders                                         |   |   |     |   |             |   | 929,970 |   |   |   | 832,045 |   |
|                                                                                    |   |   |     |   |             |   |   |   |   |   |   |   |
| Non-controlling Interests                                                               |   |   |     |   |             |   | 23,632 |   |   |   | 26,384 |   |
|                                                                                    |   |   |     |   |             |   |   |   |   |   |   |   |
| Total capital and reserves                                                              |   |   |     |   |             |   | 953,602 |   |   |   | 858,429 |   |
|                                                                                    |   |   |     |   |             |   |   |   |   |   |   |   |
| Total Liabilities and Equity                                                            |   |   |     |   |             |   | 2,773,634 |   |   |   | 2,288,676 |   |

----

HADERA 

|                                                                 |   |   |   |   | Year ended December 31 |   |
|----------------------------------------------------------------------|--------|--------|--------|--------|------------------------|--------|
|                                                                 |   | Note   |   |   | 2 0 1 0                |   |   | 2 0 0 9 |   |   | 2 0 0 8 |   |
|                                                                 |   |   |   |   | NIS in thousands       |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |
| Revenue                                                              |   |   | 15e    |   |                   |   | 1,121,008 |   |   |   | 891,995 |   |   |   | 673,484 |   |
| Cost of sales                                                        |   |   | 15f    |   |                   |   | 945,422 |   |   |   | 765,677 |   |   |   | 542,387 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                                                         |   |   |   |   |                   |   | 175,586 |   |   |   | 126,318 |   |   |   | 131,097 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, marketing, general and administrative expenses              |   |   | 15g    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Selling and marketing expenses                                       |   |   |   |   |                   |   | 87,201 |   |   |   | 71,998 |   |   |   | 45,674 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| General and administrative expenses                                  |   |   |   |   |                   |   | 59,603 |   |   |   | 58,967 |   |   |   | 54,970 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Other income, net                                                    |   |   | 15l    |   |                   |   | (32,513 | )  |   |   | (20,234 | ) |   |   | (4,898 | ) |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Total expenses                                                       |   |   |   |   |                   |   | 114,291 |   |   |   | 110,731 |   |   |   | 95,746 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Profit from ordinary operations                                      |   |   |   |   |                   |   | 61,295 |   |   |   | 15,587 |   |   |   | 35,351 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Finance income                                                       |   |   | 15j    |   |                   |   | 9,314 |   |   |   | 4,727 |   |   |   | 12,069 |   |
| Finance expenses                                                     |   |   | 15k    |   |                   |   | 54,079 |   |   |   | 22,992 |   |   |   | 27,112 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Finance expenses, net                                                |   |   |   |   |                   |   | 44,765 |   |   |   | 18,265 |   |   |   | 15,043 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Profit (loss) after financial expenses                               |   |   |   |   |                   |   | 16,530 |   |   |   | (2,678 | ) |   |   | 20,308 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Share in profit of associated companies, net                         |   |   | 5b     |   |                   |   | 81,132 |   |   |   | 87,359 |   |   |   | 51,315 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Profit before taxes on income                                        |   |   |   |   |                   |   | 97,662 |   |   |   | 84,681 |   |   |   | 71,623 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Taxes on income                                                      |   |   | 13d1   |   |                   |   | (2,950 | ) |   |   | (7,067 | ) |   |   | 3,663 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Profit for the year                                                  |   |   |   |   |                   |   | 100,612 |   |   |   | 91,748 |   |   |   | 67,960 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Attributed to:                                                       |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Company shareholders                                                 |   |   |   |   |                   |   | 100,728 |   |   |   | 91,230 |   |   |   | 69,710 |   |
| Non-controlling interests                                            |   |   |   |   |                   |   | (116 | ) |   |   | 518 |   |   |   | (1,750 | ) |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                 |   |   |   |   |                   |   | 100,612 |   |   |   | 91,748 |   |   |   | 67,960 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Earning for regular share of NIS 0.01 par value (see note 16):  |   |   |   |   |                   |   |   |
| Primary attributed to Company shareholders                           |   |   |   |   |                   |   | 19.84 |   |   |   | 18.03 |   |   |   | 13.77 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Fully diluted attributed to company shareholders                     |   |   |   |   |                   |   | 19.68 |   |   |   | 18.03 |   |   |   | 13.77 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Number of share used to compute the primary earnings per share       |   |   |   |   |                   |   | 5,078,156 |   |   |   | 5,060,788 |   |   |   | 5,060,774 |   |
|                                                                 |   |   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Number of share used to compute the fully diluted earnings per share |   |   |   |   |                   |   | 5,118,416 |   |   |   | 5,060,788 |   |   |   | 5,060,774 |   |

----

HADERA 

|                                                                                                    |   | Year ended December 31 |    |
|---------------------------------------------------------------------------------------------------------|--------|------------------------|---------|
|                                                                                                    |   | 2 0 1 0                |    |   | 2 0 0 9 |   |   | 2 0 0 8 |   |
|                                                                                                    |   | NIS in thousands       |    |
|                                                                                                    |   |                   |    |   |   |   |   |   |   |   |   |   |
| Comprehensive Income                                                                                    |   |                   | 100,612 |   |   |   | 91,748 |   |   |   | 67,960 |   |
|                                                                                                    |   |                   |    |   |   |   |   |   |   |   |   |   |
| Other Comprehensive Income                                                                              |   |                   |    |   |   |   |   |   |   |   |   |   |
| Profit (loss) on cash flow hedges, net                                                                  |   |                   | 1,044   |   |   |   | 5,191 |   |   |   | (2,306 | ) |
| Allocation to the income statement on account of cash flow hedging transactions, net                    |   |                   | -       |   |   |   | (1,128 | ) |   |   | - |   |
| Actuarial profit (loss) from defined benefit plans, net                                                 |   |                   | 115     |   |   |   | 477 |   |   |   | (1,501 | ) |
| Revaluation from step acquisition                                                                       |   |                   | -       |   |   |   | - |   |   |   | 17,288 |   |
| Share in Other Comprehensive Income of associated companies, net                                        |   |                   | (11,711 | ) |   |   | (507 | ) |   |   | (29,111 | ) |
| Share in other comprehensive income associated companies, which allocated to the income statements, net |   |                   | 446     |   |   |   | 1,163 |   |   |   | 1,017 |   |
| Total Other Comprehensive Income for the period, net                                                    |   |                   | (10,106 | ) |   |   | 5,196 |   |   |   | (14,613 | ) |
|                                                                                                    |   |                   |    |   |   |   |   |   |   |   |   |   |
| Total Comprehensive Income for the period                                                               |   |                   | 90,506  |   |   |   | 96,944 |   |   |   | 53,347 |   |
|                                                                                                    |   |                   |    |   |   |   |   |   |   |   |   |   |
| Attributed to:                                                                                          |   |                   |    |   |   |   |   |   |   |   |   |   |
| Company shareholders                                                                                    |   |                   | 90,605  |   |   |   | 96,428 |   |   |   | 55,115 |   |
| Non-controlling interests                                                                               |   |                   | (99     | ) |   |   | 516 |   |   |   | (1,768 | ) |
|                                                                                                    |   |                   | 90,506  |   |   |   | 96,944 |   |   |   | 53,347 |   |

----

HADERA 

|                                                                                             |   | Share capital    |    |   | Premium of share |   |    | Share based payments reserves |   |   | Capital reserves resulting from tax benefit on exercise of employee options |   |   | Capital reserve from revaluation from step acquisition |   |   | Hedging reserves |   |   | Foreign currency translation reserves |   |   | Retained earnings |   |   | Total for Company shareholders |    |   | Non - controlling Interests |   |    | Total  |   |
|--------------------------------------------------------------------------------------------------|--------|------------------|---------|--------|-----------------------|--------|---------|-------------------------------|--------|--------|-----------------------------------------------------------------------------|--------|--------|--------------------------------------------------------|--------|--------|------------------|--------|--------|---------------------------------------|--------|--------|-------------------|--------|--------|--------------------------------|---------|--------|-----------------------------|--------|---------|--------|--------|
|                                                                                             |   | NIS in thousands |    |
| 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 ofamendment 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 Year endedDecember 31, 2010:                                                             |   |             |    |   |                  |   |    |                          |   |   |                                                                        |   |   |                                                   |   |   |             |   | -      |                                  |   |   |              |   |   |                           |    |   |                        |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Exchange differences arising on  translation of foreign operations                     |   |             | -       |   |                  |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |             |   | -      |                                  |   |   |              |   |   |                           | (10,649 | )      |                        |   | -       |   |   |   | (10,649 | ) |   |   | - |   |   |   | (10,649 | ) |
| Profit (loss) on cash flow hedges, net                                                           |   |             | -       |   |                  |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |             |   | -      |                                  |   |   | 606               |   |   |                           | -       |   |                        |   | -       |   |   |   | 606 |   |   |   | 18 |   |   |   | 624 |   |
| Actuarial profit (loss) from defined benefit plans, net                                          |   |             | -       |   |                  |   | -       |                          |   |   |                                                                        |   |   |                                                   |   |   |             |   | -      |                                  |   |   | -                 |   |   |                           | -       |   |                        |   | (80     | )      |   |   | (80 | ) |   |   | (1 | ) |   |   | (81 | ) |
| Profit  for the year                                                                   |   |             | -       |   |                  |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |             |   |   |                                  |   |   | -                 |   |   |                           | -       |   |                        |   | 100,728 |   |   |   | 100,728 |   |   |   | (116 | ) |   |   | 100,612 |   |
| Total Comprehensive Income for the Year                                                          |   |             | -       |   |                  |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |             |   | -      |                                  |   |   | 606               |   |   |                           | (10,649 | )      |                        |   | 100,648 |   |   |   | 90,605 |   |   |   | (99 | ) |   |   | 90,506 |   |
| Share purchase from non-controlling interests in subsidiary                                      |   |             | -       |   |                  |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |             |   | -      |                                  |   |   | -                 |   |   |                           | -       |   |                        |   | 1,117   |   |   |   | 1,117 |   |   |   | (17,498 | ) |   |   | (16,381 | ) |
| Entry into consolidation (See note 17)                                                           |   |             | -       |   |                  |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |             |   | -      |                                  |   |   | -                 |   |   |                           | -       |   |                        |   | -       |   |   |   | - |   |   |   | 14,845 |   |   |   | 14,845 |   |
| Depreciation of capital from revaluation from step acquisition to retained earnings              |   |             | -       |   |                  |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |             |   | (1,744 | )                                     |   |   | -                 |   |   |                           | -       |   |                        |   | 1,744   |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Conversion of employee options into shares                                                       |   |             | -       |   |                  |   | 5,156   |                          |   |   | (5,156                                                                      | )      |   |                                                   | -      |   |             |   | -      |                                  |   |   | -                 |   |   |                           | -       |   |                        |   | -       |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Share based payment                                                                              |   |             | -       |   |                  |   | -       |                          |   |   | 2,613                                                                       |   |   |                                                   | -      |   |             |   | -      |                                  |   |   | -                 |   |   |                           | -       |   |                        |   | -       |   |   |   | 2,613 |   |   |   | - |   |   |   | 2,613 |   |
| Balance – December 31, 2010                                                                |   |             | 125,267 |   |                  |   | 306,851 |                          |   |   | 7,988                                                                       |   |   |                                                   | 3,397  |   |             |   | 12,420 |                                  |   |   | 1,123             |   |   |                           | (33,521 | )      |                        |   | 506,445 |   |   |   | 929,970 |   |   |   | 23,632 |   |   |   | 953,602 |   |

----

|                                                                                |   | 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  |   |
|-------------------------------------------------------------------------------------|--------|---------------|---------|--------|------------------|--------|---------|-------------------------------|--------|--------|-----------------------------------------------------------------------------|--------|--------|--------------------------------------------------------|--------|--------|-----------------------------|--------|--------|---------------------------------------------|--------|--------|-------------------|--------|--------|--------------------------------|---------|--------|---------------------------|--------|---------|--------|--------|
|                                                                                |   |
| Balance - January 1, 2009                                                           |   |          | 125,267 |   |             |   | 301,695 |                          |   |   | 6,227                                                                       |   |   |                                                   | 3,397  |   |                        |   | 15,908 |                                        |   |   | (5,092            | )      |   |                           | (22,186 | )      |                      |   | 306,097 |   |   |   | 731,313 |   |   |   | 26,316 |   |   |   | 757,629 |   |
|                                                                                |   |          |    |
| For the Year endedDecember 31, 2009:                                                |   |
| Exchange differences arising on  translation of foreign operations        |   |          | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |                        |   | -      |                                        |   |   | -                 |   |   |                           | (686    | )      |                      |   | -       |   |   |   | (686 | ) |   |   | - |   |   |   | (686 | ) |
| Profit (loss) on cash flow hedges, net                                              |   |          | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |                        |   |   |                                        |   |   | 5,609             |   |   |                           |    |   |                      |   |    |   |   |   | 5,609 |   |   |   | (60 | ) |   |   | 5,549 |   |
| Actuarial profit (loss) from defined benefit plans, net                             |   |          | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |                        |   | -      |                                        |   |   | -                 |   |   |                           | -       |   |                      |   | 275     |   |   |   | 275 |   |   |   | 58 |   |   |   | 333 |   |
| Profit  for the year                                                      |   |          | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |                        |   | -      |                                        |   |   | -                 |   |   |                           | -       |   |                      |   | 91,230  |   |   |   | 91,230 |   |   |   | 518 |   |   |   | 91,748 |   |
| Total Comprehensive Income for the Year                                             |   |          | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |                        |   | -      |                                        |   |   | 5,609             |   |   |                           | (686    | )      |                      |   | 91,505  |   |   |   | 96,428 |   |   |   | 516 |   |   |   | 96,944 |   |
| Purchasing shares of subsidiary company                                             |   |          | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |                        |   | -      |                                        |   |   | -                 |   |   |                           | -       |   |                      |   | -       |   |   |   | - |   |   |   | (448 | ) |   |   | (448 | ) |
| Depreciation of capital from revaluation from step acquisition to retained earnings |   |          | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |                        |   | (1,744 | )                                           |   |   | -                 |   |   |                           | -       |   |                      |   | 1,744   |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Share based payment                                                                 |   |          | -       |   |             |   | -       |                          |   |   | 4,304                                                                       |   |   |                                                   | -      |   |                        |   | -      |                                        |   |   | -                 |   |   |                           | -       |   |                      |   | -       |   |   |   | 4,304 |   |   |   | - |   |   |   | 4,304 |   |
| Balance – December 31, 2009                                                   |   |          | 125,267 |   |             |   | 301,695 |                          |   |   | 10,531                                                                      |   |   |                                                   | 3,397  |   |                        |   | 14,164 |                                        |   |   | 517               |   |   |                           | (22,872 | )      |                      |   | 399,346 |   |   |   | 832,045 |   |   |   | 26,384 |   |   |   | 858,429 |   |

----

|                                                                                                  |   | 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  |   |
|-------------------------------------------------------------------------------------------------------|--------|---------------|---------|--------|------------------|--------|---------|-------------------------------|--------|--------|-----------------------------------------------------------------------------|--------|--------|--------------------------------------------------------|--------|--------|-----------------------------|--------|--------|---------------------------------------------|--------|--------|-------------------|--------|--------|--------------------------------|---------|--------|---------------------------|--------|---------|--------|--------|
|                                                                                                  |   |          |    |   |             |   |    |                          |   |   |                                                                        |   |   |                                                   |   |
| Balance - January 1, 2008                                                                             |   |          | 125,267 |   |             |   | 301,695 |                          |   |   | -                                                                           |   |   |                                                   | 3,397  |   |                        |   | -      |                                        |   |   | (635              | )      |   |                           | 3,810   |   |                      |   | 236,437 |   |   |   | 669,971 |   |   |   | - |   |   |   | 669,971 |   |
|                                                                                                  |   |          |    |   |             |   |    |                          |   |   |                                                                        |   |   |                                                   |   |   |                        |   |   |                                        |   |   |              |   |   |                           |    |   |                      |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| For the Year endedDecember 31, 2008:                                                                  |   |          |    |   |             |   |    |                          |   |   |                                                                        |   |   |                                                   |   |   |                        |   |   |                                        |   |   |              |   |   |                           |    |   |                      |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Exchange differences    arising on translation    of foreign operations |   |          | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |                        |   | -      |                                        |   |   | -                 |   |   |                           | (25,996 | )      |                      |   | -       |   |   |   | (25,996 | ) |   |   | - |   |   |   | (25,996 | ) |
| Profit (loss) on cash flow hedges, net                                                                |   |          | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |                        |   | -      |                                        |   |   | (4,457            | )      |   |                           | -       |   |                      |   | -       |   |   |   | (4,457 | ) |   |   | 360 |   |   |   | (4,097 | ) |
| Revaluation from step acquisition                                                                     |   |          | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |                        |   | 17,288 |                                        |   |   | -                 |   |   |                           | -       |   |                      |   | -       |   |   |   | 17,288 |   |   |   | - |   |   |   | 17,288 |   |
| Actuarial profit (loss) from defined benefit plans, net                                               |   |          | -       |   |             |   | -       |                          |   |   |                                                                        |   |   |                                                   | -      |   |                        |   | -      |                                        |   |   | -                 |   |   |                           | -       |   |                      |   | (1,430  | )      |   |   | (1,430 | ) |   |   | (378 | ) |   |   | (1,808 | ) |
| Profit  for the year                                                                        |   |          | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |                        |   |   |                                        |   |   |              |   |   |                           |    |   |                      |   | 69,710  |   |   |   | 69,710 |   |   |   | (1,750 | ) |   |   | 67,960 |   |
| Total Comprehensive Income for the Year                                                               |   |          | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |                        |   | 17,288 |                                        |   |   | (4,457            | )      |   |                           | (25,996 | )      |                      |   | 68,280  |   |   |   | 55,115 |   |   |   | (1,768 | ) |   |   | 53,347 |   |
| First transfer to consolidation – creating minority interests                                   |   |          | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |                        |   | -      |                                        |   |   | -                 |   |   |                           | -       |   |                      |   | -       |   |   |   | - |   |   |   | 28,084 |   |   |   | 28,084 |   |
| Depreciation of capital from revaluation from step acquisition to retained earnings                   |   |          | -       |   |             |   | -       |                          |   |   | -                                                                           |   |   |                                                   | -      |   |                        |   | (1,380 | )                                           |   |   | -                 |   |   |                           | -       |   |                      |   | 1,380   |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Share based payment                                                                                   |   |          | -       |   |             |   | -       |                          |   |   | 6,227                                                                       |   |   |                                                   | -      |   |                        |   | -      |                                        |   |   | -                 |   |   |                           | -       |   |                      |   | -       |   |   |   | 6,227 |   |   |   | - |   |   |   | 6,227 |   |
| Balance – December 31, 2008                                                                     |   |          | 125,267 |   |             |   | 301,695 |                          |   |   | 6,227                                                                       |   |   |                                                   | 3,397  |   |                        |   | 15,908 |                                        |   |   | (5,092            | )      |   |                           | (22,186 | )      |                      |   | 306,097 |   |   |   | 731,313 |   |   |   | 26,316 |   |   |   | 757,629 |   |

----

HADERA 

|                                                                                                     |   | Year ended       |    |
|----------------------------------------------------------------------------------------------------------|--------|------------------|---------|
|                                                                                                     |   | December 31      |    |
|                                                                                                     |   | 2 0 1 0          |    |   | 2 0 0 9 |   |   | 2 0 0 8 |   |
|                                                                                                     |   | NIS in thousands |    |
| Cash flows – operating activities                                                                  |   |             |    |   |   |   |   |   |   |
|    Net Profit for the year                                                                |   |             | 100,612 |   |   |   | 91,748 |   |   |   | 67,960 |   |
|    Taxes on income recognized in profit and loss                                          |   |             | (2,950  | ) |   |   | (7,067 | ) |   |   | 3,663 |   |
| Finance expenses recognized in profit and loss, net                                                      |   |             | 44,765  |   |   |   | 18,265 |   |   |   | 15,043 |   |
| Capital profit on sale of fixed assets                                                                   |   |             | (19,556 | ) |   |   | (73 | ) |   |   | (284 | ) |
| Gain from revaluation of prior holding at fair value due to achieving control                            |   |             | (5,760  | ) |   |   | - |   |   |   | - |   |
| Share in profit of associated companies                                                                  |   |             | (81,132 | ) |   |   | (87,359 | ) |   |   | (51,315 | ) |
| Dividend received from associated company                                                                |   |             | 70,319  |   |   |   | 61,814 |   |   |   | - |   |
| Income from repayment of capital note to associated company                                              |   |             | -       |   |   |   | (16,418 | ) |   |   | - |   |
| Depreciation and amortization                                                                            |   |             | 88,047  |   |   |   | 78,552 |   |   |   | 59,784 |   |
| Income from revaluation of investment property                                                           |   |             | (151    | ) |   |   | - |   |   |   | - |   |
| Share based payments expenses                                                                            |   |             | 2,104   |   |   |   | 3,762 |   |   |   | 4,913 |   |
| Gain from negative goodwill                                                                              |   |             | -       |   |   |   | - |   |   |   | (14,664 | ) |
|                                                                                                     |   |             | 196,298 |   |   |   | 143,224 |   |   |   | 85,100 |   |
|                                                                                                     |   |             |    |   |   |   |   |   |   |   |   |   |
| Changes in assets and liabilities:                                                                       |   |             |    |   |   |   |   |   |   |   |   |   |
| Decrease (Increase) in trade and other receivables                                                       |   |             | (51,546 | ) |   |   | 22,373 |   |   |   | 66,805 |   |
| Increase in inventories                                                                                  |   |             | (5,926  | ) |   |   | (7,189 | ) |   |   | (19,868 | ) |
| Increase (Decrease) in trade and other payables                                                          |   |             | 47,999  |   |   |   | 24,407 |   |   |   | (16,923 | ) |
| Increase (Decrease)  in financial  liabilities at fair value through profit and loss |   |             | 872     |   |   |   | (1,922 | ) |   |   | 10,003 |   |
| Increase (Decrease) in employee benefit                                                                  |   |             | 6,678   |   |   |   | 4,089 |   |   |   | (3,063 | ) |
|                                                                                                     |   |             | (1,923  | ) |   |   | 41,758 |   |   |   | 36,954 |   |
|                                                                                                     |   |             |    |   |   |   |   |   |   |   |   |   |
| Tax Payments                                                                                             |   |             | (1,293  | ) |   |   | (5,754 | ) |   |   | (8,182 | ) |
|                                                                                                     |   |             |    |   |   |   |   |   |   |   |   |   |
| Net cash generated by operating activities                                                               |   |             | 193,082 |   |   |   | 179,228 |   |   |   | 113,872 |   |

----

|                                                                                             |   | Year ended       |     |
|--------------------------------------------------------------------------------------------------|--------|------------------|----------|
|                                                                                             |   | December 31      |     |
|                                                                                             |   | 2 0 1 0          |     |   | 2 0 0 9 |   |   | 2 0 0 8 |   |
|                                                                                             |   | NIS in thousands |     |
| Cash flows – investing activities                                                          |   |             |     |   |   |   |   |   |   |
| Acquisition of property plant and equipment and Prepaid expenses in respect of a financing lease |   |             | (219,124 | ) |   |   | (352,455 | ) |   |   | (232,675 | ) |
| Acquisition of subsidiaries                                                                      |   |             | 13,111   |   |   |   | - |   |   |   | (70,567 | ) |
| Acquisition of other assets                                                                      |   |             | (2,956   | ) |   |   | (752 | ) |   |   | (2,770 | ) |
| Proceeds from sales of fixed assets                                                              |   |             | 18,277   |   |   |   | 1,960 |   |   |   | 825 |   |
| Decrease (Increase) in designated deposits                                                       |   |             | 127,600  |   |   |   | 124,614 |   |   |   | (255,244 | ) |
| Interest received                                                                                |   |             | 1,829    |   |   |   | 1,565 |   |   |   | 7,764 |   |
| Associated companies:                                                                            |   |             |     |   |   |   |   |   |   |   |   |   |
| Granting of loans to an associated company                                                       |   |             | (978     | ) |   |   | (1,068 | ) |   |   | (422 | ) |
| Repayments of loans to an associated company                                                     |   |             | -        |   |   |   | - |   |   |   | 2,851 |   |
| Net cash used in investing activities                                                            |   |             | (62,241  | ) |   |   | (226,136 | ) |   |   | (550,238 | ) |
|                                                                                             |   |             |     |   |   |   |   |   |   |   |   |   |
| Cash flows – financing activities                                                          |   |             |     |   |   |   |   |   |   |   |   |   |
| Proceeds from issuing notes (less issuance expenses)                                             |   |             | 179,886  |   |   |   | - |   |   |   | 424,617 |   |
| Short-term bank credit – net                                                               |   |             | (79,802  | ) |   |   | 53,917 |   |   |   | (111,444 | ) |
| Borrowings received from banks                                                                   |   |             | 93,500   |   |   |   | 159,674 |   |   |   | 39,448 |   |
| Repayment of borrowings from banks and from others                                               |   |             | (56,804  | ) |   |   | (37,830 | ) |   |   | (11,801 | ) |
| Repayment of capital note                                                                        |   |             | -        |   |   |   | (32,770 | ) |   |   | - |   |
| Interest Paid                                                                                    |   |             | (58,538  | ) |   |   | (42,012 | ) |   |   | (20,360 | ) |
| Redemption of notes                                                                              |   |             | (94,994  | ) |   |   | (40,427 | ) |   |   | (38,904 | ) |
| Share purchase from non-controlling interests in subsidiary                                      |   |             | (15,703  | ) |   |   | - |   |   |   | - |   |
| Net cash generated by (used in) financing activities                                             |   |             | (32,455  | ) |   |   | 60,552 |   |   |   | 281,556 |   |
|                                                                                             |   |             |     |   |   |   |   |   |   |   |   |   |
| Increase (decrease) in cash and cash equivalents                                                 |   |             | 98,386   |   |   |   | 13,644 |   |   |   | (154,810 | ) |
| Cash and cash equivalents  beginning of the year                                       |   |             | 26,261   |   |   |   | 13,128 |   |   |   | 167,745 |   |
| Net foreign exchange differences                                                                 |   |             | (3,655   | ) |   |   | (511 | ) |   |   | 193 |   |
| Cash and cash equivalents end of the year                                                        |   |             | 120,992  |   |   |   | 26,261 |   |   |   | 13,128 |   |

----

HADERA 

|   | 1. | Description Of Business |
|--------|----|-------------------------|

|   | 2. | Definitions: |
|--------|----|--------------|

|   | The Company             | -      | Hadera Paper Limited.                                                                                                                                                   |
|--------|-------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                    |   |                                                                                                                                                                    |
|   | The Group               | -      | the Company and its Subsidiaries.                                                                                                                                       |
|   |                    |   |                                                                                                                                                                    |
|   | Related Parties         | -      | as defined by IAS 24.                                                                                                                                                   |
|   |                    |   |                                                                                                                                                                    |
|   | Interested Parties      | -      | as defined in the Israeli Securities law and Regulations 1968.                                                                                                          |
|   |                    |   |                                                                                                                                                                    |
|   | Controlling Shareholder | -      | as defined in the Israeli Securities Regulations (Annual Financial Statements), 2010.                                                                                   |
|   |                    |   |                                                                                                                                                                    |
|   | NIS                     | -      | New Israeli Shekel.                                                                                                                                                     |
|   |                    |   |                                                                                                                                                                    |
|   | CPI                     | -      | the Israeli consumer price index.                                                                                                                                       |
|   |                    |   |                                                                                                                                                                    |
|   | Dollar                  | -      | the U.S. dollar.                                                                                                                                                        |
|   |                    |   |                                                                                                                                                                    |
|   | Subsidiaries            | -      | companies in which the Company control, (as defined by IAS 27) directly or indirectly, and whose financial statements are fully consolidated with those of the Company. |
|   |                    |   |                                                                                                                                                                    |
|   | Associated Companies    | -      | companies in which the Group has significant influence.                                                                                                                 |
|   |                    |   |                                                                                                                                                                    |
|   | Affiliated Companies    | -      | Subsidiaries and associated companies.                                                                                                                                  |
|   |                    |   |                                                                                                                                                                    |
|   | Other companies         | -      | Group investees over which the Group has no control or material influence.                                                                                              |

|   | A. | Applying International Accounting Standards (IFRS) |
|--------|----|----------------------------------------------------|

----

|   | B. | The financial statements are drawn up in accordance with the Israeli Securities Regulations (Annual Financial Statements), 2010 (hereinafter – "Financial Statements Regulations"). |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Presentation format of the statement on financial position |
|--------|----|------------------------------------------------------------|

|   | D. | Basis of preparation |
|--------|----|----------------------|

|   | · | The following assets and liabilities measured under fair value: financial assets available for sale financial instruments measured at fair value through profit or loss, investment property, financial derivatives and liabilities for share-based payment arrangements. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Inventories are stated at the lower of cost and net realizable value. |
|--------|--------|-----------------------------------------------------------------------|

|   | · | Property, plant and equipment and intangibles assets are presented at the lower of the cost less accumulated amortizations and the recoverable amount. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Liabilities to employees as described in note 2 AA below. |
|--------|--------|-----------------------------------------------------------|

|   | E. | Analysis format of expenses recognized on income statement |
|--------|----|------------------------------------------------------------|

|   | F. | Foreign currencies |
|--------|----|--------------------|

|   | (1) | Functional currency and presentation currency |
|--------|-----|-----------------------------------------------|

|   | (2) | Translation of transactions that are not in the functional currency |
|--------|-----|---------------------------------------------------------------------|

----

|   | F. | Foreign currencies (cont.) |
|--------|----|----------------------------|

|   | (3) | Method of recognizing exchange rate differentials |
|--------|-----|---------------------------------------------------|

|   | (4) | Translation of financial statements of affiliated companies whose functional currency is not the New Israeli Shekel (NIS). |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------|

|   | G. | Cash and cash equivalents |
|--------|----|---------------------------|

|   | H. | Consolidated Financial Statements |
|--------|----|-----------------------------------|

|   | (1) | General |
|--------|-----|---------|

----

|   | H. | Consolidated Financial Statements (cont.) |
|--------|----|-------------------------------------------|

|   | (2) | Non –controlling interests |
|--------|-----|----------------------------------|

|   | I. | Business combinations |
|--------|----|-----------------------|

----

|   | I. | Business combinations (Cont.) |
|--------|----|-------------------------------|

|   | J. | Investment in associated companies |
|--------|----|------------------------------------|

|   | K. | Goodwill |
|--------|----|----------|

----

|   | K. | Goodwill (Cont.) |
|--------|----|------------------|

|   | L. | Property, plant and equipment |
|--------|----|-------------------------------|

|   | 1) | General |
|--------|----|---------|

|   | 2) | Reduction of fixed assets |
|--------|----|---------------------------|

| The annual depreciation and amortization rates are: | Useful life length |
|-----------------------------------------------------|--------------------|
|                                                |               |
| Buildings                                           | 10-50              |
| Machinery and equipment                             | 7-20               |
| Motor vehicles                                      | 5-7                |
| Office furniture and equipment                      | 3-17               |

----

|   | M. | Investment property |
|--------|----|---------------------|

|   | N. | Intangible assets, except for goodwill |
|--------|----|----------------------------------------|

| Customer relations | 5-10 years |   |
|--------------------|------------|--------|
| Software           | 3 years    |   |

|   | O. | Impairment of value of tangible and intangible assets, excluding goodwill |
|--------|----|---------------------------------------------------------------------------|

----

|   | O. | Impairment of value of tangible and intangible assets, excluding goodwill (Cont.) |
|--------|----|-----------------------------------------------------------------------------------|

|   | P. | Impairment of equity-accounted investments |
|--------|----|--------------------------------------------|

|   | Q. | Borrowing costs |
|--------|----|-----------------|

----

|   | R. | Inventories |
|--------|----|-------------|

|   | Raw, auxiliary materials and others | - Based on weighted-average basis. |
|--------|-------------------------------------|------------------------------------|

|   | Finished products and products in process   | - Based on overhead absorption costing. At cost, calculated based on the absorption pricing of production costs incurred during the production of finished goods |
|--------|-------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Products | - Based on weighted –average basis. |
|--------|----------|-------------------------------------------|

|   | S. | Financial assets |
|--------|----|------------------|

|   | (1) | General |
|--------|-----|---------|

----

|   | S. | Financial assets (Cont.) |
|--------|----|--------------------------|

|   | (2) | Loans and receivables |
|--------|-----|-----------------------|

|   | (3) | Financial assets at Fair Value through Profit and Loss (FVTPL) |
|--------|-----|----------------------------------------------------------------|

|   | ● | It has been acquired principally for the purpose of selling in the near future; or |
|--------|---------|------------------------------------------------------------------------------------|

|   | ● | It is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● | It is a derivative that is not designated and effective as a hedging instrument. |
|--------|---------|----------------------------------------------------------------------------------|

|   | (4) | Financial assets available for sale |
|--------|-----|-------------------------------------|

|   | (5) | Impairment of financial assets |
|--------|-----|--------------------------------|

----

|   | S. | Financial assets (Cont.) |
|--------|----|--------------------------|

|   | (5) | Impairment of financial assets (cont.) |
|--------|-----|----------------------------------------|

|   | ● | Significant financial difficulty of the issuer or counterparty; or |
|--------|---------|--------------------------------------------------------------------|

|   | ● | Default or delinquency in interest or principal payments; or |
|--------|---------|--------------------------------------------------------------|

|   | ● | It becoming probable that the borrower will enter bankruptcy or financial re-organization. |
|--------|---------|--------------------------------------------------------------------------------------------|

|   | T. | Financial liabilities and equity instruments issued by the Group |
|--------|----|------------------------------------------------------------------|

|   | (1) | Classification as debt or equity |
|--------|-----|----------------------------------|

----

|   | T. | Financial liabilities and equity instruments issued by the Group (Cont.) |
|--------|----|-------------------------------------------------------------------------------|

|   | (2) | Options to sell shares of an  associated company |
|--------|-----|------------------------------------------------------------|

|   | (3) | CPI-linked liabilities |
|--------|-----|------------------------|

|   | (4) | Extinguishing Financial liabilities |
|--------|-----|-------------------------------------|

|   | U. | Derivative financial instruments and Hedge Accounting |
|--------|----|-------------------------------------------------------|

|   | (1) | General |
|--------|-----|---------|

----

|   | U. | Derivative financial instruments and Hedge Accounting (Cont.) |
|--------|----|---------------------------------------------------------------|

|   | (2) | Hedge accounting |
|--------|-----|------------------|

----

|   | V. | Revenue recognition |
|--------|----|---------------------|

|   | (1) | Sale of goods |
|--------|-----|---------------|

|   | · | The Group has transferred to the buyer the significant risks and rewards of ownership of the goods; |
|--------|--------|-----------------------------------------------------------------------------------------------------|

|   | · | The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The amount of revenue can be reliably measured; |
|--------|--------|-------------------------------------------------|

|   | · | It is probable that the economic benefits associated with the transaction will flow to the entity; and |
|--------|--------|--------------------------------------------------------------------------------------------------------|

|   | · | The costs incurred or to be incurred in respect of the transaction can be reliably measured. |
|--------|--------|----------------------------------------------------------------------------------------------|

|   | (2) | Revenue from recycling services |
|--------|-----|---------------------------------|

|   | · | The amount of revenue can be reliably measured |
|--------|--------|------------------------------------------------|

|   | · | It is probable that the economic benefits associated with the  transaction will   flow to the entity, as well as |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The company performed the service in question |
|--------|--------|-----------------------------------------------|

|   | · | The costs incurred or to be incurred in respect of the transaction can be reliably measured. |
|--------|--------|----------------------------------------------------------------------------------------------|

|   | (3) | Interest revenue |
|--------|-----|------------------|

|   | (4) | Dividends |
|--------|-----|-----------|

|   | (5) | Reporting of revenues on a gross basis or a net basis |
|--------|-----|-------------------------------------------------------|

|   | W. | Leasing |
|--------|----|---------|

|   | (1) | General |
|--------|-----|---------|

|   | (2) | Lease of equipment, land and buildings from the Group |
|--------|-----|-------------------------------------------------------|

----

|   | W. | Leasing (Cont.) |
|--------|----|-----------------|

|   | (3) | Lease of land, vehicles and buildings by the Group |
|--------|-----|----------------------------------------------------|

|   | X. | Provisions |
|--------|----|------------|

|   | Y. | Share - Based payments |
|--------|----|------------------------|

----

|   | Y. | Share - Based payments (Cont.) |
|--------|----|--------------------------------|

|   | Z. | Taxation |
|--------|----|----------|

|   | (1) | General |
|--------|-----|---------|

|   | (2) | Current tax |
|--------|-----|-------------|

|   | (3) | Deferred tax |
|--------|-----|--------------|

|   | AA. | Employee benefits |
|--------|-----|-------------------|

|   | (1) | Post-Employment Benefits |
|--------|-----|--------------------------|

----

|   | AA. | Employee benefits(Cont.) |
|--------|-----|--------------------------|

|   | (1) | Post-Employment Benefits (Cont.) |
|--------|-----|----------------------------------|

|   | (2) | Short term employee benefits |
|--------|-----|------------------------------|

|   | BB. | Net income per share |
|--------|-----|----------------------|

|   | CC. | Exchange Rates and Linkage Basis |
|--------|-----|----------------------------------|

|   | (1) | Foreign currency balance, or balances linked to foreign currency are included in the financial statements according to the exchange rate announced by the Bank of Israel at the end of reporting period. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

----

|   | CC. | Exchange Rates and Linkage Basis (Cont.) |
|--------|-----|------------------------------------------|

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

|    As of:        |   | Representative exchange rates of the dollar(NIS per $1) |   |   | Representative exchange rates of the Euro (NIS per €1) |   |   | CPI“in respect of”(in points) * |   |
|---------------------------------|--------|---------------------------------------------------------|--------|--------|--------------------------------------------------------------|--------|--------|---------------------------------------------|--------|
|                            |   |                                                    |   |   |                                                         |   |   |                                        |   |
| December 31, 2010               |   |                                                    | 3.549  |   |                                                         |   | 4.738  |                                        |   |   | 211.67 |   |
| December 31, 2009               |   |                                                    | 3.775  |   |                                                         |   | 5.442  |                                        |   |   | 206.19 |   |
|                            |   |                                                    |   |   |                                                         |   |   |                                        |   |   |   |   |
| Increase (decrease) during the: |   | %                                                       |   |   | %                                                            |   |   | %                                           |   |
| Year ended December 31, 2010    |   |                                                    | (5.99  | )      |                                                         |   | (12.94 | )                                           |   |   | 2.7 |   |
| Year ended December 31, 2009    |   |                                                    | (0.71  | )      |                                                         |   | 2.74   |                                        |   |   | 3.9 |   |

|   | (*) | Based on the CPI for the month ending at the end of each reporting period, on an average basis of 100 = 1993. |
|--------|-----|---------------------------------------------------------------------------------------------------------------|

|   | A. | New Standards and interpretations that influence this reporting period and/or previous reporting periods: |
|--------|----|-----------------------------------------------------------------------------------------------------------|

|   | · | Revision of IAS 1 (Revised) - "Presentation of Financial Statements" |
|--------|--------|----------------------------------------------------------------------|

|   | · | IFRS 3 (Amended) “Business Combinations” |
|--------|--------|------------------------------------------------------|

|   | · | The transaction costs directly connected with the business combination will be recorded to the income statement when incurred. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------|

|   | · | As for business combinations where control is achieved after a number of acquisitions (acquisition in stages), the earlier purchases of the acquired company will be measured at the time that control is achieved On that date, equity interests will be premeasured at fair value prior to the date of acquisition, On that date, equity interests will be remeasured at fair value prior to the date of acquisition while recording the difference to the income statement. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | A. | New Standards and interpretations that influence this reporting period and/or previous reporting periods: (Cont.) |
|--------|----|-------------------------------------------------------------------------------------------------------------------|

|   | · | Amendment to IAS 17, “Leases" |
|--------|--------|------------------------------------------|

|   | 1) | The Group has lands and buildings that are leased to an associated company and which, until the amendment of IAS 17, have been presented as an operating lease. In accordance with the Amendment to IAS 17, these leases meet the definition of financing lease and therefore are classified as investment property measured at fair value, in accordance with the Group's policy. Since the information on the fair value of the lands in previous periods is not available, the Company has recognized the property at fair value as of the date of implementation of the amendment. As a result of implementing the amendment, as of January 1, 2010, a sum of NIS 24,349 thousands was recognized in investment property, a sum of NIS 787 thousands was recognized in deferred tax liabilities and a sum of NIS 74 thousands in account payables and accrued expenses (in respect of liability for a financing lease). Pursuant to the transitional provisions of the amendment, the difference in the amount of NIS 3,590 thousands was recognized in retained earnings. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2) | The Group has lands (which do not constitute investment property at fair value), which have been leased from the Israel Land Administration and the leasing fees in respect thereof have been paid in full. Following the amendment, amounts in respect of the above leases, which have been presented in the financial statements as of December 31, 2009 under "prepaid expenses in respect of an operating lease" are now presented under "fixed assets". |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                     |   | December 31      |    |   | December 31 |   |
|------------------------------------------|--------|------------------|---------|--------|-------------|--------|
|                                     |   | 2010             |    |   | 2009        |   |
|                                     |   | NIS in thousands |    |
|                                     |   |             |    |   |        |   |
| Increase in fixed assets                 |   |             | 14,573  |   |        |   | 7,534 |   |
| Decrease in long-term expenses for lease |   |             | (14,573 | )      |        |   | (7,534 | ) |

|   | 3) | The Group has lands (which do not constitute investment property measured at fair value) which are held as part of a leasing agreement with the Israel Land Administration, the payment in respect thereof is made periodically. Since the information as of the date the commencement of the leases is not available, the Company recognizes the asset and liability related to the lease of the land, which was recognized again as a financing lease, at fair value as of the date of implementation of the amendment; the difference between the fair value of the asset and the fair value of the related liability was recognized in "retained earnings". |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | A. | New Standards and interpretations that influence this reporting period and/or previous reporting periods: (cont.) |
|--------|----|------------------------------------------------------------------------------------------------------------------------|

|   | · | Amendment to IAS 17, “Leases" (cont.) |
|--------|--------|--------------------------------------------------|

|   |
|--------|

|   | B. | New standards and interpretations that are effective and that do not have a material effect on the reporting period and/or previous reporting periods: |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | IAS 27 (Amended) “Consolidated and Separate Financial Statements “ |
|--------|--------|--------------------------------------------------------------------------------|

|   |
|--------|

|   | · | Amendment of IAS 28 "Investment in Associates" (regarding the loss of significant influence in an associated company) |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------|

|   | · | Amendment of IAS 39 "Financial Instruments: Recognition and Measurement" (regarding the designation of exposure to inflationary risks as hedging items). |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Amendment to IAS 7, “Statements of Cash Flows” |
|--------|--------|-----------------------------------------------------------------|

----

|   | B. | New standards and interpretations that are effective and that do not have a material effect on the reporting period and/or previous reporting periods: (cont.) |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Amendment to IAS 36, “Impairment of Assets” |
|--------|--------|--------------------------------------------------------------|

|   | · | Amendment of IAS 39 "Financial Instruments: Recognition and Measurement" (regarding the scope of the standard, the date of recognition of gains and losses in profit or loss with respect to hedging instruments and an option for early repayment in debt instruments) |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Standards, Amended Standards and Clarifications that have been Published but not yet Become Effective, and have not been Adopted by the Company in Early Adoption that might have or expected to have an effect on future periods: |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | IFRS 9: "Financial instruments" |
|--------|--------|---------------------------------|

|   | · | Debt instruments are to be classified and measured after initial recognition at amortized cost or at fair value through profit and loss. The measurement model will be determined based on the business model of the entity with respect to the management of financial assets and accordingly, the characteristics of contractual cash flows arising from the same financial assets. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A debt instrument which, according to tests, is measured at depreciated cost, can be designated through profit and loss only if the designation cancels inconsistency in recognition and measurement that would have been created had the asset been measured at amortized cost. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Equity instruments are measured at fair value through profit and loss. |
|--------|--------|------------------------------------------------------------------------|

|   | · | On the date of initial recognition equity instruments can be designated as measured at fair value when profits or losses are recognized in other comprehensive income. Instruments designated as aforesaid will no longer be subject to impairment testing and any profit or loss in respect thereof will not be recognized in profit and loss, including during the disposal thereof. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Embedded derivatives will not be separated from the host contract which falls under the application of the standard. Instead, compound contracts will be measured as a whole at amortized cost or at fair value, in accordance with the business model tests and contractual cash flow tests. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | C. | Standards, Amended Standards and Clarifications that have been Published but not yet Become Effective, and have not been Adopted by the Company in Early Adoption that might have or expected to have an effect on future periods: (cont.) |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | IFRS 9: "Financial instruments"(cont.) |
|--------|--------|----------------------------------------|

|   | · | Debt instruments will be reclassified from depreciated cost to fair value and vice versa only when the entity changes its business model to financial asset management. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Investments in equity instruments that do not have a quoted price in an active market including derivatives on these instruments will always be measured at fair value. The alternative of measurement at cost under certain circumstances has been cancelled. At the same time, the standard specifies that under specific circumstances cost may constitute a proper estimate of fair value. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The change in the fair value of a financial liability which, upon initial recognition, is designated at fair value through profit or loss, which is attributed to changes in the credit risk of the liability, is directly recognized in other comprehensive income, unless this recognition creates or increases accounting mismatch. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | When the financial liability is settled or extinguished, the fair value amount which was recognized in other comprehensive income, will not be classified in the statement of income. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | All derivatives, whether assets or liabilities, will be measured at fair value, including a derivative financial instruments that constitutes a liability, which is related to an unquoted equity instrument whose fair value cannot be measured reliably. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Revision to IFRS 3 (Revised) "Business Combinations" (regarding measurement of rights that do not grant control) |
|--------|--------|------------------------------------------------------------------------------------------------------------------|

|   | · | Revision of IAS 27 (Revised) - "Consolidated and Separate Financial Statements" |
|--------|--------|---------------------------------------------------------------------------------|

----

|   | C. | Standards, Amended Standards and Clarifications that have been Published but not yet Become Effective, and have not been Adopted by the Company in Early Adoption that might have or expected to have an effect on future periods: (cont.) |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Amendment to IFRS 7 "Financial Instruments: Disclosure" |
|--------|--------|---------------------------------------------------------|

|   | D. | New standards and interpretations which have been issued but not yet entered into effect and have not been adopted early by the Group, and are not expected to affect the Group's financial statements |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | IFRIC 19 "Extinguishing Financial Liabilities with Equity Instruments" |
|--------|--------|------------------------------------------------------------------------|

|   | · | Amendment of IFRIC 14: "Prepayments of a Minimum Funding Requirement" |
|--------|--------|-----------------------------------------------------------------------|

|   | · | Amendment to IAS 32 "Financial Instruments: Presentation" |
|--------|--------|-----------------------------------------------------------|

|   | · | Amendment to IFRS 3 (Revised) "Business Combinations" (with respect to share-based payment in the acquired entity) |
|--------|--------|--------------------------------------------------------------------------------------------------------------------|

----

|   | D. | New standards and interpretations which have been issued but not yet entered into effect and have not been adopted early by the Group, and are not expected to affect the Group's financial statements: (cont.) |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | IAS 24 (Amended) "Related Party Disclosures" |
|--------|--------|----------------------------------------------|

|   | · | Amendment to IFRS 7 "Financial Instruments: Disclosure" |
|--------|--------|---------------------------------------------------------|

|   | A. | General |
|--------|----|---------|

|   | B. | Critical judgments in applying accounting policies |
|--------|----|----------------------------------------------------|

|   | · | Deferred taxes- |
|--------|--------|-----------------|

|   | · | Approximation of length of life of items of fixed assets- |
|--------|--------|-----------------------------------------------------------|

|   | · | Measuring provisions and contingent liabilities and contingent liabilities- see C(1) below. |
|--------|--------|---------------------------------------------------------------------------------------------|

|   | · | Measuring obligation for defined benefits and employee benefits- see C(2) below. |
|--------|--------|----------------------------------------------------------------------------------|

|   | · | Measuring share based payments- see note 11 below. |
|--------|--------|----------------------------------------------------|

----

|   | B. | Critical judgments in applying accounting policies (cont.) |
|--------|----|------------------------------------------------------------|

|   | · | Measuring the fair value on account of the allocation of the cost of acquisition - see C(3) below. |
|--------|--------|----------------------------------------------------------------------------------------------------|

|   | · | Examination of the impairment of cash generating units – see C(4) below. |
|--------|--------|--------------------------------------------------------------------------------|

|   | C. | Key factor of estimation uncertainty |
|--------|----|--------------------------------------|

|   | 1. | Provisions for legal proceeding |
|--------|----|---------------------------------|

|   | 2. | Employee benefits |
|--------|----|-------------------|

|   | 3. | Measurement at fair value on account of the allocation of the cost of acquisition |
|--------|----|-----------------------------------------------------------------------------------|

----

|   | C. | Key factor of estimation uncertainty (cont.) |
|--------|----|----------------------------------------------|

|   | 3. | Measurement at fair value on account of the allocation of the cost of acquisition (cont.) |
|--------|----|-------------------------------------------------------------------------------------------|

|   | 4. | Examination of the impairment of cash generating units |
|--------|----|--------------------------------------------------------|

----

|   | A. | Details of Subsidiaries and Associated Companies |
|--------|----|---------------------------------------------------------------------------|

|                                                   |   | Percentage of direct and indirect holding in shares conferring equity and voting rights |   |   | The amount investment in an associated company (*) |   |
|--------------------------------------------------------|--------|-----------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------|--------|
|                                                   |   | at December 31                                                                          |   |   | at December 31                                     |   |
|                                                   |   | 2010                                                                                    |   |   | 2009                                               |   |   | 2010 |   |   | 2009 |   |
|                                                   |   | %                                                                                       |   |   | NIS in thousands                                   |   |
| Main subsidiaries: (**)                                |   |                                                                                    |   |   |                                               |   |   |   |   |   |   |   |
| Amnir Recycling Industries Limited                     |   |                                                                                    | 100.00 |   |                                               |   | 100.00 |   |   |   | 154,146 |   |   |   | 179,669 |   |
| Graffiti Office Supplies and Paper Marketing Ltd.      |   |                                                                                    | 100.00 |   |                                               |   | 100.00 |   |   |   | (8,590 | ) |   |   | (10,619 | ) |
| Hadera Paper –packaging paper and recycling Ltd. |   |                                                                                    | 100.00 |   |                                               |   | 100.00 |   |   |   | 123,146 |   |   |   | 137,965 |   |
| Hadera Paper - Development and Infrastructure Ltd.     |   |                                                                                    | 100.00 |   |                                               |   | 100.00 |   |   |   | 145,970 |   |   |   | 161,930 |   |
| Carmel Container Systems Limited (1)                   |   |                                                                                    | 100.00 |   |                                               |   | 89.30 |   |   |   | 160,004 |   |   |   | 144,743 |   |
| Hadera Paper-printing and writing paper Ltd.(2)        |   |                                                                                    | 75.00  |   |                                               |   | 49.90 |   |   |   | 157,485 |   |   |   | 114,124 |   |
| Frenkel C.D.  Limited(3)                     |   |                                                                                    | 57.84  |   |                                               |   | 54.75 |   |   |   | 11,007 |   |   |   | 11,158 |   |
| Main associated company:                               |   |                                                                                    |   |   |                                               |   |   |   |   |   |   |   |   |   |   |   |
| Hogla-Kimberly Ltd.                                    |   |                                                                                    | 49.90  |   |                                               |   | 49.90 |   |   |   | 239,116 |   |   |   | 227,883 |   |

| *  | The amount of investment in a directly held entity is calculated as the net amount based on the consolidated financial statements, which is attributed to the shareholders of the Company, of total assets less total liabilities, which present financial information on the investee company in the Company's consolidated financial statements, including goodwill. |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **  | Not including dormant companies. |
|----------|----------------------------------|

|   | (1) | On October 4 the Company successfully completed its full tender offer to purchase shares of Carmel Container Systems Ltd. ("Carmel") a subsidiary of the Company for $22.50 per share in cash (Subject to withholding tax), for the total amount of approximately $4.2 million, In accordance with the Board decision dated 30, August 2010 regarding the full tender offer, under section 336 of the Companies Law, 1999. Carmel shares are not and were not traded on the Israeli Stock Exchange but were previously listed in the U.S. on American Stock Exchange. In 2005 Camel's shares were delisted from trade by Carmel's initiative. In accordance with the Companies Law, - 1999, the Company automatically acquires the entire number of shares subject to the tender offer, including all shares owned by shareholders who have not responded to the tender offer. The Company is currently completing the process of transferring the payment to shareholders that their shares were forcibly acquired, and it is also working on the completion of the technical procedure with the American stock exchange. Accordingly, when the technical procedure is completed, as of the date of the final expiration of the tender offer, on October 4, 2010, the Company would then own 100% of Carmel’s issued and outstanding share capital and voting rights. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | A. | Details of Subsidiaries and Associated Companies (cont.) |
|--------|----|-----------------------------------------------------------------------------------|

|   | (2) | For details about the acquisition of Hadera paper writing and printing paper ltd. see note 17 below. |
|--------|-----|------------------------------------------------------------------------------------------------------|

|   | (3) | Frenkel C.D. Limited is partly held through the Company in the rate of   28.92% and partly held through Carmel Container Systems Limited (in the rate of 28.92%) the holding in voting shares of C.D. Packaging Systems Limited is 57.72%. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Investments in associated companies |
|--------|----|-------------------------------------|

|   | 1. | Composed as follows: |
|--------|----|----------------------|

|                                             |   | December 31      |    |
|--------------------------------------------------|--------|------------------|---------|
|                                             |   | 2010             |    |   | 2009 |   |
|                                             |   | NIS in thousands |    |
| Investment in Shares:                            |   |             |    |   |   |   |
| Cost                                             |   |             | 1,875   |   |   |   | 1,875 |   |
| Gain on issuance of shares of an associated      |   |             |    |   |   |   |   |   |
| company to a third party                         |   |             | 40,241  |   |   |   | 40,241 |   |
| Adjustments from translation of foreign currency |   |             |    |   |   |   |   |   |
| financial statements                             |   |             | (33,521 | ) |   |   | (22,872 | ) |
| Share in cash flow hedging capital               |   |             | (1,360  | ) |   |   | (940 | ) |
| Share in Actuarial losses                        |   |             | (647    | ) |   |   | (451 | ) |
| Initial consolidation of associate               |   |             | (80,961 | ) |   |   | - |   |
| Share in profits since acquisition, net          |   |             | 292,692 |   |   |   | 268,670 |   |
|                                             |   |             | 218,319 |   |   |   | 286,523 |   |
| Long-term loans and capital notes *              |   |             | 19,179  |   |   |   | 54,452 |   |
|                                             |   |             | 237,498 |   |   |   | 340,975 |   |

|                                   |   | Weighted average |   |   |             |   |
|----------------------------------------|--------|------------------|--------|--------|------------------|--------|
|                                   |   | interest rate    |   |   |             |   |
|                                   |   | at December 31,  |   |   | December 31      |   |
|                                   |   | 2010             |   |   | 2010             |   |   | 2009 |   |
|                                   |   | %                |   |   | NIS in thousands |   |
|                                   |   |             |   |   |             |   |   |   |   |
|  Unlinked loans and capital notes |   |             | 5.5    | %      |             |   | 19,179 |   |   |   | 54,452 |   |
|                                   |   |             |   |   |             |   | 19,179 |   |   |   | 54,452 |   |

----

|   | B. | Investments in associated companies (cont.) |
|--------|----|---------------------------------------------|

|   | 2. | The changes in the investments during 2010 are as follows: |
|--------|----|------------------------------------------------------------|

|                                                                                                           |   | NIS in thousands |    |
|----------------------------------------------------------------------------------------------------------------|--------|------------------|---------|
|                                                                                                           |   |             |    |
| Balance at the beginning of the year                                                                           |   |             | 340,975 |   |
| Changes during the year:                                                                                       |   |             |    |   |
| Share in profits of associated companies - net                                                                 |   |             | 81,132  |   |
| Dividend distributed or declared by an associated company                                                      |   |             | (57,110 | ) |
| Differences from translation of foreign currency financial       statements |   |             | (10,649 | ) |
| Share in capital surplus of hedging cash flows at associated   companies                        |   |             | (420    | ) |
| Share in capital surplus from recording actuarial gains to reserves                                            |   |             | (196    | ) |
| Initial consolidation of associate.                                                                            |   |             | (80,961 | ) |
| Decrease in balance of long-term loans and capital notes - net                                                 |   |             | (35,273 | ) |
| Balance at end of year                                                                                         |   |             | 237,498 |   |

|   | 3. | Hadera Paper –printing and writing paper Ltd.(hereafter – "printing and writing"; formerly - Mondi Hadera Paper Ltd.) |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

|   | 4. | Hogla-Kimberly Ltd. (hereafter – Hogla-Kimberly) |
|--------|----|--------------------------------------------------------|

|   | 5. | Dividends from associated companies |
|--------|----|-------------------------------------|

|   | a. | On January 20, 2010 a dividend in cash, in the amount of NIS 19.6 million, that was declared on October 22, 2009, was received from an associated company. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | On February 18, 2010, an associated company declared the distribution of a dividend in the amount of approximately NIS 20 million out of the unapproved retained earnings accumulated as of December 31, 2009. The Company’s share in the dividend is approximately NIS 10 million. The dividend was paid during May 2010. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | On April 22, 2010 an associated company declared the distribution of a dividend in the amount of approximately NIS 40 million from the retained earnings. The Company’s share in the dividend is approximately NIS 20 million. The dividend was paid during July 2010. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d. | On July 26, 2010 an associated company declared the distribution of a dividend in the amount of EURO 5.9 million. The Company’s share in the dividend is approximately NIS 3.0 million. The dividend was paid during August 2010. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e. | On July 27, 2010 an associated company declared the distribution of a dividend in the amount of NIS 40 million from the retained earnings. The timing of the payment is subject to availability of funds and consent of partners. The amount of NIS 35 million was paid during November 2010, and the amount of NIS 5 million will be paid during 2011. The Company’s share in the dividend is approximately NIS 20 million. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | f. | On December 30, 2010 an associated company declared the distribution of a dividend in the amount of EURO 8.5 million. The company's share in the dividend is approximately NIS 4.3 million. The dividend was paid during January 2011. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | A. | Composition of assets and the accumulated depreciation thereon, grouped by major classifications, and changes therein during 2010, are as follows: |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                 |   | C o s t                      |      |   | Accumulated depreciation                                               |   |
|------------------------------------------------------|--------|------------------------------|-----------|--------|------------------------------------------------------------------------|--------|
|                                                 |   | Balance at beginning of year |      |   |  Classified under Investment Property as of the start of the year |   |   | Additions during the year |   |   | Disposals during the year |   |   | Entry into consolidation |   |   | Balanceat endof year |   |   | Balance at beginning of year |   |   |  Classified under Investment Property as of the start of the year |   |   | Additions during the year |   |   | Disposals during the year |   |   | Entry into consolidation |   |   | Balanceat endof year |   |   | Depreciated balance December 31 |   |
|                                                 |   | NIS in thousands             |      |
|                                                 |   |                         |      |   |                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Land and buildings thereon                           |   |                         | 251,332   |   |                                                                   |   | (17,931 | ) |   |   | 132,029 |   |   |   | 1,500 |   |   |   | 5,958 |   |   |   | 369,888 |   |   |   | 139,971 |   |   |   | (3,834 | ) |   |   | 5,090 |   |   |   | 819 |   |   |   | 3,275 |   |   |   | 143,683 |   |   |   | 226,205 |   |
| Machinery and equipment                              |   |                         | 1,221,069 |   |                                                                   |   | - |   |   |   | 641,955 |   |   |   | 42,968 |   |   |   | 223,821 |   |   |   | 2,043,877 |   |   |   | 876,124 |   |   |   |   |   |   |   | 71,519 |   |   |   | 40,242 |   |   |   | 82,671 |   |   |   | 990,072 |   |   |   | 1,053,805 |   |
| Vehicles                                             |   |                         | 39,057    |   |                                                                   |   | - |   |   |   | 1,493 |   |   |   | 3,934 |   |   |   | 3,781 |   |   |   | 40,397 |   |   |   | 25,387 |   |   |   |   |   |   |   | 4,195 |   |   |   | 3,612 |   |   |   | 3,010 |   |   |   | 28,980 |   |   |   | 11,417 |   |
| Office furniture and equipment (including computers) |   |                         | 63,858    |   |                                                                   |   | - |   |   |   | 3,893 |   |   |   | 708 |   |   |   | 4,608 |   |   |   | 71,651 |   |   |   | 37,662 |   |   |   |   |   |   |   | 2,897 |   |   |   | 697 |   |   |   | 3,352 |   |   |   | 43,214 |   |   |   | 28,437 |   |
| Payments on account of machinery and equipment, net  |   |                         | 616,106   |   |                                                                   |   | - |   |   |   | (600,985 | ) |   |   | - |   |   |   | 250 |   |   |   | 15,371 |   |   |   | - |   |   |   |   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 15,371 |   |
| Spare parts – not current, net                 |   |                         | 21,956    |   |                                                                   |   | - |   |   |   | 1,428 |   |   |   | - |   |   |   | - |   |   |   | 23,384 |   |   |   | - |   |   |   |   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 23,384 |   |
|                                                 |   |                         | 2,213,378 |   |                                                                   |   | (17,931 | ) |   |   | 179,813 |   |   |   | 49,110 |   |   |   | 238,418 |   |   |   | 2,564,568 |   |   |   | 1,079,144 |   |   |   | (3,834 | ) |   |   | 83,701 |   |   |   | 45,370 |   |   |   | 92,308 |   |   |   | 1,205,949 |   |   |   | 1,358,619 |   |

----

|   | B. | Composition of assets and the accumulated depreciation thereon, grouped by major classifications, and changes therein during 2009, are as follows: |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                |   | C o s t                      |      |   | Accumulated depreciation  |   |
|-----------------------------------------------------|--------|------------------------------|-----------|--------|---------------------------|--------|
|                                                |   | Balance at beginning of year |      |   | Additions during the year |   |   | Disposals during the year |   |   | Balanceat endof year |   |   | Balance at beginning of year |   |   | Additions during the year |   |   | Disposals during the year |   |   | Balanceat endof  year |   |   | Depreciated balance |   |
|                                                |   |                         |      |   |                      |   |   |   |   |   |   |   |   |   |   |   |   | December 31 |   |
|                                                |   |                         |      |   |                      |   |   |   |   |   |   |   |   |   |   |   |   | 2009 |   |
|                                                |   | NIS in thousands             |      |
|                                                |   |                         |      |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Land and buildings thereon                          |   |                         | 241,194   |   |                      |   | 10,138 |   |   |   | - |   |   |   | 251,332 |   |   |   | 135,288 |   |   |   | 4,683 |   |   |   | - |   |   |   | 139,971 |   |   |   | 111,361 |   |
| Machinery and equipment                             |   |                         | 1,280,262 |   |                      |   | 47,107 |   |   |   | 106,300 |   |   |   | 1,221,069 |   |   |   | 916,033 |   |   |   | 60,646 |   |   |   | 100,555 |   |   |   | 876,124 |   |   |   | 344,945 |   |
| Vehicles                                            |   |                         | 47,861    |   |                      |   | 1,980 |   |   |   | 10,784 |   |   |   | 39,057 |   |   |   | 30,760 |   |   |   | 4,701 |   |   |   | 10,074 |   |   |   | 25,387 |   |   |   | 13,670 |   |
| Office furniture and equipment                      |   |                         |      |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (including computers)                               |   |                         | 98,371    |   |                      |   | 2,055 |   |   |   | 36,568 |   |   |   | 63,858 |   |   |   | 75,500 |   |   |   | 3,507 |   |   |   | 41,345 |   |   |   | 37,662 |   |   |   | 26,196 |   |
| Payments on account of machinery and equipment, net |   |                         | 238,845   |   |                      |   | 377,261 |   |   |   | - |   |   |   | 616,106 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 616,106 |   |
| Spare parts – not current, net                |   |                         | 26,295    |   |                      |   | - |   |   |   | 4,339 |   |   |   | 21,956 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 21,956 |   |
|                                                |   |                         | 1,939,828 |   |                      |   | 438,541 |   |   |   | 157,991 |   |   |   | 2,213,378 |   |   |   | 1,157,581 |   |   |   | 73,537 |   |   |   | 151,974 |   |   |   | 1,079,144 |   |   |   | 1,134,234 |   |

----

|   | C. | The item is net of investment grants in respect of investments in “approved enterprises”. |
|--------|----|-------------------------------------------------------------------------------------------------------|

|   | D. | Depreciation expenses amounted to NIS 83,701 thousands and NIS 73,355 thousands NIS for the years ended December 31, 2010 and 2009 respectively. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------|

|   | E. | As of December 31, 2010 and 2009, the cost of fixed assets includes borrowing costs of NIS 24,228 thousands and NIS 31,918 thousands capitalized to the cost of machinery and equipment for the years ended December 31, 2010 and 2009, respectively. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | F. | As of December 31, 2010 and 2009, the cost of fixed assets includes payroll costs of NIS 8,545 thousands and NIS 9,052 thousands capitalized to the cost of machinery and equipment for the years ended December 31, 2010 and 2009, respectively. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | G. | As of December 31, 2010 and 2009, the cost of fixed assets includes running-in stage costs of NIS 8,417 thousands net, capitalized to the cost of machinery after the deduction of the proceeds from the sale of items during the running-in stage in the amount of NIS 69,996 thousands. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | H. | For details of rights in lands – see note 7 as follows. |
|--------|----|---------------------------------------------------------------|

|   | A. | The Company's real estate is partly owned and partly leased and some lease fees have been capitalized.  The leasehold rights are for 49-59 year periods ending in the years 2012 to 2059, with options to extend for an additional 49 years. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Details as of December 31, 2010: |
|--------|----|----------------------------------|

|                                  |   | NIS in thousands |    |
|---------------------------------------|--------|------------------|---------|
|                                  |   |             |    |
| Land owned                            |   |             | 75,500  |   |
| Property under capitalized lease |   |             | 44,653  |   |
| Property under non-capitalized lease  |   |             | 1,648   |   |
|                                  |   |             | 121,801 |   |

|   | C. | Presented in the balance sheets as follows: |
|--------|----|---------------------------------------------|

|                     |   | December 31      |    |
|--------------------------|--------|------------------|---------|
|                     |   | 2010             |    |   | 2009 |   |
|                     |   | NIS in thousands |    |
|                     |   |             |    |   |   |   |
| In Fixed assets          |   |             | 89,770  |   |   |   | 89,358 |   |
| In Expenditure for lease |   |             | 24,836  |   |   |   | 29,756 |   |
| In Investment property   |   |             | 7,195   |   |   |   | - |   |
|                     |   |             | 121,801 |   |   |   | 119,114 |   |

----

|   | D. | On July 27, 2010 the General meeting approved the company's entering into the agreement from June 1, 2010 for the sale of its rights to a plot of land with an area of approximately 7600 square meters in Totseret HaAretz Street in Tel Aviv, that is currently leased by the Company from the Tel Aviv municipality in consideration of NIS 64 million, plus VAT. The purchasing parties are Gev Yam Ltd., (“Gev Yam”), a company indirectly controlled by IDB Development Company Ltd., the controlling shareholder of the Company and by Amot Investments Ltd. (“Amot”), with holdings in the land of 71% and 29%, respectively. The transaction is subject to a two nullifying conditions. For details about the finalization of the transaction see note 22f as follows. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | E. | On July 25, 2010 a subsidiary company - Amnir Recycling Industries Ltd. was entered into an agreement for the sale of the leasing rights to a plot of land covering 9,200 m2 located in Bnei-Brak, in return for a sum of NIS 20 million. Following the completion of the transaction, the Company's profit was in the amount of approximately NIS 16.3 million. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A. | Composition and changes in investment property measured at fair value |
|--------|----|-----------------------------------------------------------------------|

|                              |   | for the year ended December 31 |   |
|-----------------------------------|--------|--------------------------------|--------|
|                              |   | 2010                           |   |
|                              |   |                           |   |   | Rental |   |   |   |   |
|                              |   | Land                           |   |   | building |   |   | Total |   |
|                              |   | NIS in thousands               |   |   | NIS in thousands |   |   | NIS in thousands |   |
| cost                              |   |                           |   |   |   |   |   |   |   |
| Balance - January 1, 2010         |   |                           | 7,151  |   |   |   | 17,198 |   |   |   | 24,349 |   |
|                              |   |                           |   |   |   |   |   |   |   |   |   |   |
| Additions during the year         |   |                           |   |   |   |   |   |   |   |   |   |   |
| Adjustment to fair value          |   |                           | 44     |   |   |   | 107 |   |   |   | 151 |   |
| Balance – December 31, 2010 |   |                           | 7,195  |   |   |   | 17,305 |   |   |   | 24,500 |   |

|   | B. | Sums recognized in the statement of income |
|--------|----|--------------------------------------------|

|                                   |   | for the year ended December 31 |   |
|----------------------------------------|--------|--------------------------------|--------|
|                                   |   | 2010                           |   |
|                                   |   | NIS in thousands               |   |
|                                   |   |                           |   |
| Rental income from investment property |   |                           | 2,704  |   |

|   | C. | Determining the fair value of the Group's investment property |
|--------|----|---------------------------------------------------------------|

|   |   | Investment property is measured at fair value based on the valuation carried out by reputable external appraisers with experience regarding the location and type of the appraised property. The fair value represents the amount on the date of valuation, which is the amount for which the property could be exchanged between knowledgeable, willing parties in an arm's length transaction, in accordance with international valuation standards. Fair value is determined based on: |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1) | The fair value is measured based on current prices on an active market for similar property in the same location and condition and subject to similar lease and other contracts. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2) | The fair value is measured based on recent prices on an active market for similar property, which is subject to similar lease and other contracts, with adjustments to reflect such differences. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | C. | Determining the fair value of the Group's investment property (Cont.) |
|--------|----|-----------------------------------------------------------------------|

|   | 3) | The fair value is measured using discounted cash flow projections, based on reliable estimates of future cash flows, which are supported by the conditions of similar lease and other contract and by external evidence, such as current rental prices for similar property in the same location and condition, as well as by using discount rates, which reflect current market valuations regarding the uncertainty of the amount and timing of the cash flows. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A. | Composition and changes are as follows: |
|--------|----|-----------------------------------------|

|                                      |   | Software         |   |   | Order backlog |   |   | Goodwill |   |   | Portfolio of Customers |   |   | Total  |   |
|-------------------------------------------|--------|------------------|--------|--------|---------------|--------|--------|----------|--------|--------|------------------------|--------|--------|--------|--------|
|                                      |   | NIS in thousands |   |
| Cost                                      |   |             |   |   |          |   |   |     |   |   |                   |   |   |   |   |
| Balance at January 1, 2010                |   |             | 1,458  |   |          |   | 3,082  |     |   |   | 599                    |   |   |   | 34,992 |   |   |   | 40,131 |   |
| Additions during the year                 |   |             | 49     |   |          |   |   |     |   |   | -                      |   |   |   | -      |   |   |   | 49 |   |
| Entry into consolidation                  |   |             | -      |   |          |   | -      |     |   |   | 12,282                 |   |   |   | -      |   |   |   | 12,282 |   |
| Disposals                                 |   |             | (86    | )      |          |   | -      |     |   |   | -                      |   |   |   | (60    | ) |   |   | (146 | ) |
| Balance at December 31, 2010              |   |             | 1,421  |   |          |   | 3,082  |     |   |   | 12,881                 |   |   |   | 34,932 |   |   |   | 52,316 |   |
|                                      |   |             |   |   |          |   |   |     |   |   |                   |   |   |   |   |   |   |   |   |   |
| Cost                                      |   |             |   |   |          |   |   |     |   |   |                   |   |   |   |   |   |   |   |   |   |
| Balance at January 1, 2009                |   |             | 1,377  |   |          |   | 3,082  |     |   |   | 599                    |   |   |   | 34,992 |   |   |   | 40,050 |   |
| Additions during the year                 |   |             | 81     |   |          |   | -      |     |   |   | -                      |   |   |   | -      |   |   |   | 81 |   |
| Balance at December 31, 2009              |   |             | 1,458  |   |          |   | 3,082  |     |   |   | 599                    |   |   |   | 34,992 |   |   |   | 40,131 |   |
|                                      |   |             |   |   |          |   |   |     |   |   |                   |   |   |   |   |   |   |   |   |   |
| Accumulation amortization and impairment: |   |             |   |   |          |   |   |     |   |   |                   |   |   |   |   |   |   |   |   |   |
| Balance at January 1, 2010                |   |             | 1,327  |   |          |   | 3,082  |     |   |   | 448                    |   |   |   | 8,190  |   |   |   | 13,047 |   |
| Deduction                                 |   |             | 112    |   |          |   | -      |     |   |   | -                      |   |   |   | 3,589  |   |   |   | 3,701 |   |
| Disposals                                 |   |             | (86    | )      |          |   | -      |     |   |   | -                      |   |   |   | (60    | ) |   |   | (146 | ) |
| Balance at December 31, 2010              |   |             | 1,353  |   |          |   | 3,082  |     |   |   | 448                    |   |   |   | 11,719 |   |   |   | 16,602 |   |
|                                      |   |             |   |   |          |   |   |     |   |   |                   |   |   |   |   |   |   |   |   |   |
| Accumulation amortization and impairment: |   |             |   |   |          |   |   |     |   |   |                   |   |   |   |   |   |   |   |   |   |
| Balance at January 1, 2009                |   |             | 1,081  |   |          |   | 3,082  |     |   |   | -                      |   |   |   | 4,368  |   |   |   | 8,531 |   |
| Deduction                                 |   |             | 246    |   |          |   |   |     |   |   | 448                    |   |   |   | 3,822  |   |   |   | 4,516 |   |
| Balance at December 31, 2009              |   |             | 1,327  |   |          |   | 3,082  |     |   |   | 448                    |   |   |   | 8,190  |   |   |   | 13,047 |   |
| Amortized cost:                           |   |             |   |   |          |   |   |     |   |   |                   |   |   |   |   |   |   |   |   |   |
| December 31, 2010                         |   |             | 68     |   |          |   | -      |     |   |   | 12,433                 |   |   |   | 23,213 |   |   |   | 35,714 |   |
| December 31, 2009                         |   |             | 131    |   |          |   | -      |     |   |   | 151                    |   |   |   | 26,802 |   |   |   | 27,084 |   |

|   | B. | Amortization of intangible assets is presented in the statement of income under the following items: |
|--------|----|------------------------------------------------------------------------------------------------------|

|                                |   | Year endedDecember 31 |   |
|-------------------------------------|--------|-----------------------|--------|
|                                |   | 2010                  |   |   | 2009 |   |
|                                |   | NIS in thousands      |   |
|                                |   |                  |   |   |   |   |
| Selling and marketing expenses      |   |                  | 2,908  |   |   |   | 2,908 |   |
|                                |   |                  |   |   |   |   |   |   |
| General and administrative expenses |   |                  | 793    |   |   |   | 1,160 |   |

|   | C. | Additional information: |
|--------|----|-------------------------|

----

|   | A. | Notes |
|--------|----|-------|

|                      |   | December 31      |    |
|---------------------------|--------|------------------|---------|
|                      |   | 2010             |    |   | 2009 |   |
|                      |   | NIS in thousands |    |
|                      |   | Series V         |    |   | Series IV |   |   | Series III |   |   | Series II |   |   | Series IV |   |   | Series III |   |   | Series II |   |
| Balance *                 |   |             | 181,519 |   |   |   | 196,298 |   |   |   | 179,847 |   |   |   | 101,020 |   |   |   | 235,557 |   |   |   | 197,815 |   |   |   | 131,689 |   |
| Less - current maturities |   |             | -       |   |   |   | 39,260 |   |   |   | 22,481 |   |   |   | 33,673 |   |   |   | 39,260 |   |   |   | 21,979 |   |   |   | 32,922 |   |
|                      |   |             | 181,519 |   |   |   | 157,038 |   |   |   | 157,366 |   |   |   | 67,347 |   |   |   | 196,297 |   |   |   | 175,836 |   |   |   | 98,767 |   |

|                        |   | Nis in thousands |    |
|-----------------------------|--------|------------------|---------|
|                        |   |             |    |
| 1st year - Current maturity |   |             | 95,414  |   |
| 2nd year                    |   |             | 95,414  |   |
| 3rd year                    |   |             | 131,717 |   |
| 4th year                    |   |             | 98,044  |   |
| 5th year                    |   |             | 98,044  |   |
| 6th year and forward        |   |             | 140,051 |   |
|                        |   |             | 658,684 |   |

|   | * | The aforementioned detailed balance does not include deferred issuance expenses in the amount of NIS 921 thousands (as of December 31, 2009 – NIS 915 thousand) which were deducted from the bonds balance. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1) | Series II – December 2003 |
|--------|----|---------------------------------|

|   | 2) | Series III July – August 2008 |
|--------|----|-------------------------------------|

|   | 3) | Series IV – July – August 2008 |
|--------|----|--------------------------------------------|

|   |   | In July-August,  2008 the Company contemplated a public offering pursuant to the shelf prospectus published by the Company in Israel on May 26, 2008. The company has offered an aggregate principal amount of  NIS 235,557 thousands of debentures issued in return for approximately NIS 240,360 thousands bearing an interest rate of 7.45%, and payable annually each on July 10th of the years 2011-2015. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4) | Series V – May 2010 |
|--------|----|---------------------------|

----

|   | A. | Notes (cont.) |
|--------|----|---------------|

|   | 5) | As of December 31, 2010 the balance of the notes amounts to NIS 657,762 - thousands, is after deduction of issuance costs. (On December 31, 2009 the amounts was NIS 565,976 thousands). |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Credit from bank and others |
|--------|----|-----------------------------|

|   | 1) | Composition: |
|--------|----|--------------|

|                              |   | Yearly Interest Rate |       |   | Current LiabilitiesAs of December 31 |   |    | Non-Current LiabilitiesAs of December 31 |   |   | Total            |   |
|-----------------------------------|--------|----------------------|------------|--------|--------------------------------------|--------|---------|------------------------------------------|--------|--------|------------------|--------|
|                              |   |                 |       |   |                                 |   |    | As of December 31                        |   |
|                              |   | 31/12/10             |       |   | 2010                                 |   |    | 2009                                     |   |   | 2010             |   |   | 2009 |   |   | 2010 |   |   | 2009 |   |
|                              |   | %                    |       |   | NIS in thousands                     |   |    | NIS in thousands                         |   |   | NIS in thousands |   |
| Banks:                            |   |                 |       |   |                                 |   |    |                                     |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Short-term credit                 |   |                 | 3.25%-4.5  | %      |                                 |   | 144,622 |                                     |   |   | 131,572          |   |   |   | - |   |   |   | - |   |   |   | 144,622 |   |   |   | 131,752 |   |
| Loans:                            |   |                 |       |   |                                 |   |    |                                     |   |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| linked to the CPI                 |   |                 | 4.65%-5.15 | %      |                                 |   | 9,140   |                                     |   |   | 8,218            |   |   |   | 9,110 |   |   |   | 19,925 |   |   |   | 18,250 |   |   |   | 28,143 |   |
|                              |   |                 |       |   |                                 |   |    |                                     |   |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unlinked                          |   |                 | 3.3%-6.3   | %      |                                 |   | 71,382  |                                     |   |   | 47,561           |   |   |   | 242,107 |   |   |   | 205,877 |   |   |   | 313,555 |   |   |   | 253,438 |   |
| Total credit from bank and others |   |                 |       |   |                                 |   | 225,144 |                                     |   |   | 187,351          |   |   |   | 251,283 |   |   |   | 225,802 |   |   |   | 476,427 |   |   |   | 413,153 |   |

|   | 2) | Distribution according to repayment dates as of December 31, 2010: |
|--------|----|--------------------------------------------------------------------|

|                                             |   | NIS in thousands |    |
|--------------------------------------------------|--------|------------------|---------|
| 1st year - Current maturities of long-term loans |   |             | 80,522  |   |
| 2nd year                                         |   |             | 74,406  |   |
| 3rd year                                         |   |             | 59,049  |   |
| 4th year                                         |   |             | 45,043  |   |
| 5th year                                         |   |             | 27,867  |   |
| 6th year and forward                             |   |             | 44,918  |   |
|                                             |   |             | 331,805 |   |

|   | 3) | Borrowing during the reporting period |
|--------|----|---------------------------------------|

|   | a. | On February 11, 2010 the company assumed a long-term loan from banks in the sum of NIS 70 million, carrying a variable interest rate of prime+1.15%, and to be repaid within 7 years. The principal is to be repaid in quarterly installments, commencing from the second year. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | Between the months of May through October 2010, a consolidated subsidiary assumed long-term loans from banks for the purpose of acquiring fixed assets at the total sum of approximately NIS 22.7 million, at a variable rate of interest of Prime -0.1%. The loans are for a term of five years, with both principal and interest being paid in quarterly instalments. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Financial Parameters and Covenant |
|--------|----|-----------------------------------|

----

|   | A. | Composition |
|--------|----|-------------|

|                                                                     |   | As of December 31 |   |
|--------------------------------------------------------------------------|--------|-------------------|--------|
|                                                                     |   | 2010              |   |   | 2009 |   |
| Post Employment Benefits at defined benefit plan:                        |   |              |   |   |   |   |
| Severance pay and retirement liability, net                              |   |              | 2,364  |   |   |   | *2,398 |   |
| Benefits to retirees                                                     |   |              | 9,406  |   |   |   | 7,754 |   |
|                                                                     |   |              | 11,770 |   |   |   | 10,152 |   |
| Severance pay benefits                                                   |   |              | 6,569  |   |   |   | *4,110 |   |
|                                                                     |   |              | 18,339 |   |   |   | 14,262 |   |
| Short term employee benefits:                                            |   |              |   |   |   |   |   |   |
| Salaries and wages, payroll and social benefits                     |   |              | 36,116 |   |   |   | 29,081 |   |
| Profit-sharing and bonus plans                                           |   |              | 16,099 |   |   |   | 16,324 |   |
| Severance and retirement benefits**                                      |   |              | -      |   |   |   | 2,344 |   |
| Vacation employee benefits                                               |   |              | 27,586 |   |   |   | 20,077 |   |
|                                                                     |   |              | 79,801 |   |   |   | 67,826 |   |
| Stated in the statement of financial position as follows:                |   |              |   |   |   |   |   |   |
| Employee benefit assets:                                                 |   |              |   |   |   |   |   |   |
| Non-current assets                                                       |   |              | 793    |   |   |   | 649 |   |
|                                                                     |   |              | 793    |   |   |   | 649 |   |
| Employee benefit liabilities:                                            |   |              |   |   |   |   |   |   |
| Current liabilities  – partly included in other payables |   |              |   |   |   |   |   |   |
| -see note 15 d (2)                                                       |   |              | 79,801 |   |   |   | 67,826 |   |
| Non-current liabilities                                                  |   |              | 19,132 |   |   |   | 14,911 |   |
|                                                                     |   |              | 98,933 |   |   |   | 82,737 |   |

|   | B. | Post Employment Benefits |
|--------|----|--------------------------|

|   | (1) | Post Employment Benefits at Defined benefit plan |
|--------|-----|--------------------------------------------------|

----

|   | B. | Post Employment Benefits (cont.) |
|--------|----|----------------------------------|

|   | (2) | Post Employment Benefits at defined deposit Plans |
|--------|-----|---------------------------------------------------|

|   | a) | General |
|--------|----|---------|

|   | b) | Changes in the current value of the liability in respect of severance pay |
|--------|----|---------------------------------------------------------------------------|

|                                               |   | For the year ended December 31 |   |
|----------------------------------------------------|--------|--------------------------------|--------|
|                                               |   | 2010                           |   |   | 2009 |   |
|                                               |   | NIS in thousand                |   |
| Opening Balance                                    |   |                           | 23,367 |   |   |   | *23,615 |   |
| Current service cost                               |   |                           | 1,947  |   |   |   | *1,942 |   |
| Interest rate cost                                 |   |                           | 966    |   |   |   | 1,229 |   |
| Actuarial losses (gains)                           |   |                           | (141   | ) |   |   | 284 |   |
|  Paid-up benefits                             |   |                           | (3,688 | ) |   |   | (3,118 | ) |
|  Liabilities assumed in business combinations |   |                           | 92     |   |   |   | - |   |
| Impact of any reduction or disposal                |   |                           | 580    |   |   |   | (585 | ) |
| Closing balance                                    |   |                           | 23,123 |   |   |   | 23,367 |   |

----

|   | B. |   Post Employment Benefits (cont.) |
|--------|----|----------------------------------------------|

|   | (2) | Post Employment Benefits at defined deposit Plans (cont.) |
|--------|-----|-----------------------------------------------------------|

|   | c) | Changes in the fair value of plan assets |
|--------|----|------------------------------------------|

|                                |   | For the year ended December 31 |   |
|-------------------------------------|--------|--------------------------------|--------|
|                                |   | 2010                           |   |   | 2009 |   |
|                                |   | NIS in thousand                |   |
|                                |   |                           |   |   |   |   |
| Opening balance                     |   |                           | 20,969 |   |   |   | *20,054 |   |
| Projected return on plan assets     |   |                           | 1,006  |   |   |   | 995 |   |
| Actuarial gains                     |   |                           | 466    |   |   |   | 1,445 |   |
| Deposits by the employer            |   |                           | 1,237  |   |   |   | *1,715 |   |
| Paid-up benefits                    |   |                           | (3,477 | ) |   |   | (2,316 | ) |
| Impact of any reduction or disposal |   |                           | 558    |   |   |   | (924 | ) |
| Closing balance                     |   |                           | 20,759 |   |   |   | 20,969 |   |

|   | d) | Changes in the current value of the liability in respect of benefits to retirees |
|--------|----|----------------------------------------------------------------------------------|

|                                         |   | As of December 31 |   |
|----------------------------------------------|--------|-------------------|--------|
|                                         |   | 2010              |   |   | 2009 |   |
|                                         |   | NIS in thousand   |   |
|                                         |   |              |   |   |   |   |
| Opening balance                              |   |              | 7,754  |   |   |   | 7,632 |   |
| Current service cost                         |   |              | 80     |   |   |   | 80 |   |
| Interest rate cost                           |   |              | 411    |   |   |   | 440 |   |
| Actuarial losses                             |   |              | 467    |   |   |   | 258 |   |
| Paid-up benefits                             |   |              | (625   | ) |   |   | (656 | ) |
| Liabilities assumed in business combinations |   |              | 1,318  |   |   |   | - |   |
| Impact of any reduction or disposal          |   |              | 1      |   |   |   | - |   |
| Closing balance                              |   |              | 9,406  |   |   |   | 7,754 |   |

|   | C. | Main actuarial assumptions as of the end of the reporting period of post employment benefits |
|--------|----|----------------------------------------------------------------------------------------------|

|                                            |   | As of December 31 |   |
|-------------------------------------------------|--------|-------------------|--------|
|                                            |   | 2010              |   |   | 2009 |   |
|                                            |   | %                 |   |   | % |   |
|                                            |   |              |   |   |   |   |
| Discount rate                                   |   |              | 4.72   | % |   |   | 4.72 | % |
| Projected rates of return regarding asset plans |   |              | 5.72   | % |   |   | 5.08 | % |
| Projected rates of salary increases             |   |              | 2.94   | % |   |   | 3.57 | % |
| Churn and departure rates                       |   |              | 9.25   | % |   |   | 9.25 | % |

----

|   | D. | Amounts recognized in the statement of income in respect of post employment benefits |
|--------|----|--------------------------------------------------------------------------------------|

|                                              |   | For the year ended December 31 |   |
|---------------------------------------------------|--------|--------------------------------|--------|
|                                              |   | 2010                           |   |   | 2009 |   |
|                                              |   | NIS in thousand                |   |
|                                              |   |                           |   |   |   |   |
| Current service cost                              |   |                           | 2,027  |   |   |   | 2,022 |   |
| Interest rate cost                                |   |                           | 1,377  |   |   |   | 1,669 |   |
| Projected return on the plan's assets             |   |                           | (1,006 | ) |   |   | (995 | ) |
| past service cost                                 |   |                           | 23     |   |   |   | 339 |   |
|                                              |   |                           | 2,421  |   |   |   | 3,035 |   |
|                                              |   |                           |   |   |   |   |   |   |
| The expense were included in the following items: |   |                           |   |   |   |
| Cost of sales                                     |   |                           | 1,487  |   |   |   | 1,140 |   |
| Selling expenses                                  |   |                           | 252    |   |   |   | 476 |   |
| Administrative and general expenses               |   |                           | 311    |   |   |   | 745 |   |
| Financing expenses                                |   |                           | 371    |   |   |   | 674 |   |
|                                              |   |                           | 2,421  |   |   |   | 3,035 |   |

|   | E. | Severance pay benefits |
|--------|----|------------------------|

|   | A. | Share capital |
|--------|----|---------------|

|                         |   |       |       |   | December 31     |   |
|------------------------------|--------|------------|------------|--------|-----------------|--------|
|                         |   |       |       |   | 2010            |   |   | 2009 |   |
|                         |   | Authorized |       |   | Issued and paid |   |
| Number of shares of NIS 0.01 |   |       | 20,000,000 |   |            |   | 5,084,881 |   |   |   | 5,060,872 |   |
| Amount in NIS                |   |       | 200,000    |   |            |   | 50,849 |   |   |   | 50,609 |   |

|   | B. | Employee stock option plans |
|--------|----|-----------------------------|

|   | 1) | The 2008 plan for senior officers in the Group |
|--------|----|------------------------------------------------|

----

|   | B. | Employee stock option plans: (cont.) |
|--------|----|--------------------------------------|

|   | 1) | The 2008 plan for senior officers in the Group (cont.) |
|--------|----|--------------------------------------------------------|

| Share price (NIS)                     |   |   | 217.10-245.20 |   |
|---------------------------------------|--------|--------|---------------|--------|
| Exercise price (NIS)                  |   |   | 223.965       |   |
| Anticipated volatility (*)            |   |   | 27.04         | %      |
| Length of life of the options (years) |   |   | 3-5           |   |
| Non risk interest rate                |   |   | 5.25          | %      |

|   | 2) | Additional details of options granted to employees |
|--------|----|----------------------------------------------------|

|                                   |   | 2010           |     |   |   2009                            |   |
|----------------------------------------|--------|----------------|----------|--------|----------------------------------------|--------|
|                                   |   | No. Of options |     |   | Weighted average of the exercise price |   |   | No. Of options |   |   | Weighted average of the exercise price |   |
| Options granted to employees which:    |   |           |     |   |                                   |   |   |   |   |   |   |   |
| Outstanding at the start of the period |   |           | 261,500  |   |                                   |   | 223.96 |   |   |   | 246,250 |   |   |   | 223.96 |   |
| Granted                                |   |           | -        |   |                                   |   | - |   |   |   | 34,000 |   |   |   | 223.96 |   |
| Forfeited                              |   |           | -        |   |                                   |   | - |   |   |   | (17,686 | ) |   |   | 223.96 |   |
| Exercised                              |   |           | (103,462 | )      |                                   |   | 223.96 |   |   |   | (1,064 | ) |   |   | 223.96 |   |
| Outstanding at the end of the period   |   |           | 158,038  |   |                                   |   | 223.96 |   |   |   | 261,500 |   |   |   | 223.96 |   |

----

|   | A. | Deferred income taxes |
|--------|----|-----------------------|

|                               |   | Balance at January 1, 2009 |    |   | Recognized in profit and loss |   |   | Recognized in equity |   |   | Balance at December 31,2009 |   |   | Recognized in profit and loss |    |   | Recognized in equity |   |    | Entry into consolidation |   |   | Balance at December 31, 2010 |   |
|------------------------------------|--------|----------------------------|---------|--------|-------------------------------|--------|--------|----------------------|--------|--------|-----------------------------|--------|--------|-------------------------------|---------|--------|----------------------|--------|---------|--------------------------|--------|--------|------------------------------|--------|
|                               |   | NIS in thousands           |    |
| Temporary differences              |   |                       |    |   |                          |   |   |                 |   |   |                        |   |   |                          |    |   |                 |   |    |                     |   |   |                         |   |
| Hedging cash flow                  |   |                       | (200    | )      |                          |   | -      |                 |   |   | 200                         |   |   |                          | -       |   |                 |   | -       |                     |   |   | -                            |   |   |   | - |   |   |   | - |   |
| Intangible assets                  |   |                       | (7,031  | )      |                          |   | 2,021  |                 |   |   | -                           |   |   |                          | (5,010  | )      |                 |   | 765     |                     |   |   | -                            |   |   |   | - |   |   |   | (4,245 | ) |
| Fixed assets                       |   |                       | (69,410 | )      |                          |   | 16,367 |                 |   |   | -                           |   |   |                          | (53,043 | )      |                 |   | (17,255 | )                        |   |   | (830                         | )      |   |   | (25,255 | ) |   |   | (96,383 | ) |
| Employee benefits provisions       |   |                       | 8,493   |   |                          |   | (326   | )                    |   |   | (509                        | )      |   |                          | 7,658   |   |                 |   | 378     |                     |   |   | (26                          | )      |   |   | 1,748 |   |   |   | 9,758 |   |
| Doubtful debts                     |   |                       | 5,930   |   |                          |   | 1,390  |                 |   |   | -                           |   |   |                          | 7,320   |   |                 |   | 400     |                     |   |   | -                            |   |   |   | 1,680 |   |   |   | 9,400 |   |
| Inventory                          |   |                       | (169    | )      |                          |   | 33     |                 |   |   | -                           |   |   |                          | (136    | )      |                 |   | 168     |                     |   |   | 112                          |   |   |   | - |   |   |   | 144 |   |
| Total                              |   |                       | (62,387 | )      |                          |   | 19,485 |                 |   |   | (309                        | )      |   |                          | (43,211 | )      |                 |   | (15,544 | )                        |   |   | (744                         | )      |   |   | (21,827 | ) |   |   | (81,326 | ) |
|                               |   |                       |    |   |                          |   |   |                 |   |   |                        |   |   |                          |    |   |                 |   |    |                     |   |   |                         |   |   |   |   |   |   |   |   |   |
| unutilized losses and tax benefits |   |                       |    |   |                          |   |   |                 |   |   |                        |   |   |                          |    |   |                 |   |    |                     |   |   |                         |   |   |   |   |   |   |   |   |   |
| losses for tax purposes            |   |                       | 15,594  |   |                          |   | (691   | )                    |   |   | -                           |   |   |                          | 14,903  |   |                 |   | 23,284  |                     |   |   | 2                            |   |   |   | - |   |   |   | 38,189 |   |
|                               |   |                       |    |   |                          |   |   |                 |   |   |                        |   |   |                          |    |   |                 |   |    |                     |   |   |                         |   |   |   |   |   |   |   |   |   |
| Total                              |   |                       | (46,793 | )      |                          |   | 18,794 |                 |   |   | (309                        | )      |   |                          | (28,308 | )      |                 |   | 7,740   |                     |   |   | (742                         | )      |   |   | (21,827 | ) |   |   | (43,137 | ) |

----

|   | A. | Deferred income taxes (cont.) |
|--------|----|-------------------------------|

|                                                     |   | December 31      |    |
|----------------------------------------------------------|--------|------------------|---------|
|                                                     |   | 2010             |    |   | 2009 |   |
|                                                     |   | NIS in thousands |    |
| Among non-current assets - Deferred tax assets           |   |             | 2,165   |   |   |   | 2,096 |   |
| Among non-current liabilities - Deferred tax liabilities |   |             | (45,302 | ) |   |   | (30,404 | ) |
| Total                                                    |   |             | (43,137 | ) |   |   | (28,308 | ) |

|   | B. | Amounts in respect of which deferred tax assets were not recognized |
|--------|----|---------------------------------------------------------------------|

|                            |   | For the year endedDecember 31 |   |
|---------------------------------|--------|-------------------------------|--------|
|                            |   | 2010                          |   |   | 2009 |   |
|                            |   | NIS in thousands              |   |
|                            |   |                          |   |   |   |   |
| Real losses from securities     |   |                          | 11,786 |   |   |   | 11,786 |   |
| Capital losses for tax purposes |   |                          | -      |   |   |   | 7,126 |   |
| Total                           |   |                          | 11,786 |   |   |   | 18,912 |   |

|   | C. | Taxes that refer to components in the Other Comprehensive Income |
|--------|----|------------------------------------------------------------------|

|                                                                         |   | For the year endedDecember 31, 2010 |   |
|------------------------------------------------------------------------------|--------|-------------------------------------|--------|
|                                                                         |   | Sums before Tax on income           |   |   | Tax influence |   |   | Sums after tax on income |   |
|                                                                         |   | NIS in thousands                    |   |
| Other Comprehensive income (net, after reclassification to profit and loss): |   |                                |   |   |   |   |   |   |   |
| Profit from cash flow hedging                                                |   |                                | 1,044  |   |   |   | - |   |   |   | 1,044 |   |
| Actuarial gain from a defined benefit plan                                   |   |                                | 140    |   |   |   | (24 | ) |   |   | 116 |   |
| Total                                                                        |   |                                | 1,184  |   |   |   | (24 | ) |   |   | 1,160 |   |

----

|   | C. | Taxes that refer to components in the Other Comprehensive Income (cont.) |
|--------|----|--------------------------------------------------------------------------|

|                                                                         |   | For the year endedDecember 31, 2009 |   |
|------------------------------------------------------------------------------|--------|-------------------------------------|--------|
|                                                                         |   | Sums before Tax on income           |   |   | Tax influence |   |   | Sums after tax on income |   |
|                                                                         |   | NIS in thousands                    |   |
| Other Comprehensive income (net, after reclassification to profit and loss): |   |                                |   |   |   |   |   |   |   |
| Profit from cash flow hedging                                                |   |                                | 3,862  |   |   |   | 200 |   |   |   | 4,062 |   |
| Actuarial gain from a defined benefit plan                                   |   |                                | 986    |   |   |   | (509 | ) |   |   | 477 |   |
| Total                                                                        |   |                                | 4,848  |   |   |   | (309 | ) |   |   | 4,539 |   |

|                                                                         |   | For the year endedDecember 31 2008 |   |
|------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                         |   | Sums before Tax on income          |   |   | Tax influence |   |   | Sums after tax on income |   |
|                                                                         |   | NIS in thousands                   |   |
| Other Comprehensive income (net, after reclassification to profit and loss): |   |                               |   |   |   |   |   |   |   |
| Loss from cash flow hedging                                                  |   |                               | (1,937 | ) |   |   | (369 | ) |   |   | (2,306 | ) |
| Actuarial loss from a defined benefit plan                                   |   |                               | (1,501 | ) |   |   | - |   |   |   | (1,501 | ) |
| Capital reserve from revaluation from step acquisition                       |   |                               | 17,288 |   |   |   | - |   |   |   | 17,288 |   |
| Total                                                                        |   |                               | 13,850 |   |   |   | (369 | ) |   |   | 13,481 |   |

|   | D. | Tax expense (income) on income recognized in profit and loss |
|--------|----|--------------------------------------------------------------|

|   | 1) | As follows: |
|--------|----|-------------|

|                                                               |   | For the year endedDecember 31 |   |
|--------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                               |   | 2010                          |   |   | 2009 |   |   | 2008 |   |
|                                                               |   | NIS in thousands              |   |
| For the reported year:                                             |   |                          |   |   |   |   |   |   |   |
| Current                                                            |   |                          | 5,002  |   |   |   | 11,727 |   |   |   | 7,826 |   |
| Former Years                                                       |   |                          | (212   | ) |   |   | - |   |   |   | - |   |
| Deferred taxes in respect of the reporting   period |   |                          | (7,740 | ) |   |   | (18,794 | ) |   |   | (4,163 | ) |
|                                                               |   |                          | (2,950 | ) |   |   | (7,067 | ) |   |   | 3,663 |   |

----

|   | D. | Tax expense (income) on income recognized in profit and loss (cont.) |
|--------|----|----------------------------------------------------------------------|

|   | 2) | Following is a reconciliation of the “theoretical” tax expense, assuming all income is taxed at the regular rate applicable to companies in Israel, as stated in c above, and the actual tax expenses in the income statement, for the reported year: |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                                                 |   | 2010      |    |   | 2009      |   |    | 2008      |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|---------|--------|-----------|--------|---------|-----------|--------|
|                                                                                                                                                                 |   | NIS in    |    |   | NIS in    |   |    | NIS in    |   |
|                                                                                                                                                                 |   | thousands |    |   | thousands |   |    | thousands |   |
|                                                                                                                                                                 |   |      |    |   |      |   |    |      |   |
| Income (loss) before taxes on income                                                                                                                                 |   |      | 97,662  |   |      |   | 84,681  |      |   |   | 71,623 |   |
| Tax expenses at statutory tax rate                                                                                                                                   |   |      | 24,416  |   |      |   | (22,017 | )         |   |   | 19,338 |   |
| Tax increments (savings) due to:                                                                                                                                     |   |      |    |   |      |   |    |      |   |   |   |   |
| Company's share of after-tax income of investees                                                                                                                     |   |      | (20,283 | )      |      |   | (22,713 | )         |   |   | (13,855 | ) |
| Adjustments due to tax rate changes                                                                                                                                  |   |      | (5,186  | )      |      |   | (8,571  | )         |   |   | (803 | ) |
| Losses for tax purposes on whose account deferred tax assets were not recognized in the past, yet for whom deferred taxes were recognized during the reported period |   |      | -       |   |      |   | (1,103  | )         |   |   | (2,103 | ) |
| Tax expenditures calculated by different tax rate                                                                                                                    |   |      | (2,362  | )      |      |   | 3,736   |      |   |   | - |   |
| Non-taxable income                                                                                                                                                   |   |      | -       |   |      |   | (500    | )         |   |   | (3,958 | ) |
| Non-deductible expenses                                                                                                                                              |   |      | 772     |   |      |   | 1,135   |      |   |   | 4,629 |   |
| Other differences, net                                                                                                                                               |   |      | (96     | )      |      |   | (1,068  | )         |   |   | 415 |   |
|                                                                                                                                                                 |   |      | (2,739  | )      |      |   | (6,371  | )         |   |   | (1,820 | ) |
| Adjustments performed during the year in respect of prior years current taxes                                                                                        |   |      | (211    | )      |      |   | -       |      |   |   | - |   |
| Taxes on income as presented in profit and loss                                                                                                                      |   |      | (2,950  | )      |      |   | (7,067  | )         |   |   | 3,663 |   |

|   | E. | Tax assessments |
|--------|----|-----------------|

|   | F. | Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments) Law, 1985 (hereafter - the inflationary adjustments law) |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | G. | More details |
|--------|----|--------------|

|   | 1. | In accordance with Amendment No. 147 of the Income Tax Ordinance, 2005, a tax rate of 34% which is applicable to companies was gradually reduced starting from 2006 (for which a tax rate of 31% was determined) until 2010 - for which a tax rate of 25% was determined (the tax rate in the years 2007, 2008 and 2009 is 29%, 27% and 26%, respectively). |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | The Economic Efficiency Law (Legal Amendments to the Implementation of the Economic Program for 2009 and 2010) of2009 was published in July 23, 2009 (hereinafter: "The Settlement Law"). According to the Settlement Law, the tax rates of 26% and 25% that apply to companies in the years 2009 and 2010, respectively, will be gradually reduced starting in fiscal year 2011, for which a company tax rate of 24% was set, through to fiscal year 2016, for which a company tax rate of 18% was determined. Subsequent to this change, the company recognized deferred tax revenues in the amount of NIS 5,186 thousands, and NIS 8,571 thousands in 2010 and 2009, respectively. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | On December 29, 2010 the KNESSET passed the Economic Policy Act for the years 2011-2012 (Legislative Amendments), 2011 - which was officially published on January 6, 2011. In conjunction with the Economic Policy Act, the Capital Investment Promotion Act, 1959 was amended (hereinafter: "the amendment to the Act"). Pursuant to the amendment to the Act, the different tax tracks have been eliminated and replaced by fixed tax rates for all of the entity's productive revenues. The fixed tax rates are: In 2011-2012- 15% (in Region A, 10% -') in  2013-12.5% 2014  (in Region A 7%) and from  2015 onwards   (12% (in Region A( 6% - ' Provisions of the amendment to the Act became effective as from January 1,  2011. The Company may elect whether to be subject to the amendment to the Act and waive the remaining benefits to which it is entitled pursuant to the Act prior to its amendment. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A. | Subsidiaries provided guarantees to various entities, in connection with tenders, in the aggregate amount of approximately NIS 3,470 thousands. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | In accordance with the Companies Law, 1999, the Company issued new letters of indemnity to its officers in 2004 (with an amendment from 2006), pursuant to which the Company undertakes to indemnify the officers for any liability or expense, for which indemnification may be paid under the law, that may be incurred by the officers in connection with actions performed by them as part of their duties as officers in the Company, which are directly or indirectly related to the events specified in the addendum to the letters of indemnity, provided that the total amount of indemnification payable to the officers, shall not exceed 25% of the Company’s shareholders’ equity as per its latest financial statements published prior to the actual indemnification.  The liability of officers in connection with the performance of their duties, as above, is partly covered by an insurance policy. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | During the years 2008 and 2009, the Company has engaged in a contract with the main equipment suppliers for the new manufacturing facility of packaging papers ("machine no. 8"), for the total sum of €62.3 million. Most of the equipment supplied during 2008 2009 and 2010. Balance at December 31, 2010 is approximately 4 million Euro. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | D. | In the second quarter of 2007, the Company signed an agreement with a gas company for the transmission of gas for a period of 6 years with a two-year extension option. The total financial value of the transaction is NIS 13.8 million. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | E. | In November 3, 2008, the general meeting of the company approved the validity of a lease agreement signed on September 18, 2008 between the Company and Gev-Yam Lands Ltd (hereinafter – "the lessor"), a public company indirectly controlled by the controlling shareholder in the Company, pursuant to which the Company will rent a plot in Modiin, with a space of 74,500 square meters, and buildings that the lessor plans to build for the Company, covering a total space of 21,300 square meters, which will be used as a center for the purposes of logistics, industry and office (hereinafter – "the logistic center") for subsidiaries and associated companies of the Company and in part will substitute existing lease agreements. The term of the lease will be 15 years from the date of delivery of possession in the leased property in addition to which the Company will have an option to extend the lease by a further 9 years and 11 months. The cost of annual lease amounts to NIS 13.6 million linked to the Consumer Price Index for July 2008. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | F. | In November 2006, the Environmental Protection Ministry announced that, even though the company plant at Hadera has made considerable investments in sewage treatment and environmental protection issues, an investigation may be launched against it to review deviations from certain emission standards into the air.  Based on the opinion of its legal advisors, the Company anticipates that the investigation will not materially impact its operations. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | G. | Against the company and its subsidiaries there are several pending and open claims and financial demands in a total amount of approximately NIS 14,738 thousands (December 31, 2009: NIS 11,550 thousands), in respect of them a provision was credited in a sum of NIS 9,593  thousands (December 31, 2009: NIS 5,345 thousands was recorded. See additional details in sections h-l below. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | H. | In September 2008 the Municipality of Hadera submitted a request for payment of a land betterment levy in the amount of 1.4 million in respect of a change in the use of land which is designated for the construction of a new manufacturing line for packaging papers. The Company contested the amount of the levy with a counter assessment in the amount of NIS 28 thousands. The Company recorded a provision of NIS 900 thousands in these financial statements in light of an expected settlement between the parties. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | I. | A demand to pay purchasing tax of NIS 1,460 thousands was submitted to the Company in respect of the extension of the lease on a plot of land located in Totzeret Haaretz Street in Tel Aviv (formerly the Shafir plant). A decision was handed down by the appeals committee pursuant to which the Company was required to pay a total of NIS 1,390 thousands and the Company paid the amount. Both the Company and the Tax Authority have appealed this decision to the Supreme Court. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | J. | In December 2006 Israel Natural Gas Lines Ltd (hereinafter –"Natural Gas Lines") informed the Company that owners of lands close to the gas production plan have initiated a damages claim against Natural Gas Lines in respect of impairment. It should be noted that the agreement between the Company and Natural Gas Lines addresses the indemnification of Natural Gas Lines as part of the payment of compensation due to harm to adjacent land. The proceeding is conducted before the appeals committee and the Company is not a party to the proceedings. On February 25, 2010, the Company received the Committee decision to set the damages at NIS 2,670 thousand. Natural Gas Lines and the land owners have appealed the Committee's decision. On December 10, 2010, these appeals were rejected. The Company received a payment demand from Natural Gas Lines and recorded a provision on its financial statements as of December 31, 2010. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | K. | During the year of 2009, as part of a formal tax inspection of the Turkish Tax Authorities, the Financial Reports for the years 2004-2008 of KCTR the Turkish subsidiary ("KCTR") of the associated company Hogla- Kimberly Ltd, held by 49.9% were examined. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | L. | On June 15, 2010, an associated company Hogla-Kimberly Ltd. and another competitor company received a petition for the approval of a class action against them. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | A. | Account Receivables: |
|--------|----|----------------------|

|                                          |   | December 31      |    |
|-----------------------------------------------|--------|------------------|---------|
|                                          |   | 2010             |    |   | 2009 |   |
|                                          |   | NIS in thousands |    |
| 1)    Trade receivables : |   |             |    |   |   |   |
| Open accounts                                 |   |             | 516,690 |   |   |   | 293,682 |   |
| Checks collectible                            |   |             | 48,239  |   |   |   | 30,200 |   |
|                                          |   |             | 564,929 |   |   |   | 323,882 |   |
| The item is:                                  |   |             |    |   |   |   |   |   |
| Net of allowance for doubtful accounts        |   |             | 32,618  |   |   |   | 24,236 |   |
| Includes associated companies                 |   |             | 11,005  |   |   |   | 12,556 |   |

|                                         |   | December 31      |    |
|----------------------------------------------|--------|------------------|---------|
|                                         |   | 2010             |    |   | 2009 |   |
|                                         |   | NIS in thousands |    |
| Aging of customers debts:                    |   |             |    |   |   |   |
| Are not in delay                             |   |             | 526,217 |   |   |   | 275,020 |   |
| Delay till 6 months                          |   |             | 47,859  |   |   |   | 43,543 |   |
| Delay from 6 months to 12 months             |   |             | 5,964   |   |   |   | 4,597 |   |
| Delay from 12 months to 24 months            |   |             | 1,309   |   |   |   | 3,371 |   |
| Delay more then 24 months                    |   |             | 16,198  |   |   |   | 21,587 |   |
| Total                                        |   |             | 597,547 |   |   |   | 348,118 |   |
| Deduction of allowance for doubtful accounts |   |             | 32,618  |   |   |   | 24,236 |   |
|                                         |   |             | 564,929 |   |   |   | 323,882 |   |

|                                                            |   | 2010             |   |   | 2009   |   |
|-----------------------------------------------------------------|--------|------------------|--------|--------|--------|--------|
|                                                            |   | NIS in thousands |   |
| Movement in provision for doubtful debts during the year:       |   |             |   |   |   |   |
| Balance at beginning of the year                                |   |             | 24,236 |   |   |   | 22,652 |   |
| Impairment losses recognized on receivables                     |   |             | 4,165  |   |   |   | 2,848 |   |
| Amounts written off as uncollectible                            |   |             | (1,491 | )      |   |   | (261 | ) |
| Amounts recovered during the year                               |   |             | (440   | )      |   |   | (340 | ) |
| Reversal of impairment losses in respect of accounts receivable |   |             | (848   | )      |   |   | (663 | ) |
| Entry into consolidation                                        |   |             | 6,996  |   |   |   | - |   |
| Balance at the end of the year                                  |   |             | 32,618 |   |   |   | 24,236 |   |

----

|   | A. | Account Receivables: (cont.) |
|--------|----|------------------------------|

|                                                   |   | December 31      |   |
|--------------------------------------------------------|--------|------------------|--------|
|                                                   |   | 2010             |   |   | 2009 |   |
|                                                   |   | NIS in thousands |   |
| 2)     Other receivables:          |   |             |   |   |   |   |
| Employees and employee institutions                    |   |             | 1,049  |   |   |   | 1,702 |   |
| Customs and VAT authorities                            |   |             | 180    |   |   |   | 2,036 |   |
| Associated companies - current debt                    |   |             | 37,539 |   |   |   | 81,460 |   |
| Prepaid expenses                                       |   |             | 5,915  |   |   |   | 4,595 |   |
| Advances to suppliers                                  |   |             | 3,078  |   |   |   | 2,252 |   |
| Accounts Receivable                                    |   |             | 8,607  |   |   |   | 3,310 |   |
|         Others |   |             | 691    |   |   |   | 3,542 |   |
|                                                   |   |             | 57,059 |   |   |   | 98,897 |   |

|   | 3) | Available-for-sale financial assets: |
|--------|----|--------------------------------------|

|   | B. | Inventories: |
|--------|----|--------------|

|                                           |   | December 31      |    |
|------------------------------------------------|--------|------------------|---------|
|                                           |   | 2010             |    |   | 2009 |   |
|                                           |   | NIS in thousands |    |
| For industrial activities:                     |   |             |    |   |   |   |
| Products in process                            |   |             | 14,066  |   |   |   | 2,603 |   |
| Finished goods                                 |   |             | 84,583  |   |   |   | 67,149 |   |
| Raw materials and supplies                     |   |             | 140,482 |   |   |   | 65,881 |   |
| Total for industrial activities                |   |             | 239,131 |   |   |   | 135,633 |   |
| For commercial activities - purchased products |   |             | 72,880  |   |   |   | 20,799 |   |
|                                           |   |             | 312,011 |   |   |   | 156,432 |   |
| Maintenance and spare parts *                  |   |             | 31,508  |   |   |   | 19,512 |   |
|                                           |   |             | 343,519 |   |   |   | 175,944 |   |

----

|   | C. | Credit from banks: |
|--------|----|--------------------|

|     |   | Weighted average Interest rateon December 31, 2010 |     |        |             |   |
|----------|--------|----------------------------------------------------|----------|-------------|------------------|--------|
|     |   |                                               |     |        |             |
|     |   |                                               |     | December 31 |             |
|     |   |                                               |     | 2010        |             |   | 2009 |   |
|     |   | %                                                  |     |        | NIS in thousands |   |
| Unlinked |   |                                               | 3.25-4.5 |        |             |   | 144,622 |   |   |   | 131,572 |   |

|   | D. | Trade payable and accruals - other: |
|--------|----|-------------------------------------|

|   |   | December 31      |                                 |
|--------|--------|------------------|--------------------------------------|
|   |   | 2010             |                                 |   | 2009 |   |
|   |   | NIS in thousands |                                 |
|   | 1      | )                | Trade payables:                      |   |   |   |   |   |   |
|   |   |             | Open accounts                        |   |   | 365,745 |   |   |   | 250,235 |   |
|   |   |             | Checks payable                       |   |   | 4,320 |   |   |   | 5,660 |   |
|   |   |             |                                 |   |   | 370,065 |   |   |   | 255,895 |   |
|   | 2      | )                | Other payables:                      |   |   |   |   |   |   |   |   |
|   |   |             | Payroll and related expenses         |   |   | 52,215 |   |   |   | 45,405 |   |
|   |   |             | Institutions in respect of employees |   |   | 20,690 |   |   |   | 21,196 |   |
|   |   |             | Accrued interest                     |   |   | 17,809 |   |   |   | 19,194 |   |
|   |   |             | Accrued expenses                     |   |   | 18,398 |   |   |   | 14,619 |   |
|   |   |             | Income in advance                    |   |   | 6,563 |   |   |   | - |   |
|   |   |             | Initial consolidation                |   |   | 49,368 |   |   |   | - |   |
|   |   |             | Others                               |   |   | 7,252 |   |   |   | 12,331 |   |
|   |   |             |                                 |   |   | 172,295 |   |   |   | 112,745 |   |

|   | E. | Sales (1) |
|--------|----|-----------|

|                                                                                 |   | Year ended December 31 |      |   |
|--------------------------------------------------------------------------------------|--------|------------------------|-----------|--------|
|                                                                                 |   | 2010                   |      |   | 2009 |   |   | 2008 |   |   |
|                                                                                 |   | NIS in thousands       |      |   |
| Industrial operations (2)                                                            |   |                   | 933,540   |   |   |   | 733,938 |   |   |   | 542,244 |   |
| Commercial operations                                                                |   |                   | 187,468   |   |   |   | 158,057 |   |   |   | 131,240 |   |
|                                                                                 |   |                   | 1,121,008 |   |   |   | 891,995 |   |   |   | 673,484 |   |
| (1)       Including sales to associated companies |   |                   | 191,222   |   |   |   | 186,410 |   |   |   | 132,375 |   |
| (2)       Including sales to export               |   |                   | 175,028   |   |   |   | 69,800 |   |   |   | 55,757 |   |

----

|   | F. | Cost of sales: |
|--------|----|----------------|

|                                                            |   | Year ended December 31 |    |
|-----------------------------------------------------------------|--------|------------------------|---------|
|                                                            |   | 2010                   |    |   | 2009 |   |   | 2008 |   |
|                                                            |   | NIS in thousands       |    |
| Industrial operations:                                          |   |                   |    |   |   |   |   |   |   |
| Materials consumed                                              |   |                   | 295,184 |   |   |   | 233,520 |   |   |   | 143,392 |   |
| Expenditure on the basis of benefits to employees (see h below) |   |                   | 215,102 |   |   |   | 206,903 |   |   |   | 149,212 |   |
| Depreciation and amortization                                   |   |                   | 76,856  |   |   |   | 67,497 |   |   |   | 53,144 |   |
| Other manufacturing costs                                       |   |                   | 204,743 |   |   |   | 160,383 |   |   |   | 115,027 |   |
| increase in inventory of finished goods                         |   |                   | 18,053  |   |   |   | (14,716 | ) |   |   | (11,879 | ) |
|                                                            |   |                   | 809,938 |   |   |   | 653,587 |   |   |   | 448,896 |   |
| Commercial operations - cost of products sold                   |   |                   | 135,484 |   |   |   | 112,090 |   |   |   | 93,491 |   |
|                                                            |   |                   | 945,422 |   |   |   | 765,677 |   |   |   | 542,387 |   |

|   | G. | Selling, marketing, administrative and general expenses: |
|--------|----|----------------------------------------------------------|

|                                                            |   | Year ended December 31 |   |
|-----------------------------------------------------------------|--------|------------------------|--------|
|                                                            |   | 2010                   |   |   | 2009 |   |   | 2008 |   |
|                                                            |   | NIS in thousands       |   |
| Selling and marketing:                                          |   |                   |   |   |   |   |   |   |   |
| Expenditure on the basis of benefits to employees (see h below) |   |                   | 35,097 |   |   |   | 30,095 |   |   |   | 18,568 |   |
| Packaging, transport and shipping                               |   |                   | 35,372 |   |   |   | 27,843 |   |   |   | 15,670 |   |
| Commissions                                                     |   |                   | 4,250  |   |   |   | 2,405 |   |   |   | 2,684 |   |
| Depreciation and amortization                                   |   |                   | 3,933  |   |   |   | 4,101 |   |   |   | 1,246 |   |
| Other                                                           |   |                   | 8,549  |   |   |   | 7,554 |   |   |   | 7,506 |   |
|                                                            |   |                   | 87,201 |   |   |   | 71,998 |   |   |   | 45,674 |   |
| Administrative and general:                                     |   |                   |   |   |   |   |   |   |   |   |   |   |
| Expenditure on the basis of benefits to employees (see h below) |   |                   | 60,618 |   |   |   | 57,388 |   |   |   | 55,735 |   |
| Office supplies, rent and maintenance                           |   |                   | 4,451  |   |   |   | 3,698 |   |   |   | 2,222 |   |
| Professional fees                                               |   |                   | 3,941  |   |   |   | 4,318 |   |   |   | 3,210 |   |
| Depreciation and amortization                                   |   |                   | 4,858  |   |   |   | 6,501 |   |   |   | 5,097 |   |
| Doubtful accounts and bad debts                                 |   |                   | 1,930  |   |   |   | 2,290 |   |   |   | 233 |   |
| Other                                                           |   |                   | 12,621 |   |   |   | 12,873 |   |   |   | 15,006 |   |
|                                                            |   |                   | 88,419 |   |   |   | 87,068 |   |   |   | 81,503 |   |
| Less - rent and participation from associated companies         |   |                   | 28,816 |   |   |   | 28,101 |   |   |   | 26,533 |   |
|                                                            |   |                   | 59,603 |   |   |   | 58,967 |   |   |   | 54,970 |   |

----

|   | H. | Expenses in respect of employee benefits |
|--------|----|------------------------------------------|

|                                          |   | Year ended December 31 |    |
|-----------------------------------------------|--------|------------------------|---------|
|                                          |   | 2010                   |    |   | 2009 |   |   | 2008 |   |
|                                          |   | NIS in thousands       |    |
| Composition:                                  |   |                   |    |   |   |   |   |   |   |
| Payroll and bonuses                           |   |                   | 277,917 |   |   |   | 271,585 |   |   |   | 201,856 |   |
| Expenses in respect of a defined deposit plan |   |                   | 35,185  |   |   |   | 22,803 |   |   |   | 15,889 |   |
| Expenses in respect of a defined benefit plan |   |                   | 2,421   |   |   |   | 3,035 |   |   |   | 477 |   |
| Share-based payment transactions              |   |                   | 2,104   |   |   |   | 2,900 |   |   |   | 5,922 |   |
| Severance benefits                            |   |                   | 2,106   |   |   |   | 3,115 |   |   |   | 1,358 |   |
|                                          |   |                   | 319,733 |   |   |   | 303,438 |   |   |   | 225,502 |   |
| Net of capitalized amounts (see note 6f).     |   |                   | (8,545  | ) |   |   | (9,052 | ) |   |   | (1,987 | ) |
|                                          |   |                   | 311,188 |   |   |   | 294,386 |   |   |   | 223,515 |   |

|   | I. | Depreciation and amortization |
|--------|----|-------------------------------|

|                                          |   | Year ended December 31 |   |
|-----------------------------------------------|--------|------------------------|--------|
|                                          |   | 2010                   |   |   | 2009 |   |   | 2008 |   |
| Composition:                                  |   | NIS in thousands       |   |
|                                          |   |                   |   |   |   |   |   |   |   |
| Depreciation of fixed assets (see note 6)     |   |                   | 83,701 |   |   |   | 73,355 |   |   |   | 53,391 |   |
| Depreciation of leased land                   |   |                   | 514    |   |   |   | 913 |   |   |   | 1,178 |   |
| Impairment of intangible assets (see note 8b) |   |                   | 3,701  |   |   |   | 4,068 |   |   |   | 5,215 |   |
| Depreciation of other assets             |   |                   | 131    |   |   |   | 216 |   |   |   | - |   |
|                                          |   |                   | 88,047 |   |   |   | 78,552 |   |   |   | 59,784 |   |

|   | J. | Finance income * |
|--------|----|------------------|

|                                                                    |   | Year ended December 31 |   |
|-------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                    |   | 2010                   |   |   | 2009 |   |   | 2008 |   |
|                                                                    |   | NIS in thousands       |   |
| (1)   interest income                                    |   |                   |   |   |   |   |   |   |   |
|                                                                    |   |                   |   |   |   |   |   |   |   |
| Interest income from short-term bank deposits                           |   |                   | -      |   |   |   | - |   |   |   | 108 |   |
| Interest income from short-term balances                                |   |                   | 2,039  |   |   |   | 3,436 |   |   |   | 3,912 |   |
| Interest income from short-term loans                                   |   |                   | -      |   |   |   | - |   |   |   | 96 |   |
| Interest income from long-term loans                                    |   |                   | 2,468  |   |   |   | 3,763 |   |   |   | 592 |   |
| Interest income from operational revaluation – net                |   |                   | 11,647 |   |   |   | 813 |   |   |   | 1,204 |   |
| Total interest income                                                   |   |                   | 16,154 |   |   |   | 8,012 |   |   |   | 5,912 |   |
|                                                                    |   |                   |   |   |   |   |   |   |   |   |   |   |
| (2)   Other                                              |   |                   | 148    |   |   |   | 113 |   |   |   | 286 |   |
|                                                                    |   |                   |   |   |   |   |   |   |   |   |   |   |
| (3)   Net Profit (loss) from financial assets, by groups |   |                   |   |   |   |   |   |   |   |   |   |   |
|                                                                    |   |                   |   |   |   |   |   |   |   |   |   |   |
| Derivative financial instruments designated as hedging items            |   |                   | -      |   |   |   | 6,221 |   |   |   | 5,871 |   |
|         Less:                        |   |                   |   |   |   |   |   |   |   |   |   |   |
| Amounts capitalized to cost of fixed assets (see note 6e)          |   |                   | (6,988 | ) |   |   | (9,619 | ) |   |   | - |   |
| Total Finance income                                                    |   |                   | 9,314  |   |   |   | 4,727 |   |   |   | 12,069 |   |
|                                                                    |   |                   |   |   |   |   |   |   |   |   |   |   |
| * include financial income of loans to associated companies             |   |                   | 2,468  |   |   |   | 3,763 |   |   |   | 4,790 |   |

----

|   | K. | Finance expenses |
|--------|----|------------------|

|                                                                                         |   | Year ended December 31 |    |
|----------------------------------------------------------------------------------------------|--------|------------------------|---------|
|                                                                                         |   | 2010                   |    |   | 2009 |   |   | 2008 |   |
|                                                                                         |   | NIS in thousands       |    |
| 1)          interest expenses                   |   |                   |    |   |   |   |   |   |   |
|                                                                                         |   |                   |    |   |   |   |   |   |   |
|      Interest expenses from short-term bank loans                   |   |                   | 1,359   |   |   |   | 894 |   |   |   | 224 |   |
|      Interest expenses from short-term loans                        |   |                   | 2,251   |   |   |   | 574 |   |   |   | 3,618 |   |
|      Interest expenses from long-term loans                         |   |                   | 16,709  |   |   |   | 10,338 |   |   |   | 4,927 |   |
|  Interest expenses on account of non-convertible bonds  net of related hedges |   |                   | 45,848  |   |   |   | 39,004 |   |   |   | 34,469 |   |
|      Interest expenses from operating monetary balance-net          |   |                   | 1,959   |   |   |   | 10,221 |   |   |   | - |   |
|      Other interest expenses                                        |   |                   | 1,162   |   |   |   | 1,331 |   |   |   | 8,077 |   |
|      Total interest expenses                                        |   |                   | 69,288  |   |   |   | 62,362 |   |   |   | 51,315 |   |
|                                                                                         |   |                   |    |   |   |   |   |   |   |   |   |   |
| 2)         other                                     |   |                   |    |   |   |   |   |   |   |   |   |   |
|                                                                                         |   |                   |    |   |   |   |   |   |   |   |   |   |
| Changes in the fair value of derivative financial instruments designated as hedging items    |   |                   | 7,487   |   |   |   | 824 |   |   |   | - |   |
| Bank commissions                                                                             |   |                   | 1,161   |   |   |   | 670 |   |   |   | 501 |   |
| Interest costs from employee benefits                                                        |   |                   | 371     |   |   |   | 673 |   |   |   | 1,360 |   |
| Total other finance expenses                                                                 |   |                   | 9,019   |   |   |   | 2,167 |   |   |   | 1,861 |   |
| Less:                                                                                        |   |                   |    |   |   |   |   |   |   |   |   |   |
| Amounts capitalized to cost of fixed assets (see note 6e)                               |   |                   | (24,228 | ) |   |   | (41,537 | ) |   |   | (26,064 | ) |
| Total finance expenses                                                                       |   |                   | 54,079  |   |   |   | 22,992 |   |   |   | 27,112 |   |

|   | L. | Other income |
|--------|----|--------------|

|                                                                              |   | Year ended December 31 |   |
|-----------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                              |   | 2010                   |   |   | 2009 |   |   | 2008 |   |
|                                                                              |   | NIS in thousands       |   |
| Profit from written off a negative cost surplus (1)                               |   |                   | -      |   |   |   | - |   |   |   | 14,664 |   |
| Capital gain from sale of fixed assets and spare parts inventory                  |   |                   | 18,510 |   |   |   | 73 |   |   |   | 237 |   |
| Profit (loss) from revaluation PUT option  to associated company        |   |                   | (872   | ) |   |   | 1,922 |   |   |   | (10,003 | ) |
| Gain from revaluation of prior holding at fair value due to achieving control (2) |   |                   | 5,760  |   |   |   | - |   |   |   | - |   |
| Revenues from unilateral dividend                                                 |   |                   | -      |   |   |   | 16,418 |   |   |   | - |   |
| Revenues from sale of other assets, net                                           |   |                   | (131   | ) |   |   | 1,321 |   |   |   | - |   |
| Net allowance,  Employer Mutual Fund (3)                                |   |                   | 8,529  |   |   |   | - |   |   |   | - |   |
| Other                                                                             |   |                   | 717    |   |   |   | 500 |   |   |   | - |   |
| Total Other income                                                                |   |                   | 32,513 |   |   |   | 20,234 |   |   |   | 4,898 |   |

|   | (1) | In respect of the acquisition of Carmel the Company recognized, in the year 2008, profit of NIS 14,664 thousands because of negative goodwill which was measured as the difference between the fair value of the assets, liabilities and contingent liabilities of Carmel on the date of acquisition and the cost of acquisition. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | With respect to acquiring control of Hadera Paper Printing & Writing Paper, effective as from December 31, 2010, the Company recognized gain from fair value measurement of equity interest in Hadera Paper Printing & Writing Paper, pre-acquisition at 49.9%, amounting to NIS 5,760 thousand. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | L. | Other income (cont.) |
|--------|----|----------------------|

|   | (3) | On December 22, 2010, HADERA PAPER Group was reimbursed contributions amounting in total to NIS 8,529 thousands (hereinafter: "the reimbursement") from the Employer Mutual Fund, as reimbursement of contributions made by the Group to the Fund. The reimbursement was subject to Group commitment to repay these amounts, in whole or in part, in certain cases which the Company believes are unlikely to materialize. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                       |   | Net income             |      |
|------------------------------------------------------------|--------|------------------------|-----------|
|                                                       |   | Year ended December 31 |      |
|                                                       |   | 2010                   |      |   | 2009 |   |   | 2008 |   |
|                                                       |   | NIS in thousands       |      |
|                                                       |   |                   |      |   |   |   |   |   |   |
| Total profit  for the period, as reported in the |   |                   |      |   |   |   |   |   |   |
| income statements, used in computation of                  |   |                   |      |   |   |   |   |   |   |
| basic net income per share                                 |   |                   | 100,728   |   |   |   | 91,230 |   |   |   | 69,710 |   |
| Total profit for the purpose of computing                  |   |                   |      |   |   |   |   |   |   |   |   |   |
| diluted income per share                                   |   |                   | 100,728   |   |   |   | 91,230 |   |   |   | 69,710 |   |
|                                                       |   |                   |      |   |   |   |   |   |   |   |   |   |
|                                                       |   | Number of shares       |      |
|                                                       |   | Year ended December 31 |      |
|                                                       |   |                   | 2010      |   |   |   | 2009 |   |   |   | 2008 |   |
| Weighted average number of ordinary shares used for        |   |                   |      |   |   |   |   |   |   |   |   |   |
| computing the basic income  per share            |   |                   | 5,078,156 |   |   |   | 5,060,788 |   |   |   | 5,060,774 |   |
| Adjustment in respect of incremental shares of warrants    |   |                   | 40,260    |   |   |   | - |   |   |   | - |   |
| Weighted average number of ordinary shares used for        |   |                   |      |   |   |   |   |   |   |   |   |   |
| computing the diluted income  per share          |   |                   | 5,118,416 |   |   |   | 5,060,788 |   |   |   | 5,060,774 |   |

|   | A. | Acquisition of additional shares of Hadera paper-printing and writing paper |
|--------|----|-----------------------------------------------------------------------------|

----

|   | A. | Acquisition of additional shares of Hadera paper-printing and writing paper (cont.) |
|--------|----|-------------------------------------------------------------------------------------|

|                                                                                        |   | NIS in thousands |    |
|---------------------------------------------------------------------------------------------|--------|------------------|---------|
| Consideration (1)                                                                           |   |             | 51,813  |   |
| Value attributed to change in value of Put option                                           |   |             | 18,658  |   |
| Value of non-controlling interests                                                          |   |             | 14,845  |   |
| Total consideration                                                                         |   |             | 85,316  |   |
| Fair value of investment "Printing and Writing Paper" prior to the business combination (2) |   |             | 86,721  |   |
| Total                                                                                       |   |             | 172,037 |   |

----

|   | B. | Net cash flow upon acquisition |
|--------|----|--------------------------------|

|                                    |   | NIS in thousands |    |
|-----------------------------------------|--------|------------------|---------|
| Total cost of acquisition               |   |             | 51,813  |   |
| Less un-paid consideration              |   |             | (51,813 | ) |
| Consideration paid in cash              |   |             | -       |   |
| Less cash and cash equivalents acquired |   |             | (13,111 | ) |
| Total                                   |   |             | (13,111 | ) |

|   | C. | Amounts recognized with respect to assets and liabilities upon the acquisition date |
|--------|----|-------------------------------------------------------------------------------------|

|                           |   | NIS in thousands |     |
|--------------------------------|--------|------------------|----------|
| Financial Assets               |   |             | 194,716  |   |
| Inventory                      |   |             | 161,649  |   |
| Fixed assets                   |   |             | 146,111  |   |
| Goodwill                       |   |             | 12,282   |   |
| Financial Liabilities          |   |             | (342,721 | ) |
| Total identifiable assets, net |   |             | 172,037  |   |

|   | D. | Goodwill |
|--------|----|----------|

|   | E. | Non-controlling interests |
|--------|----|---------------------------|

|   | F. | Cost associated with acquisition |
|--------|----|----------------------------------|

|   | G. | Impact of acquisition on Group results |
|--------|----|----------------------------------------|

----

|   | G. | Impact of acquisition on Group results (cont.) |
|--------|----|------------------------------------------------|

|   | · | Pro-forma information was compiled based on financial information for Hadera Paper Ltd. and "Printing and Writing Paper" The pro-forma information reflects the financial standing and operating results, on consolidated basis, had "Printing and Writing Paper" been acquired on January 1, 2008. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The gain realized by the Company, amounting to NIS 5,760 thousand, was not included on the pro-forma consolidated financial statements, as it was of a non-recurring nature. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Financing expenses on the pro-forma consolidated financial statements were calculated based on 5.85% interest with respect to financing obtained for this acquisition. Repayment of the acquisition is in accordance with terms and conditions of the aforementioned financing. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Other revenues include annual adjustment of the financial liability with respect to put option granted to non-controlling interests for the present value of the expected future payment with respect there to, assuming it would not be exercisable for three years. Profit and loss resulting from settled put options have been reversed. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Inter-company transactions and balances were reversed for the consolidation. Inter-company unrealized gain was not reversed, as it was not material. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A. | As of December 31, 2010 the acquisition of fixed assets with suppliers credit amounted to NIS 30,805 thousand. |
|--------|----|----------------------------------------------------------------------------------------------------------------|

|   | B. | As of December 31, 2009 the acquisition of fixed assets with suppliers credit amounted to NIS 70,541 thousands. |
|--------|----|-----------------------------------------------------------------------------------------------------------------|

|   | C. | As of December 31, 2010, the cost of acquisition of additional shares of "Printing and Writing Paper", amounting to NIS 49,368 thousand, has yet to be paid. See Note 17 a(1). |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A. | The purpose of financial risk management |
|--------|----|------------------------------------------|

----

|   | A. | The purpose of financial risk management (Cont.) |
|--------|----|--------------------------------------------------|

|   | · | Foreign currency swap contracts to hedge EURO currency risks arising from EURO payments result of imports of equipment for Machine 8 from the EU nations. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Foreign currency swap contracts to hedge currency risks arising from the purchase of raw materials in dollars according to the company's policy. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Market risk |
|--------|----|-------------|

|   | C. | Categories of financial instruments |
|--------|----|-------------------------------------|

| Financial assets                                                                  |   |   |      |   |   |   |
|-----------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
| Deposits in the banks                                                             |   |   | 73,480    |   |   |   | 238,778 |   |
| Deposits in the banks designated as hedging items                                 |   |   | 47,512    |   |   |   | 23,949 |   |
| Total deposits in the banks                                                       |   |   | 120,992   |   |   |   | 262,727 |   |
| Derivative financial instruments designated as hedging items                      |   |   | -         |   |   |   | 4,356 |   |
| Available-for-sale investment                                                     |   |   | 1,646     |   |   |   | - |   |
| Loans measured at  amortised cost                                            |   |   | 573,536   |   |   |   | 372,224 |   |
|                                                                              |   |   | 696,174   |   |   |   | 639,307 |   |
| Financial liabilities                                                             |   |   |      |   |   |   |   |   |
| Derivative financial instruments designated as hedging items                      |   |   | -         |   |   |   | 1,114 |   |
| Derivative financial instruments not designated as hedging items                  |   |   | 580       |   |   |   | - |   |
| Put option on an associated company at Fair – value through profit and loss |   |   | -         |   |   |   | 11,982 |   |
| Financial liabilities  measured at  measured at amortised cost     |   |   | 1,134,189 |   |   |   | 979,129 |   |
| PUT option granted to the non controlling interests                               |   |   | 31,512    |   |   |   | - |   |
|                                                                              |   |   | 1,166,281 |   |   |   | 992,225 |   |

----

|   | D. | Derivative financial instruments |
|--------|----|--------------------------------------------|

|   | (1) | Forward transactions against increase in the CPI |
|--------|-----|--------------------------------------------------|

|   | (2) | Foreign currency swap contracts |
|--------|-----|---------------------------------|

|   | E. | Credit risks |
|--------|----|--------------|

|   | F. | Foreign currency risks |
|--------|----|------------------------|

----

|   | F. | Foreign currency risks (cont.) |
|--------|----|--------------------------------|

|                                                        |   | December 31, 2010                                  |    |   | December 31, 2009 |                         |
|-------------------------------------------------------------|--------|----------------------------------------------------|---------|--------|-------------------|------------------------------|
|                                                        |   | In, or linked to, foreign currency (mainly dollar) |    |   | In Euro           |                         |   | Linked to the Israeli CPI |   |   |   Unlinked |   |   | In, or linked to, foreign currency (mainly dollar) |   |   |  In Euro |   |   |  Linked to the Israeli CPI |   |   |   Unlinked |   |
|                                                        |   |   NIS in thousands                       |    |   |              |   NIS in thousands |   |   |
| Assets:                                                     |   |                                               |    |   |              |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current assets:                                             |   |                                               |    |   |              |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents and designated deposits           |   |                                               | 27,780  |   |              |                         | 48,920 |   |   |   | - |   |   |   | 44,292 |   |   |   | 4,952 |   |   |   | 25,976 |   |   |   | - |   |   |   | 122,933 |   |
| Receivables                                                 |   |                                               | 37,147  |   |              |                         | 9,829 |   |   |   | 1,950 |   |   |   | 564,068 |   |   |   | 13,338 |   |   |   | 5,075 |   |   |   | 1,053 |   |   |   | 398,718 |   |
| Investments in associated companies                         |   |                                               |    |   |              |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| - long-term loans and capital notes                         |   |                                               | -       |   |              |                         | - |   |   |   | - |   |   |   | 19,178 |   |   |   | - |   |   |   | - |   |   |   | 36,674 |   |   |   | 17,777 |   |
|                                                        |   |                                               | 64,927  |   |              |                         | 58,749 |   |   |   | 1,950 |   |   |   | 627,538 |   |   |   | 18,290 |   |   |   | 31,051 |   |   |   | 37,727 |   |   |   | 539,428 |   |
| Liabilities:                                                |   |                                               |    |   |              |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current liabilities:                                        |   |                                               |    |   |              |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term credit from banks                                |   |                                               | -       |   |              |                         | - |   |   |   | - |   |   |   | 144,622 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 131,572 |   |
| Accounts payables and accruals                              |   |                                               | 110,329 |   |              |                         | 106, 883 |   |   |   | - |   |   |   | 318,584 |   |   |   | 43,437 |   |   |   | 72,583 |   |   |   | - |   |   |   | 277,801 |   |
| Financial liabilities at fair value through profit and loss |   |                                               |    |   |              |                         | - |   |   |   | - |   |   |   | 31,512 |   |   |   | 11,982 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Long-term liabilities (including current maturities):       |   |                                               |    |   |              |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long –term loans                                      |   |                                               | -       |   |              |                         | - |   |   |   | 18,250 |   |   |   | 313,555 |   |   |   | - |   |   |   | - |   |   |   | 28,143 |   |   |   | 253,438 |   |
| Notes                                                       |   |                                               | -       |   |              |                         | - |   |   |   | 279,765 |   |   |   | 377,997 |   |   |   | - |   |   |   | - |   |   |   | 328,069 |   |   |   | 237,907 |   |
| Other liability                                             |   |                                               | -       |   |              |                         | - |   |   |   | - |   |   |   | 31,512 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 14,911 |   |
|                                                        |   |                                               | 110,329 |   |              |                         | 106,883 |   |   |   | 298,015 |   |   |   | 1,186,270 |   |   |   | 55,419 |   |   |   | 72,583 |   |   |   | 356,212 |   |   |   | 915,629 |   |
|                                                        |   |                                               | (45,402 | )      |              |                         | (48,134 | ) |   |   | (296,065 | ) |   |   | (558,731 | ) |   |   | (37,129 | ) |   |   | (41,532 | ) |   |   | (318,485 | ) |   |   | (376,201 | ) |

----

|   | F. | Foreign currency risks (cont.) |
|--------|----|--------------------------------|

|                                       |   | The influence of the Euro |   |   | The influence of theUS Dollar |   |
|--------------------------------------------|--------|--------------------------------|--------|--------|-------------------------------|--------|
|                                       |   | December 31                    |   |   | December 31                   |   |
|                                       |   | 2010                           |   |   | 2009                          |   |   | 2010 |   |   | 2009 |   |
|                                       |   | NIS  in thousands    |   |   | NIS  in thousands   |   |
| Profit or (loss)                           |   |                           | (1,659 | )      |                          |   | 268 |   |   |   | (1,336 | ) |   |   | (1,518 | ) |
|                                       |   |                           |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |
| Other sections in the shareholders' equity |   |                           | -      |   |                          |   | 995 |   |   |   | - |   |   |   | - |   |

|               |   | Average foreign exchange rate |   |   | Foreign currency    |   |   | Contract value    |   |   | Fair value            |   |
|--------------------|--------|-------------------------------|--------|--------|---------------------|--------|--------|-------------------|--------|--------|-----------------------|--------|
|               |   | 2010                          |   |   | 2009                |   |   | 2010              |   |   | 2009                  |   |   | 2010 |   |   | 2009 |   |   | 2010 |   |   | 2009 |   |   | 2010 |   |   | 2009 |   |
|               |   | NIS                           |   |   | Dollar in thousands |   |   | Euro in thousands |   |   | NIS in thousands |   |
| Hedging cash flow  |   |                          |   |   |                |   |   |              |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Purchase EURO      |   |                          |   |   |                |   |   |              |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| till 6 months      |   |                          | 4.82   |   |                |   | 5.55   |              |   |   |                  |   |   | - |   |   |   | 3,895 |   |   |   | 11,674 |   |   |   | 18,756 |   |   |   | 64,745 |   |   |   | (311 | ) |   |   | (1,113 | ) |
| Purchase Dollar    |   |                          |   |   |                |   |   |              |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| till 6 months      |   |                          | 3.64   |   |                |   | 3.88   |              |   |   | 2,100                 |   |   |   | 1,133 |   |   |   | - |   |   |   | - |   |   |   | 7,651 |   |   |   | 4,400 |   |   |   | 29 |   |   |   | 18 |   |
| EURO  deposit |   |                          | 4.74   |   |                |   | 5.44   |              |   |   | -                     |   |   |   | - |   |   |   | 10,028 |   |   |   | 4,041 |   |   |   | 47,512 |   |   |   | 23,949 |   |   |   | - |   |   |   | - |   |

----

|   | G. | Interest rate and liquidity risk |
|--------|----|----------------------------------|

|   | 1. | Financial liabilities that do not constitute derivative financial instruments |
|--------|----|-------------------------------------------------------------------------------|

|                                           |   | Average effective interest rate |   |   | Till 1 month     |   |   | 1-3 months |   |   | From 3 months to 1 year |   |   | From 1 year to 5 years |    |   | Above 5 years |   |    | Total  |   |
|------------------------------------------------|--------|---------------------------------|--------|--------|------------------|--------|--------|------------|--------|--------|-------------------------|--------|--------|------------------------|---------|--------|---------------|--------|---------|--------|--------|
|                                           |   | %                               |   |   | NIS in thousands |   |
|                                           |   |                            |   |   |             |   |   |       |   |   |                    |   |   |                   |    |   |          |   |    |   |   |
| 2010                                           |   |                            |   |   |             |   |   |       |   |   |                    |   |   |                   |    |   |          |   |    |   |   |
|                                           |   |                            |   |   |             |   |   |       |   |   |                    |   |   |                   |    |   |          |   |    |   |   |
| Short-term credit                              |   |                            | 3.26   |   |             |   | 76,348 |       |   |   | 68,457                  |   |   |                   | -       |   |          |   | -       |   |   |   | - |   |   |   | 144,805 |   |
| Loans from banks                               |   |                            | 4.62   |   |             |   | 8,156  |       |   |   | 12,454                  |   |   |                   | 58,068  |   |          |   | 170,125 |   |   |   | 14,462 |   |   |   | 263,265 |   |
| Long-term credit from others                   |   |                            | 6.30   |   |             |   | 8,052  |       |   |   | -                       |   |   |                   | 8,052   |   |          |   | 64,423  |   |   |   | 33,302 |   |   |   | 113,829 |   |
| Index linked notes carrying permanent interest |   |                            | 4.99   |   |             |   | -      |       |   |   | -                       |   |   |                   | 69,610  |   |          |   | 184,308 |   |   |   | 72,345 |   |   |   | 326,263 |   |
| Notes carrying permanent interest              |   |                            | 6.68   |   |             |   | 7,352  |       |   |   | -                       |   |   |                   | 57,111  |   |          |   | 331,284 |   |   |   | 78,990 |   |   |   | 474,737 |   |
|                                           |   |                            |   |   |             |   |   |       |   |   |                    |   |   |                   |    |   |          |   |    |   |   |   |   |   |   |   |   |   |
|                                           |   |                            |   |   |             |   | 99,908 |       |   |   | 80,911                  |   |   |                   | 192,841 |   |          |   | 750,140 |   |   |   | 199,099 |   |   |   | 1,322,899 |   |
| 2009                                           |   |                            |   |   |             |   |   |       |   |   |                    |   |   |                   |    |   |          |   |    |   |   |   |   |   |   |   |   |   |
|                                           |   |                            |   |   |             |   |   |       |   |   |                    |   |   |                   |    |   |          |   |    |   |   |   |   |   |   |   |   |   |
| Short-term credit                              |   |                            | 2.75   |   |             |   | 44,544 |       |   |   | 67,270                  |   |   |                   | 20,138  |   |          |   | -       |   |   |   | - |   |   |   | 131,952 |   |
| Loans from banks                               |   |                            | 4.27   |   |             |   | 3,364  |       |   |   | 5,327                   |   |   |                   | 35,380  |   |          |   | 146,996 |   |   |   | 1,083 |   |   |   | 192,150 |   |
| Long-term credit from others                   |   |                            | 6.30   |   |             |   | 8,053  |       |   |   | -                       |   |   |                   | 8,053   |   |          |   | 64,424  |   |   |   | 48,318 |   |   |   | 128,848 |   |
| Index linked notes carrying permanent interest |   |                            | 5.05   |   |             |   | -      |       |   |   | -                       |   |   |                   | 71,540  |   |          |   | 224,436 |   |   |   | 98,148 |   |   |   | 394,124 |   |
| Notes carrying permanent interest              |   |                            | 7.45   |   |             |   | 8,847  |       |   |   | -                       |   |   |                   | 47,961  |   |          |   | 198,018 |   |   |   | 42,184 |   |   |   | 297,010 |   |
|                                           |   |                            |   |   |             |   |   |       |   |   |                    |   |   |                   |    |   |          |   |    |   |   |   |   |   |   |   |   |   |
|                                           |   |                            |   |   |             |   | 64,808 |       |   |   | 72,597                  |   |   |                   | 183,072 |   |          |   | 633,874 |   |   |   | 189,733 |   |   |   | 1,144,084 |   |

----

|   | G. | Interest rate and liquidity risk (cont.) |
|--------|----|------------------------------------------|

|   | 2. | Derivative financial instruments |
|--------|----|----------------------------------|

|                                                                        |   | Till 1 month     |   |   | 1-3 months |   |   | From 3 months to 1 year |   |   | Total  |   |
|-----------------------------------------------------------------------------|--------|------------------|--------|--------|------------|--------|--------|-------------------------|--------|--------|--------|--------|
|                                                                        |   | NIS in thousands |   |
| 2010                                                                        |   |             |   |   |       |   |   |                    |   |   |   |   |
| Derivative financial instruments  not designated as hedging items |   |             |   |   |       |   |   |                    |   |   |   |   |
| Foreign currency swap contracts                                             |   |             | 272    |   |       |   | 39     |                    |   |   | 29     |   |   |   | 340 |   |
| Forwarded contracts on the CPI                                              |   |             | 240    |   |       |   | -      |                    |   |   | -      |   |   |   | 240 |   |
|                                                                        |   |             | 512    |   |       |   | 39     |                    |   |   | 29     |   |   |   | 580 |   |
| 2009                                                                        |   |             |   |   |       |   |   |                    |   |   |   |   |   |   |   |   |
| Derivative financial instruments designated as hedging items                |   |             |   |   |       |   |   |                    |   |   |   |   |   |   |   |   |
| Foreign currency swap contracts                                             |   |             | 1,114  |   |       |   | -      |                    |   |   | -      |   |   |   | 1,114 |   |

|   | 3. | Financial assets that do not constitute derivative financial instruments |
|--------|----|--------------------------------------------------------------------------|

|                               |   | Till 1 month |    |   | 1-3 months |   |   | From 3 months to 1 year |   |   | Total  |   |
|------------------------------------|--------|--------------|---------|--------|------------|--------|--------|-------------------------|--------|--------|--------|--------|
|                               |   |         |    |   |       |   |   |                    |   |   |   |   |
| 2010                               |   |         |    |   |       |   |   |                    |   |   |   |   |
| Loans measured at depreciated cost |   |         |    |   |       |   |   |                    |   |   |   |   |
| Loans to related parties           |   |         | -       |   |       |   | -      |                    |   |   | 675    |   |   |   | 675 |   |
| Bank Deposits (1)                  |   |         | 120,992 |   |       |   | -      |                    |   |   | -      |   |   |   | 120,992 |   |
|                               |   |         | 120,992 |   |       |   | -      |                    |   |   | 675    |   |   |   | 121,667 |   |

|   | (1) | Bank deposits include deposits in foreign currency used for cash flow hedging in amounts of NIS 47,512 thousand and NIS 23,949 thousand at December 31, 2010 and 2009 respectively |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | G. | Interest rate and liquidity risk (cont.) |
|--------|----|------------------------------------------|

|   | 3. | Financial assets that do not constitute derivative financial instruments (cont.) |
|--------|----|----------------------------------------------------------------------------------|

|                                    |   | Till 1 month     |    |   | 1-3 months |   |    | From 3 months to 1 year |   |   | Total  |   |
|-----------------------------------------|--------|------------------|---------|--------|------------|--------|---------|-------------------------|--------|--------|--------|--------|
|                                    |   | NIS in thousands |    |
| 2010                                    |   |             |    |   |       |   |    |                    |   |   |   |   |
| Trade receivables and other receivables |   |             |    |   |       |   |    |                    |   |   |   |   |
| Other accounts                          |   |             | 154,577 |   |       |   | 278,369 |                    |   |   | 83,744 |   |   |   | 516,690 |   |
| Checks collectible                      |   |             | 17,688  |   |       |   | 17,693  |                    |   |   | 12,858 |   |   |   | 48,239 |   |
| Accounts receivable                     |   |             | 3,607   |   |       |   | 5,000   |                    |   |   | -      |   |   |   | 8,607 |   |
|                                    |   |             | 175,872 |   |       |   | 301,062 |                    |   |   | 96,602 |   |   |   | 573,536 |   |
|                                    |   |             | 296,864 |   |       |   | 301,062 |                    |   |   | 97,277 |   |   |   | 695,203 |   |

|                                    |   | Till 1 month     |    |   | 1-3 months |   |    | From 3 months to 1 year |   |   | From 1 year to 5 years |   |   | Total  |   |
|-----------------------------------------|--------|------------------|---------|--------|------------|--------|---------|-------------------------|--------|--------|------------------------|--------|--------|--------|--------|
|                                    |   | NIS in thousands |    |
|                                    |   |             |    |   |       |   |    |                    |   |   |                   |   |   |   |   |
| 2009                                    |   |             |    |   |       |   |    |                    |   |   |                   |   |   |   |   |
| Loans measured at depreciated cost      |   |             |    |   |       |   |    |                    |   |   |                   |   |   |   |   |
| Loans to related parties                |   |             | 1,004   |   |       |   | 2,008   |                    |   |   | 7,195                  |   |   |   | 48,012 |   |   |   | 58,219 |   |
| Deposits in the banks                   |   |             | 154,153 |   |       |   | -       |                    |   |   | -                      |   |   |   | -      |   |   |   | 154,153 |   |
|                                    |   |             | 155,157 |   |       |   | 2,008   |                    |   |   | 7,195                  |   |   |   | 48,012 |   |   |   | 212,372 |   |
|                                    |   |             |    |   |       |   |    |                    |   |   |                   |   |   |   |   |   |   |   |   |   |
| Trade receivables and other receivables |   |             |    |   |       |   |    |                    |   |   |                   |   |   |   |   |   |   |   |   |   |
| Open accounts                           |   |             | 62,114  |   |       |   | 160,566 |                    |   |   | 70,772                 |   |   |   | 565    |   |   |   | 294,017 |   |
| Checks collectible                      |   |             | 10,027  |   |       |   | 16,848  |                    |   |   | 3,569                  |   |   |   | -      |   |   |   | 30,444 |   |
| Accounts receivable                     |   |             | 258     |   |       |   | 49      |                    |   |   | -                      |   |   |   | -      |   |   |   | 307 |   |
|                                    |   |             | 72,399  |   |       |   | 177,463 |                    |   |   | 74,341                 |   |   |   | 565    |   |   |   | 324,768 |   |
|                                    |   |             | 227,556 |   |       |   | 179,471 |                    |   |   | 81,536                 |   |   |   | 48,577 |   |   |   | 537,140 |   |

|   | 4. | Financial assets that constitute derivative financial instruments |
|--------|----|-------------------------------------------------------------------|

----

|   | G. | Interest rate and liquidity risk (cont.) |
|--------|----|------------------------------------------|

|   | 4. | Financial assets that constitute derivative financial instruments (cont.) |
|--------|----|---------------------------------------------------------------------------|

|                                                          |   | Till 1 month     |   |   | 1-3 months |   |   | From 3 months to 1 year |   |   | Total  |   |
|---------------------------------------------------------------|--------|------------------|--------|--------|------------|--------|--------|-------------------------|--------|--------|--------|--------|
|                                                          |   | NIS in thousands |   |
| Derivative financial instruments designated as hedging items: |   |             |   |   |       |   |   |                    |   |   |   |   |
| 2009                                                          |   |             |   |   |       |   |   |                    |   |   |   |   |
| Foreign currency swap contracts                               |   |             | 3,052  |   |       |   | -      |                    |   |   | -      |   |   |   | 3,052 |   |

|   | 5. | Interest risk |
|--------|----|---------------|

|   | § | The earnings of the group for the year ended December 31, 2010 would have been reduced by NIS 11,061 thousands (2009: NIS 5,734 thousands). This change originates primarily from the group's exposure to interest rates on account of variable-interest loans. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | H. | Exposure to the Consumer Price Index |
|--------|----|--------------------------------------|

|   | · | The earnings for the year ended December 31, 2010 would have been reduced by NIS 3,991 thousands (2009: increase of NIS 888 thousands) |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------|

|   | I. | Fair value of financial instruments |
|--------|----|-------------------------------------|

|   | · | The fair value of financial assets and liabilities with customary terms that are traded in active markets is determined based on quoted market prices. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The fair value of other financial assets and liabilities (except for derivative instruments) is determined through accepted pricing techniques based on the analysis of discounted cash flows, using observed current market prices and traders' quotes for similar instruments. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The fair value of derivative financial instruments is calculated based on quoted prices. When such prices are not available, a discounted cash flow analysis is utilized, using the appropriate yield curve for the duration of the instruments for derivatives that are not options while for derivatives which are options, option pricing models are used. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                        |   | Carrying Amount   |    |   | Fair Value        |   |    | Carrying Amount |   |   | Fair Value |   |
|---------------------------------------------------------------------------------------------|--------|-------------------|---------|--------|-------------------|--------|---------|-----------------|--------|--------|------------|--------|
|                                                                                        |   | December 31, 2010 |    |   | December 31, 2009 |   |
|                                                                                        |   | NIS in thousands  |    |   | NIS in thousands  |   |
| Financial Assets                                                                            |   |              |    |   |              |   |    |            |   |   |       |   |
| Long term loans and capital note                                                            |   |              | 675     |   |              |   | 675     |            |   |   | 54,452     |   |   |   | 50,980 |   |
| Financial Liabilities                                                                       |   |              |    |   |              |   |    |            |   |   |       |   |   |   |   |   |
| Notes – series 2 *                                                                    |   |              | 100,806 |   |              |   | 104,144 |            |   |   | 131,362    |   |   |   | 136,715 |   |
| Notes – series 3 *                                                                    |   |              | 178,959 |   |              |   | 184,231 |            |   |   | 196,708    |   |   |   | 207,266 |   |
| Notes – series 4 *                                                                    |   |              | 197,982 |   |              |   | 212,453 |            |   |   | 237,906    |   |   |   | 235,557 |   |
| Notes – series 5 *                                                                    |   |              | 180,015 |   |              |   | 197,494 |            |   |   | -          |   |   |   | - |   |
| Financial liability with respect to PUT option granted to the non controlling interests (2) |   |              | 31,512  |   |              |   | 31,512  |            |   |   | -          |   |   |   | - |   |
| Long term loans with fixed interest                                                         |   |              | 125,731 |   |              |   | 133,671 |            |   |   | 149,809    |   |   |   | 159,915 |   |
|                                                                                        |   |              | 815,005 |   |              |   | 863,505 |            |   |   | 715,785    |   |   |   | 739,453 |   |

|   | (1) | The fair value of long-term Assets and Liabilities are based on the calculation of the current value of cash flows at real interest rate of 4%. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | The value of the option is determined by economic calculation laid down in the "Acquisition Transaction". For details, see note 17. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------|

----

|   | J. | Financial instruments that are presented in the statement of financial position at fair value |
|--------|----|-----------------------------------------------------------------------------------------------|

|   | Level 1: | Quoted prices (unadjusted) in active markets for identical financial liabilities and assets. |
|--------|----------|----------------------------------------------------------------------------------------------|

|   | Level 2: | Data other than quoted prices included in Level 1, that are observed directly (i.e.- prices) or indirectly (data derived from prices), regarding financial assets and liabilities. |
|--------|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Level 3: | Data regarding financial assets and liabilities that are not based on observable market data. |
|--------|----------|-----------------------------------------------------------------------------------------------|

|                                                            |   | December 31      |   |
|-----------------------------------------------------------------|--------|------------------|--------|
|                                                            |   | 2010             |   |   | 2009 |   |
|                                                            |   | Level 2          |   |   | Total |   |   | Level 2 |   |   | Total |   |
|                                                            |   | NIS in thousands |   |   | NIS in thousands |   |
| Financial assets at Fair – value through profit and loss: |   |             |   |   |   |   |   |   |   |   |   |   |
| Derivatives                                                     |   |             | -      |   |   |   | - |   |   |   | 3,052 |   |   |   | 3,052 |   |
| Financial assets at Fair – value through OCI:             |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shares                                                          |   |             | 1,646  |   |   |   | 1,646 |   |   |   | - |   |   |   | - |   |

|                                                                 |   | December 31      |   |
|----------------------------------------------------------------------|--------|------------------|--------|
|                                                                 |   | 2010             |   |   | 2009 |   |
|                                                                 |   | Level 2          |   |   | Total |   |   | Level 2 |   |   | Level 3 |   |   | Total |   |
|                                                                 |   | NIS in thousands |   |   | NIS in thousands |   |
| Financial liabilities at Fair – value through profit and loss: |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Derivatives                                                          |   |             | (580   | ) |   |   | (580 | ) |   |   | (1,114 | ) |   |   | - |   |   |   | (1,114 | ) |
| Put option on an associated company                                  |   |             | -      |   |   |   |   |   |   |   | - |   |   |   | (11,982 | ) |   |   | (11,982 | ) |
| Total                                                                |   |             | (580   | ) |   |   | (580 | ) |   |   | (1,114 | ) |   |   | (11,982 | ) |   |   | (13,096 | ) |

|   | (1) | The Put option on  a consolidated company (in 2009 an associated company) is assessed according to the valuation of an external assessor. The estimation was done in 2009 according to the binomial model. The non-risk interest rate used for the estimation is 5.63%. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | K. | Financial instruments at fair-value that are measured according to level 3: |
|--------|----|-----------------------------------------------------------------------------|

|                              |   | Year ended December 31, 2010 |    |
|-----------------------------------|--------|------------------------------|---------|
|                              |   | NIS in thousands             |    |
| Balance – January 1, 2010   |   |                         | (11,982 | ) |
| Recognized in profit and loss     |   |                         | (872    | ) |
|  Disposals                   |   |                         | 12,854  |   |
| Balance – December 31, 2010 |   |                         | -       |   |

|   | A. | General |
|--------|----|---------|

|   | B. | Transactions with interested and related parties |
|--------|----|--------------------------------------------------|

|   |   | The Company and its subsidiaries perform transactions at market terms with interested parties during their ordinary course of business. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   |   | Negligible transactions: |
|--------|--------|--------------------------|

----

|   | B. | Transactions with interested and related parties (cont.) |
|--------|----|----------------------------------------------------------|

|   | 1. | Transactions for purchase of services from interested parties and related parties: communication services, tourism services, services of operating the Company's logistic center, investment consulting services and other financial services. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Transactions for the purchase and/or rent of goods from interested parties and related parties: trucks and hauling equipment, vehicles, insurance products. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Transactions in connection with marketing campaigns, advertising and discounts with interested parties and related parties or related to the products of interested parties and related parties. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | Transactions with interested parties and related parties in connection with the purchase of gift coupons of interested parties and related parties. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5. | Transactions for rent buildings and real-estate assets. |
|--------|----|---------------------------------------------------------|

|   | 6. | Sale of paper products and cardboard, office equipment and other products to companies in the IDB Group. |
|--------|----|----------------------------------------------------------------------------------------------------------|

|                                                                        |   | Year ended December 31, |   |
|-----------------------------------------------------------------------------|--------|-------------------------|--------|
| Interested parties:                                                         |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                                                                        |   | NIS in thousands        |   |
| Sales (1)                                                                   |   |                    | 56,096 |   |   |   | 27,097 |   |   |   | 33,286 |   |
| Cost of sales (2)                                                           |   |                    | 23,366 |   |   |   | 10,689 |   |   |   | 3,976 |   |
| selling, marketing, general and  administrative expenses (3) |   |                    | 6,764  |   |   |   | - |   |   |   | - |   |
| Financing expenses in respect of bonds                                      |   |                    | 1,810  |   |   |   | 1,363 |   |   |   | 1,584 |   |
|                                                                        |   |                    |   |   |   |   |   |   |   |   |   |   |
| Related parties:                                                            |   |                    |   |   |   |   |   |   |   |   |   |   |
| Sales (1)                                                                   |   |                    | 61,944 |   |   |   | 55,833 |   |   |   | 95,448 |   |
| Cost of sales (2)                                                           |   |                    | 42,762 |   |   |   | 29,521 |   |   |   | 13,607 |   |
| Selling, marketing, general and administrative expenses (3)                 |   |                    | 26,083 |   |   |   | 25,368 |   |   |   | 24,243 |   |

----

|   | B. | Transactions with interested and related parties (cont.) |
|--------|----|----------------------------------------------------------|

|   | (1) | Sales |
|--------|-----|-------|

|   | a. | 1. | The Company sold during the year to interested party from the IDB Group and Clal Industries packaging paper. Total transactions with interested parties in the years 2010, 2009 and 2008 amounted to NIS 48.5 million, NIS 27.1 million, NIS 33.3 million and, respectively. |
|--------|----|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | The Company sold cardboard products during the year to an interested party from the IDB Group. Total transactions with the interested party in the year 2010 amounted to NIS 7.6 million. Total value of transactions with the interested party in 2009 and 2008 is negligible. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | The Company sold during the year to associated companies, which are related parties, packaging paper, office supplies and products and white paper waste. Total transactions with interested parties in the years 2010, 2009 and 2008 amounted to NIS 61.9  million, NIS 55.8 million, NIS 95.4 million, respectively. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Cost of sales |
|--------|-----|---------------|

|   | a. | 1. | The Company has transactions with interested party from the IDB Group relating to building rental services. Total transactions in the years 2010, 2009 and 2008 aggregated to NIS_13 million , NIS 11 million and NIS 4 million, respectively. |
|--------|----|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | The Company has transactions with an interested party from IDB Group relating to insurance services. Total transactions in the year 2010 amounts to NIS 10.2 million. Total value of transactions  with the interested party in 2009 and 2008 is negligible. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | The Company purchased during the year from associated companies, which are related parties, white paper and cleaning and toiletry products which are sold by the company. Total transactions with interested parties in the years 2010 ,2009 and 2008 amounted to NIS 42.8 million,NIS 29.5 million and NIS 13.6 million, respectively. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | B. | Transactions with interested and related parties (cont.) |
|--------|----|----------------------------------------------------------|

|   | (3) | Selling, marketing, general and administrative expenses |
|--------|-----|---------------------------------------------------------|

|   | a. | 1. | The Company has transactions with an interested party from IDB Group relating to insurance services. Total transactions in the year 2010 amounts to NIS 1.4 million. Total value of transactions with the interested party in 2009 and 2008 is negligible. |
|--------|----|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | The Company has transactions with an interested party from IDB Group relating to cellular services. Total transactions in the year 2010 amounts to NIS 2.7 million. Total value of transactions with the interested party in 2009 and 2008 is negligible. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | The Company has transactions with an interested party from IDB Group relating to leasing services. Total transactions in the year 2010 amounts to NIS 1.1 million. Total value of transactions with the interested party in 2009 and 2008 is negligible. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | The Company has transactions with an interested party from IDB Group relating to fuel services for vehicles. Total transactions in the year 2010 amounts to NIS 3.8 million including a transaction that is not negligible in amount of NIS 1.5  million, which is recorded to selling, marketing, general and administrative expenses. Total value of transactions with the interested party in 2009 and 2008 is negligible. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | The Company has transactions with associated companies, which are related parties, of revenue from rental buildings and computerization services. Total transactions in the years 2010, 2009 and 2008 amounted to NIS 26.1 million, NIS 25.4 million and NIS 24.2 million, respectively. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | B. | Transactions with interested and related parties (cont.) |
|--------|----|----------------------------------------------------------|

|   | (1) | Remuneration of key executives: |
|--------|-----|---------------------------------|

|                                             |   | For the year ended December 31 |   |
|--------------------------------------------------|--------|--------------------------------|--------|
|                                             |   | 2010                           |   |   | 2009 |   |   | 2008 |   |
|                                             |   | NIS in thousand                |   |
| Short-term benefits                              |   |                           | 8,486  |   |   |   | 8,084 |   |   |   | 8,934 |   |
| Benefits after the completion of the transaction |   |                           | 6      |   |   |   | 7 |   |   |   | 7 |   |
| Other long-term benefits                         |   |                           | -      |   |   |   | - |   |   |   | - |   |
| Severance benefits                               |   |                           | -      |   |   |   | 2,335 |   |   |   | 2,205 |   |
| Share-based payment                              |   |                           | 152    |   |   |   | 2,136 |   |   |   | 2,047 |   |
|                                             |   |                           | 8,644  |   |   |   | 12,562 |   |   |   | 13,193 |   |

|   | (2) | Benefits to interested parties: |
|--------|-----|------------------------------------------------|

|                                         |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|----------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Payroll to interested parties employed       |   |   |   |   |   |   |   |   |   |
| by the Company - NIS  in thousands *    |   |   | 2,629  |   |   |   | 3,503  |   |   |   | 2,503 |   |
| Number of people to whom the benefits relate |   |   | 1      |   |   |   | 1      |   |   |   | 1 |   |
| Remuneration of directors who are not        |   |   |   |   |   |   |   |   |   |   |   |   |
| employed by the Company -                    |   |   |   |   |   |   |   |   |   |   |   |   |
| NIS in thousands                             |   |   | 933    |   |   |   | 807    |   |   |   | 793 |   |
| Number of people to whom                     |   |   |   |   |   |   |   |   |   |   |   |   |
| the benefits relate                          |   |   | 11     |   |   |   | 12     |   |   |   | 12 |   |

|   | * | Refers to the payroll of CEO. |
|--------|---|-------------------------------|

|   | (3) | The company granted to an interested party employed by the Company (the outgoing CEO) during 2008, 40,250 options, as part of the 2008 plan for senior officers in the Group. On March 7, 2010 the Company Board of Directors approved the grant conditions for the third and fourth batches to the outgoing CEO in light of his retirement from managing the Company, as a result of his disability. The total impact on profit and loss amounts to approximately NIS 641 thousand. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Related parties and interested parties balance: |
|--------|----|-------------------------------------------------|

|                                            |   | As of December 31, |   |
|-------------------------------------------------|--------|--------------------|--------|
|                                            |   | 2010               |   |   | 2009 |   |
|                                            |   | NIS in thousands   |   |
| Accounts receivable - commercial operations (1) |   |               | 42,361 |   |   |   | 24,562 |   |
| Accounts payables and accruals                  |   |               | 1,424  |   |   |   | 5,740 |   |
| Notes (2)                                       |   |               | 29,540 |   |   |   | 38,793 |   |

----

|   | C. | Related parties and interested parties balance: (cont.) |
|--------|----|---------------------------------------------------------|

|   | (1) | There were no significant changes in the balance during the year. |
|--------|-----|-------------------------------------------------------------------|

|   | (2) | Notes |
|--------|-----|-------|

|   | · | Non-tradable notes |
|--------|--------|--------------------|

|   | · | Tradable notes |
|--------|--------|----------------|

|   | (3) | See note 15 in respect of associated companies balance. |
|--------|-----|---------------------------------------------------------|

|   | A. | General |
|--------|----|---------|

----

|   | B. | Business segment data 2010: |
|--------|----|-----------------------------|

|                                                       |   | PackagingPaper and recycling |      |   | Marketing of office supplies |   |    | Packaging and carton products |   |   | Hogla Kimberly |   |   | Printing and writing paper |      |   | Adjustments to consolidation |   |    | Total  |   |
|------------------------------------------------------------|--------|------------------------------|-----------|--------|------------------------------|--------|---------|-------------------------------|--------|--------|----------------|--------|--------|----------------------------|-----------|--------|------------------------------|--------|---------|--------|--------|
|                                                       |   | NIS in thousands             |      |
| Sales to external                                          |   |                         | 393,439   |   |                         |   | 176,580 |                          |   |   | 489,543        |   |   |                       | 1,691,918 |   |                         |   | 691,069 |   |   |   | (2,382,986 | ) |   |   | 1,059,563 |   |
| Sales between Segments                                |   |                         | 117,927   |   |                         |   | 2,267   |                          |   |   | 20,102         |   |   |                       | 5,591     |   |                         |   | 37,633  |   |   |   | (122,075 | ) |   |   | 61,445 |   |
| Total sales of the segment                                 |   |                         | 511,366   |   |                         |   | 178,847 |                          |   |   | 509,645        |   |   |                       | 1,697,509 |   |                         |   | 728,702 |   |   |   | (2,505,061 | ) |   |   | 1,121,008 |   |
| Profit from ordinary operations                            |   |                         | 50,159    |   |                         |   | 5,127   |                          |   |   | 7,105          |   |   |                       | 186,603   |   |                         |   | 31,072  |   |   |   | 218,771 |   |   |   | 61,295 |   |
| Financial income                                           |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 9,314 |   |
| Financial expenses                                         |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 54,079 |   |
| Profit before taxes on income                              |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 16,530 |   |
| Taxes on income                                            |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | (2,950 | ) |
| Profit from operations of the Company and its subsidiaries |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 19,480 |   |
| Share in profits of associated companies                   |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 81,132 |   |
| Net Profit for the year                                    |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 100,612 |   |
|                                                       |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   |   |   |
| Segment's assets                                           |   |                         | 1,689,167 |   |                         |   | 53,425  |                          |   |   | 376,061        |   |   |                       | 979,817   |   |                         |   | 425,379 |   |   |   | (1,029,341 | ) |   |   | 2,494,454 |   |
| Join assets that were not allocated between segments(1)    |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 279,180 |   |
| Total assets in the consolidated statements                |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   | 2,773,634 |   |
| Segment's liabilities                                      |   |                         | 138,405   |   |                         |   | 35,920  |                          |   |   | 75,931         |   |   |                       | 501,213   |   |                         |   | 119,809 |   |   |   | (501,213 | ) |   |   | 370,065 |   |
| Join liabilities that were not allocated between segments  |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 1,449,967 |   |
| Total liabilities in the consolidated statements           |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   | 1,820,032 |   |
| Depreciation and amortization                              |   |                         | 68,880    |   |                         |   | 1,103   |                          |   |   | 18,063         |   |   |                       | 31,195    |   |                         |   | 11,901  |   |   |   | (43,096 | ) |   |   | 88,046 |   |
| Capital investments in non-current assets                  |   |                         | 131,071   |   |                         |   | 11,044  |                          |   |   | 39,013         |   |   |                       | 62,564    |   |                         |   | 10,622  |   |   |   | (73,186 | ) |   |   | 181,128 |   |

----

|   | C. | Business segment data 2009: |
|--------|----|-----------------------------|

|                                                       |   | PackagingPaper and recycling |      |   | Marketing of office supplies |   |    | Packaging and carton products |   |   | Hogla Kimberly |   |   | Printing and writing paper |      |   | Adjustments to consolidation |   |    | Total  |   |
|------------------------------------------------------------|--------|------------------------------|-----------|--------|------------------------------|--------|---------|-------------------------------|--------|--------|----------------|--------|--------|----------------------------|-----------|--------|------------------------------|--------|---------|--------|--------|
|                                                       |   | NIS in thousands             |      |
| Sales to external                                          |   |                         | 219,866   |   |                         |   | 149,107 |                          |   |   | 468,339        |   |   |                       | 1,722,613 |   |                         |   | 645,972 |   |   |   | (2,368,582 | ) |   |   | 837,315 |   |
| Sales between Segments                                     |   |                         | 119,433   |   |                         |   | 1,904   |                          |   |   | 15,965         |   |   |                       | 4,014     |   |                         |   | 23,250  |   |   |   | (109,886 | ) |   |   | 54,680 |   |
| Total sales of the segment                                 |   |                         | 339,299   |   |                         |   | 151,011 |                          |   |   | 484,304        |   |   |                       | 1,726,627 |   |                         |   | 669,222 |   |   |   | (2,478,468 | ) |   |   | 891,995 |   |
| Profit from ordinary operations                            |   |                         | (2,737    | )      |                         |   | 3,983   |                          |   |   | 14,712         |   |   |                       | 193,805   |   |                         |   | 40,541  |   |   |   | (234,717 | ) |   |   | 15,587 |   |
| Financial income                                           |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 4,727 |   |
| Financial expenses                                         |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 22,992 |   |
| Loss before taxes on income                           |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | (2,678 | ) |
| Taxes on income                                            |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 7,067 |   |
| Profit from operations of the Company and its subsidiaries |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   | 4,389 |   |
| Share in profits of associated companies                   |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 87,359 |   |
| Net Profit for the year                                    |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 91,748 |   |
| Segment's assets                                           |   |                         | 1,638,895 |   |                         |   | 43,542  |                          |   |   | 356,742        |   |   |                       | 990,670   |   |                         |   | 461,786 |   |   |   | (1,575,061 | ) |   |   | 1,916,574 |   |
| Join assets that were not allocated between segments(1)    |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 372,102 |   |
| Total assets in the consolidated statements                |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   | 2,288,676 |   |
| Segment's liabilities                                      |   |                         | 141,911   |   |                         |   | 31,327  |                          |   |   | 82,657         |   |   |                       | 534,577   |   |                         |   | 306,478 |   |   |   | (841,055 | ) |   |   | 255,895 |   |
| Join liabilities that were not allocated between segments  |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 1,174,352 |   |
| Total liabilities in the consolidated statements           |   |                         |      |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   | 1,430,247 |   |
| Depreciation and amortization                              |   |                         | 56,503    |   |                         |   | 1,502   |                          |   |   | 20,547         |   |   |                       | 29,213    |   |                         |   | 12,028  |   |   |   | (41,241 | ) |   |   | 78,552 |   |
| Capital investments in non-current assets*                 |   |                         | 421,533   |   |                         |   | 1,212   |                          |   |   | 15,797         |   |   |                       | 42,484    |   |                         |   | 4,383   |   |   |   | (46,868 | ) |   |   | 438,541 |   |

----

|   | D. | Business segment data 2008: |
|--------|----|-----------------------------|

|                                                       |   | PackagingPaper and recycling |    |   | Marketing of office supplies |   |    | Packaging and carton products |   |   | Hogla Kimberly |   |   | Printing and writing paper |      |   | Adjustments to consolidation |   |    | Total  |   |
|------------------------------------------------------------|--------|------------------------------|---------|--------|------------------------------|--------|---------|-------------------------------|--------|--------|----------------|--------|--------|----------------------------|-----------|--------|------------------------------|--------|---------|--------|--------|
|                                                       |   | NIS in thousands             |    |
| Sales to externals                                         |   |                         | 273,436 |   |                         |   | 129,068 |                          |   |   | 500,069        |   |   |                       | 1,605,376 |   |                         |   | 717,424 |   |   |   | (2,660,433 | ) |   |   | 564,940 |   |
| Sales between  Segments                          |   |                         | 133,331 |   |                         |   | 2,046   |                          |   |   | 12,508         |   |   |                       | 3,200     |   |                         |   | 14,923  |   |   |   | (57,464 | ) |   |   | 108,544 |   |
| Total sales of the segment                                 |   |                         | 406,767 |   |                         |   | 131,114 |                          |   |   | 512,577        |   |   |                       | 1,608,576 |   |                         |   | 732,347 |   |   |   | (2,717,897 | ) |   |   | 673,484 |   |
| Profit from ordinary operations                            |   |                         | 37,773  |   |                         |   | 3,233   |                          |   |   | (6,226         | )      |   |                       | 135,753   |   |                         |   | 34,090  |   |   |   | (169,272 | ) |   |   | 35,351 |   |
| Financial income                                           |   |                         |    |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 12,069 |   |
| Financial expenses                                         |   |                         |    |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 27,112 |   |
| Profit before taxes on income                              |   |                         |    |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 20,308 |   |
| Taxes on income                                            |   |                         |    |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 3,663 |   |
| Profit from operations of the Company and its subsidiaries |   |                         |    |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   | 16,645 |   |
| Share in profits of associated companies                   |   |                         |    |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 51,315 |   |
| Net Profit for the year                                    |   |                         |    |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 67,960 |   |
| Segment's assets                                           |   |                         | 803,279 |   |                         |   | 72,624  |                          |   |   | 415,666        |   |   |                       | 946,156   |   |                         |   | 483,962 |   |   |   | (1,430,118 | ) |   |   | 1,291,569 |   |
| Join assets that were not allocated between segments(1)    |   |                         |    |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 752,525 |   |
| Total assets in the consolidated statements                |   |                         |    |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   | 2,044,094 |   |
| Segment's liabilities                                      |   |                         | 82,925  |   |                         |   | 35,258  |                          |   |   | 76,837         |   |   |                       | 505,167   |   |                         |   | 361,404 |   |   |   | (866,571 | ) |   |   | 195,020 |   |
| Join liabilities that were not allocated between segments  |   |                         |    |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   |   |   | 1,091,445 |   |
| Total liabilities in the consolidated statements           |   |                         |    |   |                         |   |    |                          |   |   |           |   |   |                       |      |   |                         |   |    |   |   |   |   |   | 1,286,465 |   |
| Depreciation and amortization                              |   |                         | 51,946  |   |                         |   | 1,445   |                          |   |   | 25,604         |   |   |                       | 24,367    |   |                         |   | 11,649  |   |   |   | (55,227 | ) |   |   | 59,784 |   |
| Capital investments in non-current assets                  |   |                         | 254,494 |   |                         |   | 1,694   |                          |   |   | 18,027         |   |   |                       | 53,334    |   |                         |   | 11,649  |   |   |   | (32,971 | ) |   |   | 306,227 |   |

----

|   | E. | Reconciliation of total segment revenues and results to revenues and results on the consolidated statement |
|--------|----|------------------------------------------------------------------------------------------------------------|

|   | (1) | Segments' income: |
|--------|-----|-------------------|

|                                                        |   | For the year ended December 31 |       |
|-------------------------------------------------------------|--------|--------------------------------|------------|
|                                                        |   | 2010                           |       |   | 2009 |   |   | 2008 |   |
|                                                        |   | NIS in thousands          |       |
| Income                                                      |   |                           |       |   |   |   |   |   |   |
| Total segments' income                                      |   |                           | 3,626,069  |   |   |   | 3,370,464 |   |   |   | 3,391,381 |   |
| Less:                                                       |   |                           |       |   |   |   |   |   |   |   |   |   |
| Inter-company sales among Group's consolidated subsidiaries |   |                           | (78,850    | ) |   |   | (82,620 | ) |   |   | (25,285 | ) |
| Sales of segment which are associated companies             |   |                           | (2,426,211 | ) |   |   | (2,395,849 | ) |   |   | (2,692,612 | ) |
| Income in the consolidated statement                        |   |                           | 1,121,008  |   |   |   | 891,995 |   |   |   | 673,484 |   |

|   | (2) | Segments' results: |
|--------|-----|--------------------|

|                                                          |   | For the year ended December 31 |     |
|---------------------------------------------------------------|--------|--------------------------------|----------|
|                                                          |   | 2010                           |     |   | 2009 |   |   | 2008 |   |
|                                                          |   | NIS in thousands          |     |
| Profit from ordinary operations                               |   |                           |     |   |   |   |   |   |   |   |   |   |
| Total profit from ordinary operations of the segments    |   |                           | 280,066  |   |   |   | 250,304 |   |   |   | 204,623 |   |
| Less:                                                         |   |                           |     |   |   |   |   |   |   |   |   |   |
| Unrealized gain                                               |   |                           | (1,096   | ) |   |   | (371 | ) |   |   | (318 | ) |
| Profits of segment which are associated                       |   |                           | (217,675 | )  |   |   | (234,346 | ) |   |   | (163,954 | ) |
| Profit from ordinary operations in the consolidated statement |   |                           | 61,295   |   |   |   | 15,587 |   |   |   | 35,351 |   |

|   | A. | On February 23, 2011, an associate declared a dividend amounting to NIS 30 million, out of retained earnings. This dividend is payable in the second quarter of 2011, subject to absence of material negative developments with respect to the tax event in Turkey, as set forth above in Note 14k. The Company's share of this dividend is NIS 15 million. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | On January 30, 2011 the Ministry for the Protection of the Environment (hereinafter: "the Ministry") held a hearing for the Company regarding suspicion of pollution of water by discharging low quality waste water into the Hadera Stream. During the hearing the positions of the Ministry and of the Company were heard. The Company presented its position that the decline in the quality of the treated waste water was the result of the use of a new raw material. Upon discovery of the source of the problem, the Company ceased the use of that raw material. The Company works in full transparency opposite the authorities, and was in fact even the one who reported to representatives of the Ministry regarding this harm to the quality of the waste water.  On February 8, 2011 the Company received the summary of the hearing in which it was found, inter alia, that the Company had a duty to improve the quality of the waste water, and a duty of reporting weekly to the Ministry regarding the quality of the treated waste water. The Ministry further noted in this summary that if the Company does not fulfill the values prescribed in the permit order for discharge into the Hadera River given on August 11, 2010 within one month from the date of the hearing, the Ministry’s Director of the Haifa District will issue, under his authority, an order to cease operations of Machine 8 which the Company operates, without requiring any advance warnings or additional hearings. Under section 20 to the Business Licensing Law 5728 – 1968, the aforesaid order remains in effect for 30 days from the date of issue. The Company has been acting for some time for the improvement of the treated waste water by the performance of a number of measures, and as a result of these measures, an improvement may already be seen in the quality of the treated waste water discharged into the river. However, the company at this stage cannot estimate the rate or timetable for improvement of the treated waste water, and cannot at this stage estimate the impact of the above in the event of failure to fulfill the required values. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | C. | On February 28, the Audit Committee approved and on March 6, 2011 the Board of Directors approved the agreement entered into by the Company, whereby the Company would lease to CLAL PV Projects Ltd. ("CLAL PV"), a private company indirectly held and controlled by CLAL Industries, roofs of buildings at the Company facility in HADERA, with a total area of up to 19,200 m2, of which the Company has the option not to lease part of this space with an area of up to 14,300 m2 - for construction of power generating facilities using photo-voltaic technology and its transmission to the power grid during the lease term, pursuant to a generation license to be granted to CLAL PV. The rent would range between NIS 90 thousand and NIS 802 thousand per year, based on the area actually leased, and shall be determined based on the tariff per generated kilowatt/hour of power as set for CLAL PV in its generation license. The agreement also specifies that the Company would be paid additional rent up to NIS 70 thousand per year, with respect to excess power generated (if any), as per provisions of the agreement. The lease term runs from the date of taking possession of the leased property through the 20th anniversary of commercial operation of the leased property (as defined in the agreement); CLAL PV was granted an option to extend the lease, provided that the total lease term would not exceed 24 years and 11 months. The agreement includes customary provisions with regard to circumstances under which the parties may terminate the agreement, and the Company was granted the option to terminate the agreement should it announce its desire to use the leased property for its own operations which do not allow operation of the facility in the leased property; in such case, CLAL PV committed to vacate the leased property within the time specified, in return for payment of the economic value of the generation facility based on an independent economic valuation. The agreement is subject to certain suspending conditions being met within 15 months from its signing date, including, inter alia, obtaining approvals, permits and licenses for construction of the facility, obtaining approval of the General Meeting of Company shareholders to be convened to approve this contract and other conditions. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | On March 6, 2011, the Board of Directors approved incorporation of a foreign entity (hereinafter: "the foreign entity"), wholly-owned by the Company, which is to be incorporated for entering into agreement with an overseas business partner (an unrelated third party) for operations in removal of paper and cardboard waste and recycling operations overseas under a Joint Venture (hereinafter: "JV"). The Company's share of this operation is expected to be 65%. This operation shall require an initial investment, to be made in stages based on JV needs, amounting to USD 5.2 million, by way of owners loan or guarantee, 80% of which would be invested by the Company. The agreement is expected to include restrictions on partner rights to transfer their JV shares, to grant the foreign entity the right to appoint two thirds of the JV Board members as well as its CEO, to grant the Company the right to purchase up to 75% of the paper and cardboard waste collected by JV at market prices, and to include certain non-compete provisions. The Company is acting to conclude this agreement, but it is uncertain that the foregoing with regard to feasibility of the JV and final agreement on the aforementioned understandings would materialize, in full or in part. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | E. | On March 24, 2011 an associated company paid a dividend in the amount of NIS 5 million from the retained earnings. The Company’s share in the dividend is approximately NIS 2.5 million.See note 5(5)e, above. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | F. | On March 27, the company announced that the sale of a plot of land in the Totseret Ha'Aretz street in Tel-Aviv have been fulfilled according to agreement that the company signed with Gev-Yam land corporation Ltd and with Amot Investments Ltd. As a result of the closing transaction, the company will record net gain capital, of approximately NIS 30 million. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                     |   | As of December 31, 2009       |   |
|--------------------------|--------|-------------------------------|--------|
|                     |   | As was classified in the past |   |   | The change |   |   | As classified in these statements |   |
|                     |   | NIS in thousands              |   |   | NIS in thousands |   |   | NIS in thousands |   |
|                     |   |                          |   |   |   |   |   |   |   |
| Deferred tax assets      |   |                          | 29,745 |   |   |   | (27,649 | ) |   |   | 2,096 |   |
|                     |   |                          |   |   |   |   |   |   |   |   |   |   |
| Deferred tax liabilities |   |                          | 58,053 |   |   |   | (27,649 | ) |   |   | 30,404 |   |

----

|   |    Kost Forer Gabbay & Kasierer2 Pal-Yam Ave.Haifa 33095, Israel  Tel:  972 (4)8654000Fax: 972(3) 5633443www.ey.com.il |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| Haifa, Israel     | KOST FORER GABBAY & KASIERER     |
|-------------------|--------------------------------------|
| February 22, 2011 | A Member of Ernst & Young Global |

----

|   |    Kost Forer Gabbay & Kasierer2 Pal-Yam Ave.Haifa 33095, Israel  Tel:  972 (4)8654000Fax: 972(3) 5633443www.ey.com.il |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| Haifa, Israel          | KOST FORER GABBAY & KASIERER     |
|------------------------|--------------------------------------|
| February 22, 2011 | A Member of Ernst & Young Global |

----

|   |    Kost Forer Gabbay & Kasierer2 Pal-Yam Ave.Haifa 33095, Israel  Tel:  972 (4)8654000Fax: 972(3) 5633443www.ey.com.il |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| Haifa, Israel     | KOST FORER GABBAY & KASIERER     |
|-------------------|--------------------------------------|
| February 22, 2011 | A Member of Ernst & Young Global |

----

|   |    Kost Forer Gabbay & Kasierer2 Pal-Yam Ave.Haifa 33095, Israel  Tel:  972 (4)8654000Fax: 972(3) 5633443www.ey.com.il |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| Haifa, Israel          | KOST FORER GABBAY & KASIERER     |
|------------------------|--------------------------------------|
| February 22, 2011 | A Member of Ernst & Young Global |

----

| -   | Hadera Paper – Printing and Writing Paper Ltd. |
|---------------|------------------------------------------------------|

| -   | Hogla-Kimberly Ltd. |
|---------------|---------------------|

----

----

|                                                    | Page      |
|---------------------------------------------------------|-----------|
|                                                    |      |
| Report of Independent Registered Public Accounting Firm | M-1       |
|                                                    |      |
| Consolidated Financial Statements:                      |      |
|                                                    |      |
| Statements of  Financial Position             | M-2       |
|                                                    |      |
| Statements of Operations                                | M-3       |
|                                                    |      |
| Statements of Comprehensive Income                      | M-4       |
|                                                    |      |
| Statements of Changes in Shareholders’ Equity     | M-5       |
|                                                    |      |
| Statements of Cash Flows                                | M-6- M-7  |
|                                                    |      |
| Notes to the Financial Statements                       | M-8- M-43 |

----

   

|   | Brightman Almagor ZoharHaifa Office5 Ma'aleh Hashichrur StreetHaifa, 33284P.O.B. 5648, Haifa 31055Israel Tel:    +972 (4) 860 7373Fax:    +972 (4) 867 2528Info-haifa@deloitte.co.ilwww.deloitte.com |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

HADERA PAPER - PRINTING & WRITING PAPER LTD. AND SUBSIDIARIES

|                                       |   |   | December 31, |   |
|--------------------------------------------|--------|--------|--------------|--------|
|                                       |   | Note   |         |   | 2010 |   |   | 2009 |   |
| Assets                                     |   |   |         |   |   |   |   |   |   |
| Current assets                             |   |   |         |   |   |   |   |   |   |
| Cash and cash equivalents                  |   |   | 4            |   |   |   | 13,111 |   |   |   | 17,076 |   |
| Trade receivables                          |   |   | 5            |   |   |   | 175,575 |   |   |   | 184,415 |   |
| Other receivables                          |   |   | 6            |   |   |   | 6,030 |   |   |   | 2,018 |   |
| Inventories                                |   |   | 7            |   |   |   | 161,649 |   |   |   | 108,202 |   |
| Total current assets                       |   |   |         |   |   |   | 356,365 |   |   |   | 311,711 |   |
|                                       |   |   |         |   |   |   |   |   |   |   |   |   |
| Non-current assets                         |   |   |         |   |   |   |   |   |   |   |   |   |
| Property, plant and equipment              |   |   | 10           |   |   |   | 146,111 |   |   |   | 146,731 |   |
| Goodwill                                   |   |   | 8A           |   |   |   | 3,177 |   |   |   | 3,177 |   |
| Long term trade receivables                |   |   |         |   |   |   | - |   |   |   | 167 |   |
| Total non-current assets                   |   |   |         |   |   |   | 149,288 |   |   |   | 150,075 |   |
| Total assets                               |   |   |         |   |   |   | 505,653 |   |   |   | 461,786 |   |
|                                       |   |   |         |   |   |   |   |   |   |   |   |   |
| Equity and liabilities                     |   |   |         |   |   |   |   |   |   |   |   |   |
| Current liabilities                        |   |   |         |   |   |   |   |   |   |   |   |   |
| Short-term bank credit                     |   |   | 13           |   |   |   | 92,852 |   |   |   | 69,440 |   |
| Current maturities of long-term bank loans |   |   | 13           |   |   |   | 3,662 |   |   |   | 10,599 |   |
| Trade payables                             |   |   | 11           |   |   |   | 119,809 |   |   |   | 105,624 |   |
| Hadera Paper Ltd. Group, net               |   |   |         |   |   |   | 54,455 |   |   |   | 57,595 |   |
| Other financial liabilities                |   |   | 14           |   |   |   | - |   |   |   | 432 |   |
| Current tax liabilities                    |   |   |         |   |   |   | 10,370 |   |   |   | 3,701 |   |
| Other payables and accrued expenses        |   |   | 12           |   |   |   | 19,205 |   |   |   | 21,079 |   |
| Dividend declared                          |   |   | 24           |   |   |   | 8,528 |   |   |   | - |   |
| Accrued severance pay, net                 |   |   | 15           |   |   |   | 92 |   |   |   | 206 |   |
| Total current liabilities                  |   |   |         |   |   |   | 308,973 |   |   |   | 268,676 |   |
|                                       |   |   |         |   |   |   |   |   |   |   |   |   |
| Non-current liabilities                    |   |   |         |   |   |   |   |   |   |   |   |   |
| Long-term bank loans                       |   |   | 13           |   |   |   | 9,357 |   |   |   | 13,019 |   |
| Deferred taxes                             |   |   | 23           |   |   |   | 21,828 |   |   |   | 22,704 |   |
| Employees Benefits                         |   |   | 15           |   |   |   | 2,563 |   |   |   | 2,079 |   |
| Total non-current liabilities              |   |   |         |   |   |   | 33,748 |   |   |   | 37,802 |   |
|                                       |   |   |         |   |   |   |   |   |   |   |   |   |
| Commitments and contingent liabilities     |   |   | 16           |   |   |   |   |   |   |   |   |   |
|                                       |   |   |         |   |   |   |   |   |   |   |   |   |
| Shareholders' equity                       |   |   | 17           |   |   |   |   |   |   |   |   |   |
| Share capital                              |   |   |         |   |   |   | 1 |   |   |   | 1 |   |
| Premium                                    |   |   |         |   |   |   | 43,352 |   |   |   | 43,352 |   |
| Capital reserves                           |   |   |         |   |   |   | 929 |   |   |   | 929 |   |
| Retained earnings                          |   |   |         |   |   |   | 118,650 |   |   |   | 111,026 |   |
|                                       |   |   |         |   |   |   | 162,932 |   |   |   | 155,308 |   |
| Total equity and liabilities               |   |   |         |   |   |   | 505,653 |   |   |   | 461,786 |   |

|                         |   |                    |   |                                      |
|------------------------------|--------|-------------------------|--------|-------------------------------------------|
| D. MuhlgayFinancial Director |   | A. SolelGeneral Manager |   | O. BlochChairman of the Supervisory Board |

----

HADERA PAPER - PRINTING & WRITING PAPER LTD. AND SUBSIDIARIES

|                                |   |   | Year ended December 31, |   |
|-------------------------------------|--------|--------|-------------------------|--------|
|                                |   | Note   |                    |   | 2010 |   |   | 2009 |   |   | 2008 |   |
|                                |   |   |                    |   |   |   |   |   |   |   |   |   |
| Revenue                             |   |   | 18                      |   |   |   | 728,702 |   |   |   | 669,222 |   |   |   | 732,347 |   |
| Cost of sales                       |   |   | 19                      |   |   |   | 640,310 |   |   |   |  (*)  577,995 |   |   |   | (*)   649,177 |   |
| Gross profit                        |   |   |                    |   |   |   | 88,392 |   |   |   | 91,227 |   |   |   | 83,170 |   |
|                                |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating costs and expenses        |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling expenses                    |   |   | 20                      |   |   |   | 43,254 |   |   |   | (*)   40,236 |   |   |   |  (*)     38,756 |   |
| General and administrative expenses |   |   | 21                      |   |   |   | 14,245 |   |   |   | 10,826 |   |   |   | 9,740 |   |
| Other (income) expenses             |   |   |                    |   |   |   | (34 | ) |   |   | (376 | ) |   |   | 584 |   |
|                                |   |   |                    |   |   |   | 57,465 |   |   |   | 50,686 |   |   |   | 49,080 |   |
|                                |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating profit                    |   |   |                    |   |   |   | 30,927 |   |   |   | 40,541 |   |   |   | 34,090 |   |
|                                |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Finance income                      |   |   |                    |   |   |   | (4,293 | ) |   |   | (104 | ) |   |   | (5,889 | ) |
| Finance costs                       |   |   |                    |   |   |   | 5,862 |   |   |   | 11,363 |   |   |   | 13,496 |   |
| Finance costs, net                  |   |   | 22                      |   |   |   | 1,569 |   |   |   | 11,259 |   |   |   | 7,607 |   |
|                                |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Profit before tax                   |   |   |                    |   |   |   | 29,358 |   |   |   | 29,282 |   |   |   | 26,483 |   |
|                                |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income tax charge                   |   |   | 23                      |   |   |   | 7,286 |   |   |   | 611 |   |   |   | 7,127 |   |
|                                |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Profit for the year                 |   |   |                    |   |   |   | 22,072 |   |   |   | 28,671 |   |   |   | 19,356 |   |

----

PRINTING 

|                                                                      |   | Year ended December 31, |   |
|---------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                      |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                                                                      |   |                    |   |   |   |   |   |   |   |
| Profit for the year                                                       |   |                    | 22,072 |   |   |   | 28,671 |   |   |   | 19,356 |   |
|                                                                      |   |                    |   |   |   |   |   |   |   |   |   |   |
| Cash flow hedges, net.                                                    |   |                    | -      |   |   |   | 80 |   |   |   | (4,079 | ) |
|                                                                      |   |                    |   |   |   |   |   |   |   |   |   |   |
| Transfer to profit or loss from equity  on cash flow hedge, net |   |                    | -      |   |   |   | 3,999 |   |   |   | - |   |
|                                                                      |   |                    |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive income for the year (net of tax)                      |   |                    | 22,072 |   |   |   | 32,750 |   |   |   | 15,277 |   |

----

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

|                                           |   | Share   |   |   |    |   |   | Capital  |   |   | Retained |   |   |   |    |
|------------------------------------------------|--------|---------|--------|--------|---------|--------|--------|----------|--------|--------|----------|--------|--------|--------|---------|
|                                           |   | capital |   |   | Premium |   |   | reserves |   |   | earnings |   |   | Total  |    |
|                                           |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |
| Year ended December 31, 2010                   |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |
|                                           |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |
| Balance - January 1, 2010                      |   |    | 1      |   |    |   | 43,352 |     |   |   | 929      |   |   |   | 111,026 |   |   |   | 155,308 |   |
|                                           |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Profit for the period                          |   |    | -      |   |    |   | -      |     |   |   | -        |   |   |   | 22,072  |   |   |   | 22,072 |   |
| Total comprehensive income for the period |   |    | -      |   |    |   | -      |     |   |   | -        |   |   |   | 22,072  |   |   |   | 22,072 |   |
|                                           |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Dividend paid to shareholders                  |   |    | -      |   |    |   | -      |     |   |   | -        |   |   |   | (5,920  | ) |   |   | (5,920 | ) |
| Dividend declared to shareholders              |   |    | -      |   |    |   | -      |     |   |   | -        |   |   |   | (8,528  | ) |   |   | (8,528 | ) |
|                                           |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Balance - December 31, 2010                    |   |    | 1      |   |    |   | 43,352 |     |   |   | 929      |   |   |   | 118,650 |   |   |   | 162,932 |   |
|                                           |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Year ended December 31, 2009                   |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
|                                           |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Balance - January 1, 2009                      |   |    | 1      |   |    |   | 43,352 |     |   |   | (3,150   | )      |   |   | 82,355  |   |   |   | 122,558 |   |
|                                           |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Profit for the period                          |   |    | -      |   |    |   | -      |     |   |   | -        |   |   |   | 28,671  |   |   |   | 28,671 |   |
| Other comprehensive income for the period |   |    | -      |   |    |   | -      |     |   |   | 4,079    |   |   |   | -       |   |   |   | 4,079 |   |
| Total comprehensive income for the period |   |    | -      |   |    |   | -      |     |   |   | 4,079    |   |   |   | 28,671  |   |   |   | 32,750 |   |
|                                           |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Balance - December 31, 2009                    |   |    | 1      |   |    |   | 43,352 |     |   |   | 929      |   |   |   | 111,026 |   |   |   | 155,308 |   |
|                                           |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Year ended December 31, 2008                   |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
|                                           |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Balance - January 1, 2008                      |   |    | 1      |   |    |   | 43,352 |     |   |   | 929      |   |   |   | 62,999  |   |   |   | 107,281 |   |
|                                           |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Profit for the period                          |   |    | -      |   |    |   | -      |     |   |   | -        |   |   |   | 19,356  |   |   |   | 19,356 |   |
| Other comprehensive income for the period |   |    | -      |   |    |   | -      |     |   |   | (4,079   | )      |   |   | -       |   |   |   | (4,079 | ) |
| Total comprehensive income for the period |   |    | -      |   |    |   | -      |     |   |   | (4,079   | )      |   |   | 19,356  |   |   |   | 15,277 |   |
|                                           |   |    |   |   |    |   |   |     |   |   |     |   |   |   |    |   |   |   |   |   |
| Balance - December 31, 2008                    |   |    | 1      |   |    |   | 43,352 |     |   |   | (3,150   | )      |   |   | 82,355  |   |   |   | 122,558 |   |

----

STATEMENTS 

|                                                                                                   |   | Year ended December 31, |    |
|--------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                                                   |   | 2010                    |    |   | 2009 |   |   | 2008 |   |
|                                                                                                   |   |                    |    |   |   |   |   |   |   |
| Cash flows - operating activities                                                                      |   |                    |    |   |   |   |   |   |   |
| Profit for the year                                                                                    |   |                    | 22,072  |   |   |   | 28,671 |   |   |   | 19,356 |   |
| Adjustments to reconcile net profit to net                                                             |   |                    |    |   |   |   |   |   |   |   |   |   |
| cash used in operating activities                                                                      |   |                    |    |   |   |   |   |   |   |   |   |   |
| (Appendix A)                                                                                           |   |                    | (22,315 | ) |   |   | 38,406 |   |   |   | 28,840 |   |
| Net cash from operating activities                                                                     |   |                    | (243    | )  |   |   | 67,077 |   |   |   | 47,196 |   |
|                                                                                                   |   |                    |    |   |   |   |   |   |   |   |   |   |
|                                                                                                   |   |                    |    |   |   |   |   |   |   |   |   |   |
| Cash flows - investing activities                                                                      |   |                    |    |   |   |   |   |   |   |   |   |   |
| Acquisition of property plant and equipment                                                            |   |                    | (5,215  | ) |   |   | (4,383 | ) |   |   | (9,655 | ) |
| Proceeds from sale of property plant and Equipment                                                |   |                    | 506     |   |   |   | 676 |   |   |   | 287 |   |
| Interest received                                                                                      |   |                    | -       |   |   |   | 104 |   |   |   | 415 |   |
| Net cash used in investing  activities                                                       |   |                    | (4,709  | ) |   |   | (3,603 | ) |   |   | (8,953 | ) |
|                                                                                                   |   |                    |    |   |   |   |   |   |   |   |   |   |
| Cash flows - financing activities                                                                      |   |                    |    |   |   |   |   |   |   |   |   |   |
| Short-term bank credit, net                                                                            |   |                    | 23,412  |   |   |   | (35,948 | ) |   |   | 3,628 |   |
| Repayment of long-term bank  loans                                                           |   |                    | (10,619 | ) |   |   | (15,929 | ) |   |   | (14,024 | ) |
| Dividend paid to shareholders                                                                          |   |                    | (5,920  | ) |   |   | - |   |   |   | - |   |
| Repayment of capital  notes to shareholders                                                  |   |                    | -       |   |   |   | - |   |   |   | (5,700 | ) |
| Interest paid                                                                                          |   |                    | (5,608  | ) |   |   | (7,894 | ) |   |   | (10,852 | ) |
| Net cash  from (used in) financing activities                                                |   |                    | 1,265   |   |   |   | (59,771 | ) |   |   | (26,948 | ) |
|                                                                                                   |   |                    |    |   |   |   |   |   |   |   |   |   |
| (Decrease) Increase in cash and cash equivalents                                                       |   |                    | (3,687  | ) |   |   | 3,703 |   |   |   | 11,295 |   |
| Cash and cash equivalents  at the                                                            |   |                    |    |   |   |   |   |   |   |   |   |   |
| beginning of the financial period                                                                      |   |                    | 17,076  |   |   |   | 13,315 |   |   |   | 323 |   |
| Net foreign exchange difference        on cash and cash equivalents |   |                    | (278    | ) |   |   | 58 |   |   |   | 1,697 |   |
| Cash and cash equivalents of the                                                                       |   |                    |    |   |   |   |   |   |   |   |   |   |
| end of the financial period                                                                            |   |                    | 13,111  |   |   |   | 17,076 |   |   |   | 13,315 |   |

----

|                                                                                                       |   | Year ended December 31, |    |
|------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                                                       |   | 2010                    |    |   | 2009 |   |   | 2008 |   |
| A.   Adjustments to reconcile net profit  to net cash provided by operating activities |   |                    |    |   |   |   |   |   |   |
|                                                                                                       |   |                    |    |   |   |   |   |   |   |
| Finance expenses recognized in profit and loss                                                             |   |                    | 1,569   |   |   |   | 11,259 |   |   |   | 7,607 |   |
| Taxes on income recognized in profit and loss                                                              |   |                    | 7,286   |   |   |   | 611 |   |   |   | 7,127 |   |
| Depreciation and amortization                                                                              |   |                    | 11,901  |   |   |   | 12,028 |   |   |   | 11,649 |   |
|                                                                                                       |   |                    |    |   |   |   |   |   |   |   |   |   |
| Capital loss (gain) on disposal of property plant and equipment                                            |   |                    | (34     | ) |   |   | (376 | ) |   |   | 584 |   |
|                                                                                                       |   |                    |    |   |   |   |   |   |   |   |   |   |
|                                                                                                       |   |                    |    |   |   |   |   |   |   |   |   |   |
| Changes in assets and liabilities:                                                                         |   |                    |    |   |   |   |   |   |   |   |   |   |
| Decrease (Increase)  in trade receivables and other receivables                                  |   |                    | 3,316   |   |   |   | (16,582 | ) |   |   | 21,652 |   |
| (Increase)  Decrease in inventories                                                              |   |                    | (54,578 | ) |   |   | 31,565 |   |   |   | 2,551 |   |
| Increase (Decrease) in trade and other payables, and accrued expenses                                 |   |                    | 12,867  |   |   |   | 11,991 |   |   |   | (21,728 | ) |
| Decrease  in Hadera Paper Ltd. Group, net                                                        |   |                    | (3,140  | ) |   |   | (12,019 | ) |   |   | (1,495 | ) |
|                                                                                                       |   |                    | (20,813 | ) |   |   | 38,477 |   |   |   | 27,947 |   |
| Income tax paid                                                                                            |   |                    | (1,502  | ) |   |   | (71 | ) |   |   | (107 | ) |
|                                                                                                       |   |                    | (22,315 | ) |   |   | 38,406 |   |   |   | 27,840 |   |

----

FINANCIAL 

|   | A. | Description of Business |
|--------|----|-------------------------|

|   | 1) | Hadera Paper - Printing & Writing Paper Ltd. (“the Company”) was incorporated and commenced operations on January 1, 2000. The Company and its Subsidiaries are engaged in the production and marketing of paper, mainly in Israel. Following the share purchase agreement signed on September 7, 2010 between the shareholders, on December 31, 2010  the completion of said agreement occurred. At the completion, Neusiedler Holding BV (NL) Ltd sold 25.1% of the issued and outstanding share capital of the Company to Hadera Paper Ltd. In accordance with the above the Company is presently owned by Hadera Paper Ltd. (75%) (the “Parent Company”) and Neusiedler Holding BV (NL) (25%). |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2) | On January 24, 2011 the company changed its name from Mondi Hadera Paper Ltd. to Hadera Paper - Printing & Writing Paper Ltd. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Definitions: |
|--------|----|--------------|

| The Company             | -      | Hadera Paper - Printing & Writing Paper Ltd. (formerly Mondi Hadera Paper Ltd.)                                                                       |
|-------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
|                    |   |                                                                                                                                                      |
| The Group               | -      | the Company and its Subsidiaries, a list of which is presented in Note 8.                                                                                 |
|                    |   |                                                                                                                                                      |
| Subsidiaries            | -      | companies in which the Company exercises control (as defined by IAS 27), and whose financial statements are fully consolidated with those of the Company. |
|                    |   |                                                                                                                                                      |
| Related Parties         | -      | as defined by IAS 24.                                                                                                                                     |
|                    |   |                                                                                                                                                      |
| Interested Parties      | -      | as defined by IAS 24.                                                                                                                                     |
|                    |   |                                                                                                                                                      |
| Controlling Shareholder | -      | as defined by IAS 24.                                                                                                                                     |
|                    |   |                                                                                                                                                      |
| NIS                     | -      | New Israeli Shekel.                                                                                                                                       |
|                    |   |                                                                                                                                                      |
| CPI                     | -      | the Israeli consumer price index.                                                                                                                         |
|                    |   |                                                                                                                                                      |
| Dollar                  | -      | the U.S. dollar.                                                                                                                                          |
|                    |   |                                                                                                                                                      |
| Euro                    | -      | the United European currency.                                                                                                                             |

----

|   | A. | Applying international accounting standards (IFRS) |
|--------|----|----------------------------------------------------|

|   | B. | Basis of preparation |
|--------|----|----------------------|

|   | § | Assets and liabilities measured by fair value: changes in the fair value of financial assets and liabilities that are measured by fair value are recorded directly as profit or loss, and changes in the fair value of hedging financial instruments recorded to comprehensive income. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Non-current assets held for sale are measured at the lower of their previous carrying amount and fair value less costs of sale. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|

|   | § | Inventories are stated at the lower of cost and net realizable value. |
|--------|--------|-----------------------------------------------------------------------|

|   | § | Property, plant and equipment and intangibles assets are presented at the lower of the cost less accumulated amortizations and the recoverable amount. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Liabilities to employees as described in note 15. |
|--------|--------|---------------------------------------------------|

|   | C. | Format for presentation of financial position |
|--------|----|-----------------------------------------------|

|   | D. | Operating cycle |
|--------|----|-----------------|

|   | E. | Classification of expenses recognized in the statement of income |
|--------|----|------------------------------------------------------------------|

----

|   | F. | Foreign currencies The individual financial statements of each group entity are presented in New Israeli Shekel ("NIS"), the currency of the primary economic environment in which the entity operates (its functional currency). The consolidated financial statements are also presented in NIS which is the functional currency of the Group and the presentation currency for the consolidated financial statements.In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date. (Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined). Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the period in which they accrue. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | G. | Cash and cash equivalents Cash and cash equivalents comprise cash balances available for immediate use and call deposits. Cash equivalents comprise short-term highly liquid investments (with original maturities of three months or less) |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | H. | Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | I. | Goodwill Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary or jointly controlled entity recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | I. | Goodwill (cont.) |
|--------|----|------------------|

|   |   | For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.  As of 31.12.10 no impairment is recognised. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | J. | Property, plant and equipment |
|--------|----|-------------------------------|

|   |   | Property, plant and equipments are tangible items, which are held for use in the manufacture or supply of goods, which are predicted to be used for more than one period. The Group presents its property, plant and equipments items according to the cost model. Under the cost method - a property, plant and equipment are presented at the balance sheet at cost (net of any investment grants), less any accumulated depreciation and any accumulated impairment losses. The cost includes the cost of the assets acquisition as well as costs that can be directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.Depreciation is calculated using the straight-line method at rates considered adequate to depreciate the assets over their estimated useful lives. Amortization of leasehold improvements is computed over the shorter of the term of the lease, including any option period, where the Group intends to exercise such option, or their useful life. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The annual depreciation rates are: | %    |        |
|------------------------------------|------|-------------|
| Leasehold improvements             | 10   |        |
| Machinery and equipment            | 5-20 | (Mainly 5%) |
| Motor vehicles                     | 20   |        |
| Office furniture and equipment     | 6-33 |        |

|   |   | Scrap value, depreciation method and the assets useful lives are being reviewed by management at the end of every financial year. Changes are handled as a change of estimation and are applied from here on.The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in the income statement.The cost of replacing part of a fixed asset item is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of day-to-day servicing are recognized in profit or loss as incurred.  |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | K. | Impairment of tangible and intangible assets other than goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired.Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | L. | Inventories Inventories are assets held for sale in the ordinary course of business, in the process of production for such sale or in the form of materials or supplies to be consumed in the production process or in the rendering of services.Inventories are stated at the lower of cost and net realizable value. Cost of inventories includes all the cost of purchase, direct labor, fixed and variable production over heads and other cost that are incurred, in bringing the inventories to their present location and condition.Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.Cost determined as follows: |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Finished products                  | - | Based on moving-average basis. |
|------------------------------------|---|--------------------------------|
| Raw, auxiliary materials and other | - | Based on moving-average basis. |

|   | M. | Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.When some or all of the economic benefits to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | N. | Financial assets |
|--------|----|------------------|

|   | (1)  | General Investments are recognized and derecognized on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.Financial assets are classified into the following specified categories: |
|--------|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Financial assets ‘at fair value through profit or loss’ (FVTPL) |
|--------|--------|-----------------------------------------------------------------------------|

|   | · | Loans and receivables |
|--------|--------|-----------------------|

----

|   | N. | Financial assets (cont.) |
|--------|----|--------------------------|

|   | (2) | Financial assets at FVTPL Financial assets are classified as at FVTPL where the financial asset is either held for trading or it is designated as at FVTPL.A financial asset is classified as held for trading if: |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● |  it has been acquired principally for the purpose of selling in the near future; or |
|--------|---------|------------------------------------------------------------------------------------------|

|   | ● |  it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ● |  it is a derivative that is not designated and effective as a hedging instrument. |
|--------|---------|----------------------------------------------------------------------------------------|

|   | (3) | Loans and receivables |
|--------|-----|-----------------------|

|   | (4) | Impairment of financial assets |
|--------|-----|--------------------------------|

|   | ● | significant financial difficulty of the issuer or counterparty; or |
|--------|---------|--------------------------------------------------------------------|

|   | ● | default or delinquency in interest or principal payments; or |
|--------|---------|--------------------------------------------------------------|

|   | ● | it becoming probable that the borrower will enter bankruptcy or financial re-organization. |
|--------|---------|--------------------------------------------------------------------------------------------|

----

|   | N. | Financial assets (cont.) |
|--------|----|--------------------------|

|   | (4) | Impairment of financial assets (cont.) |
|--------|-----|----------------------------------------|

|   | O. | Borrowings |
|--------|----|------------|

|   | P. | Derivative financial instruments |
|--------|----|----------------------------------|

----

|   | P. | Derivative financial instruments (cont.) |
|--------|----|------------------------------------------|

|   | (2)  | Hedge accounting (cont.) |
|--------|-----------|--------------------------|

|   | Q. | Revenue recognition |
|--------|----|---------------------|

|   | · | The Group has transferred to the buyer the significant risks and rewards of ownership of the goods; |
|--------|--------|-----------------------------------------------------------------------------------------------------|

|   | · | The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The amount of revenue can be measured reliably; |
|--------|--------|-------------------------------------------------|

|   | · | It is probable that the economic benefits associated with the transaction will flow to the entity; and |
|--------|--------|--------------------------------------------------------------------------------------------------------|

|   | · | The costs incurred or to be incurred in respect of the transaction can be measured reliably. |
|--------|--------|----------------------------------------------------------------------------------------------|

|   | R. | Leasing |
|--------|----|---------|

----

|   | S. | Taxation |
|--------|----|----------|

----

|   | T. | Employee benefits |
|--------|----|-------------------|

|   | (1) | Post-Employment Benefits |
|--------|-----|--------------------------|

|   | (2) | Other long term employee benefits |
|--------|-----|-----------------------------------|

----

|   | T. | Employee benefits (cont.) |
|--------|----|---------------------------|

|   | (2) | Other long term employee benefits (Cont.) Other employee benefits of the Group include liabilities for early retirement.  These liabilities are recorded to statement of operations in accordance with the projected unit credit method. The present value of the Group’s obligation for early retirement was determined by means of the capitalization of anticipated future cash flows from the program at market yields of government bonds, denominated in the currency in which the benefits for early retirement will be paid. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Short term employee benefits Short term employee benefits are benefits which it is anticipated will be utilized or which are to be paid during a period that does not exceed 12 months from the end of the period in which the service that creates entitlement to the benefit was provided. Short term Group benefits include the Group’s liability for short term absences, payment of grants, bonuses and compensation. These benefits are recorded to the statement of operations when created. The benefits are measured on a non capitalized basis. The difference between the amount of the short term benefits to which the employee is entitled and the amount paid is therefore recognized as an asset or liability. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | U. | Exchange Rates and Linkage Basis Following are the change in the representative exchange rates of the Euro and the U.S. dollar vis-à-vis the NIS and in the Israeli Consumer Price Index (“CPI”): |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|    As of: |   | Representative exchange rate of the Euro (NIS per €1) |   |   | Representative exchange rate of the dollar(NIS per $1) |   |   | CPI“in respect of”(in points) |   |
|--------------------------|--------|-------------------------------------------------------------|--------|--------|--------------------------------------------------------|--------|--------|-------------------------------------------|--------|
|                     |   |                                                        |   |   |                                                   |   |   |                                      |   |
| December 31, 2010        |   |                                                        | 4.7379 |   |                                                   |   | 3.549  |                                      |   |   | 117.82 |   |
| December 31, 2009        |   |                                                        | 5.4417 |   |                                                   |   | 3.775  |                                      |   |   | 114.88 |   |
| December 31, 2008        |   |                                                        | 5.2973 |   |                                                   |   | 3.802  |                                      |   |   | 110.55 |   |

| Increase (decrease) during the: |   | %      |   |   | %      |   |   | % |   |
|---------------------------------|--------|--------|--------|--------|--------|--------|--------|---|--------|
| Year ended December 31, 2010    |   |   | (12.93 | )      |   |   | (5.99  | ) |   |   | 2.66 |   |
| Year ended December 31, 2009    |   |   | 2.72   |   |   |   | (0.71  | ) |   |   | 3.90 |   |
| Year ended December 31, 2008    |   |   | (6.40  | )      |   |   | (1.14  | ) |   |   | 3.90 |   |

|   | V. | Reclassification |
|--------|----|------------------|

----

|   | W. | Adoption of new and revised Standards and interpretations |
|--------|----|-----------------------------------------------------------|

|   | A. | Standards and Interpretations Affecting Amounts Reported in the Current Period (and/ or prior periods) |
|--------|----|--------------------------------------------------------------------------------------------------------|

|   | B. | Standards and Interpretations which have not been applied in these financialstatements were in issue but not yet effective |
|--------|----|----------------------------------------------------------------------------------------------------------------------------|

|   | · | Debt instruments will be classified and measured subsequent to initial recognition at amortized cost or at fair value through profit or loss.  The mode of measurement will be determined based on the entity’s business model for managing financial assets and in accordance with the characteristics of the contractual cash flows deriving from such financial assets. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A debt instrument which, according to the criteria, is measured at amortized cost may only be designated at fair value through profit or loss if such designation eliminates inconsistencies in the recognition and measurement that would have arose had the asset been measured at amortized cost. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Equity instruments will be measured at fair value through profit or loss. |
|--------|--------|---------------------------------------------------------------------------|

|   | · | Equity instruments may be designated at fair value through profit or loss, with any gains or losses being recognized in other comprehensive income.  Instruments that have been designated as aforesaid will cease to be tested for impairment and any related gain or loss will not be recognized in profit or loss, including in the event of disposal. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | W. | Adoption of new and revised Standards and interpretations |
|--------|----|-----------------------------------------------------------|

|   | B. | Standards and Interpretations which have not been applied in these financialstatements were in issue but not yet effective |
|--------|----|----------------------------------------------------------------------------------------------------------------------------|

|   | · | Embedded derivatives in financial assets will not be separated from the host contract.  Instead, hybrid contracts will be measured as a whole at amortized cost or at fair value, in accordance with the business model and the contractual cash flows criteria. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Debt instruments will be reclassified from amortized cost to fair value and vice versa only if the entity changes its business model for managing financial assets. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Investments in equity instruments that are not quoted on an active market, including derivatives on such assets, will be measured solely at fair value. The alternative measurement at cost under certain circumstances has been eliminated. Nevertheless, the Standard determines that, under limited circumstances, cost may be an appropriate estimate of fair value. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The change in the fair value of a financial liability that is designated at fair value through profit or loss upon initial recognition, which is attributed to changes in the credit risk of the liability, is recognized directly in other comprehensive income, unless such recognition gives rise to or increases accounting disparity. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Upon the repayment or settlement of a financial liability, the amount of the fair value recognized in other comprehensive income will not be classified to profit or loss. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | All derivatives, whether assets or liabilities, will be measured at fair value, including a derivative financial instrument that constitutes a liability, which is related to an unquoted equity instrument for which a fair value cannot be determined reliably. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | A. | General |
|--------|----|---------|

|   | B. | Significant judgments in applying accounting policies |
|--------|----|-------------------------------------------------------|

|   | • | Useful lives of property, plant and equipment - As described at 2J above, the Group reviews the estimated useful lives of property, plant and equipment at the end of each annual reporting period. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Impairment of goodwill - Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the management to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.The carrying amount of goodwill at the balance sheet date was NIS 3,177 thousand. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Deferred taxes- the company recognizes deferred tax assets for all of the deductible temporary differences up to the amount as to which it is anticipated that there will be taxable income against which the temporary difference will be deductible. During each period, for purposes of calculation of the utilizable temporary difference, management uses estimates and approximations as a basis which it evaluates each period. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Key sources of estimation uncertainty |
|--------|----|---------------------------------------|

|   | • | In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the end of the reporting period. The concentration of credit risk is limited due to the customer base being large and unrelated.  Included in the allowance for doubtful debts are individually impaired trade receivables. The impairment recognized represents the difference between the carrying amount of these trade receivable and the present value of the expected proceeds. The Group does not hold any collateral over these balances. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                            |   | As of December 31, |   |
|---------------------------------|--------|--------------------|--------|
|                            |   | 2010               |   |   | 2009 |   |
|                            |   |               |   |   |   |   |
| Cash in bank – NIS        |   |               | 627    |   |   |   | 4,697 |   |
| Cash in bank - foreign currency |   |               | 12,484 |   |   |   | 12,379 |   |
|                            |   |               | 13,111 |   |   |   | 17,076 |   |

|                                   |   | As of December 31, |    |
|----------------------------------------|--------|--------------------|---------|
|                                   |   | 2010               |    |   | 2009 |   |
| Domestic                               |   |               |    |   |   |   |
|     Open accounts       |   |               | 151,251 |   |   |   | 145,914 |   |
|     Checks receivable   |   |               | 18,285  |   |   |   | 21,621 |   |
|                                   |   |               | 169,536 |   |   |   | 167,535 |   |
| Foreign                                |   |               |    |   |   |   |   |   |
|     Open accounts       |   |               | 13,035  |   |   |   | 20,676 |   |
|                                   |   |               | 182,571 |   |   |   | 188,211 |   |
| Less - allowance for doubtful accounts |   |               | (6,996  | ) |   |   | (3,796 | ) |
|                                   |   |               | 175,575 |   |   |   | 184,415 |   |

|        |   | 31/12/10 |   |
|-------------|--------|----------|--------|
|        |   |     |   |
| 30-60 days  |   |     | 6,580  |   |
| 60-90 days  |   |     | 1,154  |   |
| 90-120 days |   |     | 112    |   |
| Total       |   |     | 7,846  |   |

----

|                                        |   | Year ended December 31, |   |   |
|---------------------------------------------|--------|-------------------------|--------|--------|
|                                        |   | 2010                    |   |   | 2009 |   |
|                                        |   |                    |   |   |   |
| Balance at beginning of the year            |   |                    | 3,796  |   |   |   | 4,160 |   |
| Impairment losses recognized on receivables |   |                    | 3,837  |   |   |   | 2,599 |   |
| Amounts written off as uncollectable        |   |                    | (637   | )      |   |   | (2,963 | ) |
| Balance at end of the year                  |   |                    | 6,996  |   |   |   | 3,796 |   |

|                  |   | As of December 31, |   |   |
|-----------------------|--------|--------------------|--------|--------|
|                  |   | 2010               |   |   | 2009 |   |
|                  |   |               |   |   |   |
| Prepaid expenses      |   |               | 87     |   |   |   | 1,369 |   |
| Advances to suppliers |   |               | 506    |   |   |   | 285 |   |
| Value Added Tax       |   |               | 5,065  |   |   |   | - |   |
| Others                |   |               | 372    |   |   |   | 364 |   |
|                  |   |               | 6,030  |   |   |   | 2,018 |   |

|                                                      |   | As of December 31, |    |
|-----------------------------------------------------------|--------|--------------------|---------|
|                                                      |   | 2010               |    |    2009 |   |
|                                                      |   |               |    |   |
| Raw and auxiliary materials                               |   |               | 68,657  |   |   | 42,235 |
| Good in process                                           |   |               | 10,017  |   |   | 5,734 |
| Finished products                                         |   |               | 82,975  |   |   | 60,233 |
|                                                      |   |               | 161,649 |   |   | 108,202 |
|                                                      |   |               |    |   |   |   |   |
| Includes products in transit                              |   |               | 24,372  |   |   | 22,600 |
|                                                      |   |               |    |   |   |   |   |
| The inventories are presented net of impairment provision |   |               | 2,792   |   |   | 3,218 |

----

|                                     |   | As of December 31, |   |
|------------------------------------------|--------|--------------------|--------|
|                                     |   | 2010               |   |   | 2009 |   |
|                                     |   |               |   |   |   |   |
| A.     Goodwill, Net |   |               | 3,177  |   |   |   | 3,177 |   |

|                                                                |   | Ownership and control |   |
|---------------------------------------------------------------------|--------|-----------------------|--------|
|                                                                |   | As of December 31,    |   |
|                                                                |   | 2010                  |   |
|                                                                |   | %                     |   |
|                                                                |   |                  |   |
| Hadera Paper Printing & Writing Paper  Marketing Ltd. |   |                  | 100.00 |   |
| Grafinir Paper Marketing Ltd.                                       |   |                  | 100.00 |   |
| Yavnir (1999) Ltd.                                                  |   |                  | 100.00 |   |
| Miterani Paper Marketing 2000 (1998) Ltd.                           |   |                  | 100.00 |   |

|                        |   | As of December 31, |    |
|-----------------------------|--------|--------------------|---------|
|                        |   | 2010               |    |   | 2009 |   |
|                        |   |               |    |   |   |   |
| Trade and other receivables |   |               | 176,453 |   |   |   | 185,231 |   |
| Cash and cash equivalents   |   |               | 13,111  |   |   |   | 17,076 |   |
|                        |   |               | 189,564 |   |   |   | 202,307 |   |

----

|                        |   |         |   |   |      |   |    |     |   |   | Office     |   |   |   |   |
|-----------------------------|--------|--------------|--------|--------|-----------|--------|---------|----------|--------|--------|------------|--------|--------|--------|--------|
|                        |   |         |   |   |      |   |    |     |   |   | Furniture, |   |   |   |   |
|                        |   |         |   |   | Machinery |   |    |     |   |   | Computers  |   |   |   |   |
|                        |   | Leasehold    |   |   | and       |   |    | Motor    |   |   | and        |   |   |   |   |
|                        |   | improvements |   |   | equipment |   |    | vehicles |   |   | equipment  |   |   | Total  |   |
| Consolidated                |   |         |   |   |      |   |    |     |   |   |       |   |   |   |   |
| Cost:                       |   |         |   |   |      |   |    |     |   |   |       |   |   |   |   |
| Balance - January 1, 2009   |   |         | 4,403  |   |      |   | 212,279 |     |   |   | 5,166      |   |   |   | 3,630  |   |   |   | 225,478 |   |
| Changes during 2009         |   |         |   |   |      |   |    |     |   |   |       |   |   |   |   |   |   |   |   |   |
| Additions                   |   |         | 628    |   |      |   | 3,454   |     |   |   | -          |   |   |   | 301    |   |   |   | 4,383 |   |
| Dispositions                |   |         | -      |   |      |   | (1,206  | )        |   |   | (380       | )      |   |   | -      |   |   |   | (1,586 | ) |
| Increase spare parts stock  |   |         | -      |   |      |   | 235     |     |   |   | -          |   |   |   | -      |   |   |   | 235 |   |
| Balance - December 31, 2009 |   |         | 5,031  |   |      |   | 214,762 |     |   |   | 4,786      |   |   |   | 3,931  |   |   |   | 228,510 |   |
|                        |   |         |   |   |      |   |    |     |   |   |       |   |   |   |   |   |   |   |   |   |
| Changes during 2010:        |   |         |   |   |      |   |    |     |   |   |       |   |   |   |   |   |   |   |   |   |
| Additions                   |   |         | 1,124  |   |      |   | 8,547   |     |   |   | 23         |   |   |   | 928    |   |   |   | 10,622 |   |
| Dispositions                |   |         | (197   | )      |      |   | (368    | )        |   |   | (1,028     | )      |   |   | (251   | ) |   |   | (1,844 | ) |
| Increase spare parts stock  |   |         | -      |   |      |   | 1,131   |     |   |   | -          |   |   |   | -      |   |   |   | 1,131 |   |
|                        |   |         |   |   |      |   |    |     |   |   |       |   |   |   |   |   |   |   |   |   |
| Balance - December 31, 2010 |   |         | 5,958  |   |      |   | 224,072 |     |   |   | 3,781      |   |   |   | 4,608  |   |   |   | 238,419 |   |
|                        |   |         |   |   |      |   |    |     |   |   |       |   |   |   |   |   |   |   |   |   |
| Accumulated depreciation    |   |         |   |   |      |   |    |     |   |   |       |   |   |   |   |   |   |   |   |   |
| Balance - January 1, 2009   |   |         | 2,573  |   |      |   | 63,139  |     |   |   | 2,886      |   |   |   | 2,439  |   |   |   | 71,037 |   |
| Changes during 2009         |   |         |   |   |      |   |    |     |   |   |       |   |   |   |   |   |   |   |   |   |
| Additions                   |   |         | 517    |   |      |   | 10,189  |     |   |   | 756        |   |   |   | 566    |   |   |   | 12,028 |   |
| Dispositions                |   |         | -      |   |      |   | (1,007  | )        |   |   | (279       | )      |   |   | -      |   |   |   | (1,286 | ) |
| Balance - December 31, 2009 |   |         | 3,090  |   |      |   | 72,321  |     |   |   | 3,363      |   |   |   | 3,005  |   |   |   | 81,779 |   |
|                        |   |         |   |   |      |   |    |     |   |   |       |   |   |   |   |   |   |   |   |   |
| Changes during 2010:        |   |         |   |   |      |   |    |     |   |   |       |   |   |   |   |   |   |   |   |   |
| Additions                   |   |         | 358    |   |      |   | 10,419  |     |   |   | 547        |   |   |   | 577    |   |   |   | 11,901 |   |
| Dispositions                |   |         | (173   | )      |      |   | (69     | )        |   |   | (900       | )      |   |   | (230   | ) |   |   | (1,372 | ) |
| Balance - December 31, 2010 |   |         | 3,275  |   |      |   | 82,671  |     |   |   | 3,010      |   |   |   | 3,352  |   |   |   | 92,308 |   |
| Net book value:             |   |         |   |   |      |   |    |     |   |   |       |   |   |   |   |   |   |   |   |   |
| December 31, 2010           |   |         | 2,683  |   |      |   | 141,401 |     |   |   | 771        |   |   |   | 1,256  |   |   |   | 146,111 |   |
| December 31, 2009           |   |         | 1,941  |   |      |   | 142,441 |     |   |   | 1,423      |   |   |   | 926    |   |   |   | 146,731 |   |

----

|                                      |   | As of December 31, |    |
|-------------------------------------------|--------|--------------------|---------|
|                                      |   | 2010               |    |   | 2009 |   |
|                                      |   |               |    |   |   |   |
| In Israeli currency                       |   |               | 24,538  |   |   |   | 29,355 |   |
| In foreign currency or linked thereto (1) |   |               | 95,271  |   |   |   | 76,269 |   |
|                                      |   |               | 119,809 |   |   |   | 105,624 |   |

|                        |   | As of December 31, |   |
|-----------------------------|--------|--------------------|--------|
|                        |   | 2010               |   |   | 2009 |   |
|    (1)            |   |               |   |   |   |   |
|     USD |   |               | 77,408 |   |   |   | 55,588 |   |
|     EUR |   |               | 17,863 |   |   |   | 20,681 |   |
|                        |   |               | 95,271 |   |   |   | 76,269 |   |

|                                 |   | As of December 31, |   |
|--------------------------------------|--------|--------------------|--------|
|                                 |   | 2010               |   |   | 2009 |   |
|                                 |   |               |   |   |   |   |
| Accrued payroll and related expenses |   |               | 15,142 |   |   |   | 14,048 |   |
| Value Added Tax                      |   |               | -      |   |   |   | 4,238 |   |
| Advances from customers              |   |               | 1,323  |   |   |   | 314 |   |
| Interest payable                     |   |               | 288    |   |   |   | 265 |   |
| Other                                |   |               | 2,452  |   |   |   | 2,214 |   |
|                                 |   |               | 19,205 |   |   |   | 21,079 |   |

|                                                                    |   | Interestrate |   |   | As of December 31, |
|-------------------------------------------------------------------------|--------|--------------|--------|--------|--------------------|
|                                                                    |   |         | %(*)   |   |               |   | 2010 |   |   |   | 2009 |   |
| A.       Secured                     |   |         |
|     In NIS –  Short term Bank loans |   |         | 3.08   |   |               |   | 92,852 |   |   |   | 69,440 |   |
|     In NIS – not linked                       |   |         | 5.72   |   |               |   | 13,019 |   |   |   | 19,966 |   |
|     In NIS indexed to the CPI                       |   |         |   |   |               |   | - |   |   |   | 3,652 |   |
|                                                                    |   |         |   |   |               |   | 105,871 |   |   |   | 93,058 |   |

----

|                                                                            |   | As of December 31, |   |
|---------------------------------------------------------------------------------|--------|--------------------|--------|
|                                                                            |   | 2010               |   |
| B.        Maturities of long term loans |   |               |   |
|     First year - 2011                                       |   |               | 3,662  |   |
|     Second year - 2012                                      |   |               | 2,563  |   |
|     Third year - 2013                                       |   |               | 2,649  |   |
|     Fourth year - 2014                                      |   |               | 2,740  |   |
|     Fifth year - 2015                                       |   |               | 1,405  |   |
|                                                                            |   |               | 13,019 |   |

|   | C. | According to the loan agreements with the banks, as amended in the second half of 2005, the Company has to achieve, inter alia, financial ratio at the end of each audited fiscal year of total shareholders' equity (which includes capital notes to shareholders) to total assets to be no less than 22%. In case the Company fails to fulfill these covenants, the banks are entitled to demand early repayment of the loans, in whole or in part. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | As to a "negative pledge agreement" signed by the Company, see Note 16B. |
|--------|----|--------------------------------------------------------------------------|

|   | E. | The Company and its Subsidiaries have been granted a total bank credit facility, pursuant to which the Company and its Subsidiaries may, from time to time, borrow an aggregate principal amount of up to adjusted NIS 305,823 thousand. As of the balance sheet date, the Group utilized NIS 93,284 thousand of the credit facility as long & short term borrowings and as bank guarantees granted to third parties. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                     |   | As of December 31, |   |
|----------------------------------------------------------|--------|--------------------|--------|
|                                                     |   | 2010               |   |   | 2009 |   |
|                                                     |   |               |   |   |   |   |
| Derivatives carried at fair value through profit or loss |   |               | -      |   |   |   | 432 |   |

----

|   | A. | Composition |
|--------|----|-------------|

|                                 |   | As of December 31, |   |
|--------------------------------------|--------|--------------------|--------|
|                                 |   | 2010               |   |   | 2009 |   |   | 2008 |   |
| Post Employment Benefits:            |   |               |   |   |   |   |   |   |   |
| Benefits to retirees                 |   |               | 2,563  |   |   |   | 2,079 |   |   |   | 1,364 |   |
| Accrued severance pay                |   |               | 92     |   |   |   | 206 |   |   |   | 214 |   |
|                                 |   |               |   |   |   |   |   |   |   |   |   |   |
| Short term employee benefits:        |   |               |   |   |   |   |   |   |   |   |   |   |
| Accrued payroll and related expenses |   |               | 9,048  |   |   |   | 8,121 |   |   |   | 8,791 |   |
| Liability for vacation pay           |   |               | 6,094  |   |   |   | 5,927 |   |   |   | 5,163 |   |
|                                 |   |               | 17,797 |   |   |   | 16,333 |   |   |   | 15,532 |   |

|   | B. | Defined contribution plan Most of the Group's employees are covered by Article 14 to the Severance Law and therefore the Group's companies makes regular deposits (contributions) in the name of their employees and do not have an obligation to pay further contributions. The Group's deposits under the Defined Contribution Plan are carried to the income statements on the date of the provision of work services, in respect of which the Group is obligated to make the deposit and no additional provision in the financial statements is required. The total expense recognized in the income statement of NIS 6,916 thousand represents contributions to these plans by the group. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Actuarial assumptions The groups defined benefit plans has been calculated by estimating the present value of the future probable obligation used actual valuation methods. The discounted rate is based on field on government bonds at a fixed interest rate which have an average lifetime equal to that of the gross liability. The actuarial assumptions used in the plan are detailed bellow. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | Defined benefit plans The groups defined benefit plans include early retirement and benefits to retirees – holiday gifts and paper distribution. The principal assumptions used for the purposes of the actuarial valuations were as follows: |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                       |   | Valuation at |     |
|----------------------------|--------|--------------|----------|
|                       |   | 2010         |     |   | 2009 |   |   | 2008 |   |
|                       |   |         |     |   |   |   |   |   |   |
| Discount rate              |   |         | 4.9%-5.7 | % |   |   | 5.54%-6 | % |   |   | 5.9 | % |
| Expected rate of inflation |   |         | 2.7%-2.8 | % |   |   | 2.6%-2.7 | % |   |   | 2.1 | % |
| Expected rate of leaving   |   |         | 3%-14    | % |   |   | 3%-14 | % |   |   | 3%-11 | % |

----

|   | D. | Defined benefit plans (cont.) |
|--------|----|-------------------------------|

|                                                       |   | Year ended December 31, |   |
|------------------------------------------------------------|--------|-------------------------|--------|
|                                                       |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                                                       |   |                    |   |   |   |   |   |   |   |
| Current service cost                                       |   |                    | 25     |   |   |   | 20 |   |   |   | 17 |   |
| Interest on obligations                                    |   |                    | 65     |   |   |   | 61 |   |   |   | 66 |   |
| Actuarial losses (gains)  recognized in the year |   |                    | 145    |   |   |   | 44 |   |   |   | (382 | ) |
| Benefit paid during the year                               |   |                    | (51    | ) |   |   | (49 | ) |   |   | (42 | ) |
|                                                       |   |                    | 184    |   |   |   | 76 |   |   |   | (341 | ) |

|                                                    |   | As of December 31, |   |
|---------------------------------------------------------|--------|--------------------|--------|
|                                                    |   | 2010               |   |   | 2009 |   |   | 2008 |   |
|                                                    |   |               |   |   |   |   |   |   |   |
| Present value of funded defined benefit obligation |   |               | 1,318  |   |   |   | 1,134 |   |   |   | 1,058 |   |

|                               |   | As of December 31, |   |
|------------------------------------|--------|--------------------|--------|
|                               |   | 2010               |   |   | 2009 |   |   | 2008 |   |
|                               |   |               |   |   |   |   |   |   |   |
| Opening defined benefit obligation |   |               | 1,134  |   |   |   | 1,058 |   |   |   | 1,399 |   |
| Current service cost               |   |               | 25     |   |   |   | 20 |   |   |   | 17 |   |
| Interest cost                      |   |               | 65     |   |   |   | 61 |   |   |   | 66 |   |
| Actuarial losses (gains)           |   |               | 145    |   |   |   | 44 |   |   |   | (382 | ) |
| Benefits paid                      |   |               | (51    | ) |   |   | (49 | ) |   |   | (42 | ) |
| Closing defined benefit obligation |   |               | 1,318  |   |   |   | 1,134 |   |   |   | 1,058 |   |

----

|   | D. | Other long term employee benefits Other long term employee benefits are benefits which it is anticipated will be utilized or which are to be paid during a period that exceeds 12 months from the end of the period in which the service that creates entitlement to the benefit was provided. Other employee benefits of the Group include liabilities for early retirement.The obligation in respect of early retirement includes an obligation for pension of the period starting the date of the early retirement up to reaching the legal retirement age.The amount included in the balance sheet arising from the entity's obligation in respect of early retirement is as follows: |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                        |   | Year ended December 31, |   |
|---------------------------------------------|--------|-------------------------|--------|
|                                        |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                                        |   | NIS in thousands        |   |
|                                        |   |                    |   |   |   |   |   |   |   |
| Present value of defined benefit obligation |   |                    | 1,245  |   |   |   | 945 |   |   |   | 306 |   |

|                               |   | Year ended December 31, |   |
|------------------------------------|--------|-------------------------|--------|
|                               |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                               |   | NIS in thousands        |   |
|                               |   |                    |   |   |   |   |   |   |   |
| Opening defined benefit obligation |   |                    | 945    |   |   |   | 306 |   |   |   | - |   |
| Interest cost                      |   |                    | 64     |   |   |   | 54 |   |   |   | - |   |
| Current service cost               |   |                    | 474    |   |   |   | 759 |   |   |   | 306 |   |
| Benefits paid                      |   |                    | (238   | ) |   |   | (174 | ) |   |   | - |   |
| Closing defined benefit obligation |   |                    | 1,245  |   |   |   | 945 |   |   |   | 306 |   |

----

|   | A. | Commitments: |
|--------|----|--------------|

|                 |   | Consolidated |   |
|----------------------|--------|--------------|--------|
|                 |   |         |   |
| Within 1 Year        |   |         | 7,844  |   |
| Between 1 to 2 Years |   |         | 7,844  |   |
| Between 2 to 5 Years |   |         | 23,531 |   |
|                 |   |         | 39,218 |   |

|   | B. | Liens To secure long-term bank loans and short-term bank credits (the balance of which as of December, 31 2010 is NIS 105,871 thousand), the Company entered into a “negative pledge agreement” under which the Company is committed not to pledge any of its assets, excluding fixed pledges relating to assets financed by others, prior to the consent of the banks. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Guarantees The Company from time to time and in the course of its ongoing operations provides guarantees. |
|--------|----|----------------------------------------------------------------------------------------------------------------|

|   | A. | As of December 31, 2010, 2009 and 2008, share capital is composed of ordinary shares of NIS 1.00 par value each. Authorized - 38,000 shares; issued and paid up - 1,000 shares. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Holders of ordinary shares are entitled to participate equally in the payment of cash dividends and bonus share (stock dividend) distributions and, in the event of the liquidation of the Company, in the distribution of assets after satisfaction of liabilities to creditors. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                  |   | Year ended December 31, |    |
|-----------------------|--------|-------------------------|---------|
|                  |   | 2010                    |    |   | 2009 |   |   | 2008 |   |
|                  |   |                    |    |   |   |   |   |   |   |
| Industrial operations |   |                    | 570,202 |   |   |   | 531,453 |   |   |   | 569,772 |   |
| Commercial operations |   |                    | 158,500 |   |   |   | 137,769 |   |   |   | 162,575 |   |
|                  |   |                    | 728,702 |   |   |   | 669,222 |   |   |   | 732,347 |   |

|                                   |   | Year ended December 31, |    |
|----------------------------------------|--------|-------------------------|---------|
|                                   |   | 2010                    |    |   | 2009 |   |   | 2008 |   |
|                                   |   |                    |    |   |   |   |   |   |   |
| Purchases (**)                         |   |                    | 129,680 |   |   |   | 117,080 |   |   |   | 141,478 |   |
| Materials consumed                     |   |                    | 392,095 |   |   |   | 292,083 |   |   |   | 373,131 |   |
| Salaries and related expenses          |   |                    | 46,794  |   |   |   | 44,018 |   |   |   | 42,760 |   |
| Subcontracting                         |   |                    | 2,883   |   |   |   | 3,075 |   |   |   | 4,494 |   |
| Energy costs                           |   |                    | 42,808  |   |   |   | 47,535 |   |   |   | 49,240 |   |
| Depreciation                           |   |                    | 11,353  |   |   |   | (*)11,361 |   |   |   | (*)11,024 |   |
| Other manufacturing costs              |   |                    |    |   |   |   |   |   |   |   |   |   |
| and expenses (including rent)          |   |                    | 26,433  |   |   |   |  31,114 |   |   |   |  34,796 |   |
|                                   |   |                    | 652,046 |   |   |   | 546,266 |   |   |   | 656,923 |   |
| Change in finished goods , goods in    |   |                    |    |   |   |   |   |   |   |   |   |   |
| process, and products in transit (***) |   |                    | (11,736 | ) |   |   | 31,729 |   |   |   | (7,746 | ) |
|                                   |   |                    | 640,310 |   |   |   | 577,995 |   |   |   |  649,177 |   |

|   | (*) | Reclassified. |
|--------|-----|---------------|

|   | (**) | The purchases of the Group are related principally to commercial operations. |
|--------|------|------------------------------------------------------------------------------|

|   | (***) | Change in raw and auxiliary materials are included in materials consumed. |
|--------|-------|---------------------------------------------------------------------------|

|                                |   | Year ended December 31, |   |
|-------------------------------------|--------|-------------------------|--------|
|                                |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                                |   |                    |   |   |   |   |   |   |   |
| Salaries and related expenses       |   |                    | 20,009 |   |   |   | 20,029 |   |   |   | 19,780 |   |
| Packaging and shipping to customers |   |                    | 9,445  |   |   |   | 8,095 |   |   |   | 6,512 |   |
| Maintenance and rent                |   |                    | 9,408  |   |   |   | 7,961 |   |   |   | 8,408 |   |
| Vehicles                            |   |                    | 2,407  |   |   |   | 1,755 |   |   |   | 1,855 |   |
| Advertising                         |   |                    | 307    |   |   |   | 250 |   |   |   | 126 |   |
| Depreciation                        |   |                    | 455    |   |   |   | (*) 619 |   |   |   | (*) 587 |   |
| Others                              |   |                    | 1,223  |   |   |   |  1,527 |   |   |   |  1,488 |   |
|                                |   |                    | 43,254 |   |   |   | 40,236 |   |   |   |  38,756 |   |

|   | (*) | Reclassified. |
|--------|-----|---------------|

----

|                             |   | Year ended December 31, |   |
|----------------------------------|--------|-------------------------|--------|
|                             |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                             |   |                    |   |   |   |   |   |   |   |
| Salaries and related expenses    |   |                    | 4,934  |   |   |   | 4,356 |   |   |   | 4,025 |   |
| Office maintenance               |   |                    | 125    |   |   |   | 234 |   |   |   | 147 |   |
| Professional and management fees |   |                    | 1,474  |   |   |   | 1,549 |   |   |   | 1,413 |   |
| Depreciation                     |   |                    | 93     |   |   |   | 48 |   |   |   | 57 |   |
| Bad and doubtful debts           |   |                    | 3,837  |   |   |   | 2,599 |   |   |   | 1,334 |   |
| Other                            |   |                    | 3,782  |   |   |   |  2,040 |   |   |   |  2,764 |   |
|                             |   |                    | 14,245 |   |   |   |  10,826 |   |   |   |  9,740 |   |

|                                                                                                                                 |   | Year ended December 31, |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                                                 |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                                                                                                                                 |   |                    |   |   |   |   |   |   |   |
| A.     Financing income:                                                                                    |   |                    |   |   |   |   |   |   |   |
|          Interest income                                                                     |   |                    | -      |   |   |   | 104 |   |   |   | 415 |   |
|          Foreign currency gains (see note C)                                                 |   |                    | 4,293  |   |   |   | - |   |   |   | 5,474 |   |
|          Total financing income                                                              |   |                    | 4,293  |   |   |   | 104 |   |   |   | 5,889 |   |
|                                                                                                                                 |   |                    |   |   |   |   |   |   |   |   |   |   |
| B.     Financing costs:                                                                                     |   |                    |   |   |   |   |   |   |   |   |   |   |
|          Interest expenses                                                                   |   |                    |   |   |   |   |   |   |   |   |   |   |
|          Interest on bank loans                                                              |   |                    | 5,797  |   |   |   | 8,329 |   |   |   | 13,134 |   |
|          Interest on defined benefit arrangements (see note 15)                              |   |                    | 65     |   |   |   | 61 |   |   |   | 362 |   |
|          Foreign currency losses (see note C)                                                |   |                    | -      |   |   |   | 2,973 |   |   |   | - |   |
|          Total interest expenses                                                             |   |                    | 5,862  |   |   |   | 11,363 |   |   |   | 13,496 |   |
|          Net finance cost                                                                    |   |                    | 1,569  |   |   |   | 11,259 |   |   |   | 7,607 |   |
|                                                                                                                                 |   |                    |   |   |   |   |   |   |   |   |   |   |
| C.     Foreign Exchange                                                                                     |   |                    |   |   |   |   |   |   |   |   |   |   |
|          The amounts credited to the consolidated income statement are presented below: |   |                    |   |   |   |   |   |   |   |   |   |   |
|          Included in net financing costs                                                     |   |                    |   |   |   |   |   |   |   |   |   |   |
|          Foreign currency gains (losses)                                                     |   |                    | 3,861  |   |   |   | (159 | ) |   |   | 3,092 |   |
|          Fair value gains (losses) on forward foreign exchange contracts (see note 25)  |   |                    | 432    |   |   |   | (2,814 | ) |   |   | 2,382 |   |
|          Net foreign currency gains (losses)                                                 |   |                    | 4,293  |   |   |   | (2,973 | ) |   |   | 5,474 |   |

----

|   | A. | The Company and its Subsidiaries are taxed according to the provisions of The Income Tax Ordinance and the Income Tax Law (Inflationary Adjustments), 1985. The Company is an industrial company in conformity with the Law for the Encouragement of Industry (Taxes), 1969. The major benefit the Company is entitled to under this law is accelerated depreciation rates. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Composition |
|--------|----|-------------|

|                      |   | Year ended December 31, |   |
|---------------------------|--------|-------------------------|--------|
|                      |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                      |   |                    |   |   |   |   |   |   |   |
|                      |   |                    |   |   |   |   |   |   |   |
| Current taxes             |   |                    | 8,162  |   |   |   | 3,614 |   |   |   | 97 |   |
| Deferred taxes (D. below) |   |                    | (876   | ) |   |   | (3,003 | ) |   |   | 7,030 |   |
|                      |   |                    | 7,286  |   |   |   | 611 |   |   |   | 7,127 |   |

|   | C. | Reconciliation of the statutory tax rate to the effective tax rate |
|--------|----|--------------------------------------------------------------------|

|                                                  |   | Year ended December 31, |   |
|-------------------------------------------------------|--------|-------------------------|--------|
|                                                  |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                                                  |   |                    |   |   |   |   |   |   |   |
| Income before income taxes                            |   |                    | 29,358 |   |   |   | 29,282 |   |   |   | 26,483 |   |
|                                                  |   |                    |   |   |   |   |   |   |   |   |   |   |
| Statutory tax rate                                    |   |                    | 25     | % |   |   | 26 | % |   |   | 27 | % |
|                                                  |   |                    |   |   |   |   |   |   |   |   |   |   |
| Tax computed by statutory tax rate                    |   |                    | 7,340  |   |   |   | 7,613 |   |   |   | 7,150 |   |
| Tax increments (savings) due to:                      |   |                    |   |   |   |   |   |   |   |   |   |   |
| Non-deductible expenses                               |   |                    | -      |   |   |   | - |   |   |   | 75 |   |
| Loss on disposal not recognized as deferred tax asset |   |                    | -      |   |   |   | - |   |   |   | 158 |   |
| Utilization of tax losses not previously recognized   |   |                    | -      |   |   |   | (483 | ) |   |   | - |   |
| Change in tax rate                                    |   |                    | -      |   |   |   | (6,379 | ) |   |   | - |   |
| Differences arising from basis of measurement         |   |                    | (54    | ) |   |   | (140 | ) |   |   | (256 | ) |
|                                                  |   |                    | 7,286  |   |   |   | 611 |   |   |   | 7,127 |   |

|   | D.  | Deferred Taxes |
|--------|----------|----------------|

|                                               |   | Year ended December 31, |    |
|----------------------------------------------------|--------|-------------------------|---------|
|                                               |   | 2010                    |    |   | 2009 |   |   | 2008 |   |
|                                               |   |                    |    |   |   |   |   |   |   |
| Balance as of beginning of year                    |   |                    | (22,704 | ) |   |   | (24,274 | ) |   |   | (18,677 | ) |
| Charged to the consolidated income statements |   |                    | 876     |   |   |   | 3,003 |   |   |   | (7,030 | ) |
| Charged directly to equity                         |   |                    | -       |   |   |   | (1,433 | ) |   |   | 1,433 |   |
| Balance as of end of year                          |   |                    | (21,828 | ) |   |   | (22,704 | ) |   |   | (24,274 | ) |

----

|   | E.  | Deferred Taxes (cont.) |
|--------|----------|------------------------|

|                                     |   | As of December 31, |    |
|------------------------------------------|--------|--------------------|---------|
|                                     |   | 2010               |    |   | 2009 |   |   | 2008 |   |
|                                     |   |               |    |   |   |   |   |   |   |
| Deferred taxes arise from the following: |   |               |    |   |   |   |   |   |   |
|                                     |   |               |    |   |   |   |   |   |   |
| Allowance for doubtful accounts          |   |               | 1,680   |   |   |   | 949 |   |   |   | 744 |   |
| Vacation and recreation pay              |   |               | 1,726   |   |   |   | 1,709 |   |   |   | 1,586 |   |
| Carry forward tax losses                 |   |               | -       |   |   |   | - |   |   |   | 2,533 |   |
| Depreciable fixed assets                 |   |               | (25,255 | ) |   |   | (25,412 | ) |   |   | (30,624 | ) |
| Accrued severance pay, net               |   |               | 21      |   |   |   | 50 |   |   |   | 54 |   |
| Cash flow hedges                         |   |               | -       |   |   |   | - |   |   |   | 1,433 |   |
|                                     |   |               | (21,828 | ) |   |   | (22,704 | ) |   |   | (24,274 | ) |

|   | F. | The Company and its Subsidiaries have tax assessments that are final through the 2005 tax year. |
|--------|----|-------------------------------------------------------------------------------------------------|

|   | G. | Measurement of results for tax purposes under the Income Tax (Inflationary Law, 1985 (hereafter - the inflationary adjustments law) On February 26, 2008, the Knesset ratified the third reading of the Income Tax Law (Inflation Adjustments) (Amendment 20) (Limitation of Term of Validity) - 2008 (hereinafter: "The Amendment"), pursuant to which the application of the inflationary adjustment law will terminate in tax year 2007 and as of tax year 2008, the law will no longer apply, other than transition regulations whose intention it is to prevent distortions in tax calculations. According to the amendment, from tax year 2008 and thereafter, the adjustment of revenues for tax purposes will no longer be considered a real-term basis for measurement.  Moreover, the linkage to the CPI of the depreciated sums of fixed assets and carryover losses for tax purposes will be discontinued, in a manner whereby these sums will be adjusted until the CPI at the end of 2007 and their linkage to the CPI will end as of that date.  |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | G. | In July 2005, the Israeli Knesset passed the Law for Amending the Income Tax Ordinance (No. 147), 2005, according to which commencing in 2006 the corporate income-tax rate would be gradually reduced, for which a 31% tax rate was established, through 2010, in respect of which a 25% tax rate was established. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | H. | On July 23, 2009 the Knesset (The legislative branch of the Israeli government), passed the Economic Efficiency Law (legislative amendments to implement the economic plan for the years 2009 and 2010) – 2009, which stipulates, inter alia, and additional gradual reduction in the rate of companies tax to 18% in the 2016 tax year and thereafter. According to these amendments, the rate of Group tax applying to the 2010 tax year and thereafter are as follows: 2010 tax year – 25%, 2011 tax year – 24%, 2012 tax year – 23%, 2013 tax year – 22%, 2014 texture – 21%, 2015 tax year – 20%, , and in the 2016 tax year and thereafter there will be companies tax rate of 18%. The change in the tax rates have decreased the deferred taxes liability as of December 31, 2009 in the amount of NIS 6,379 thousand. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | I. | On the 29th December, 2010 the Knesset ratified the Economic Policy 2011-2012 Law (amendments), 2011 that was published in the articles on the 6th January, 2011. Within this law, the Law for the Encouragement of Capital Investments – 1959 was amended (hereafter "amendment"). According to the amendment the different income tax channels were abolished & instead fixed income tax rates on the industrial taxable income were set as follows: |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A. | Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognized, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Categories of financial instruments |
|--------|----|-------------------------------------|

|                                                             |   | As of December 31, |    |
|------------------------------------------------------------------|--------|--------------------|---------|
|                                                             |   | 2010               |    |   | 2009 |   |
| Financial assets                                                 |   |               |    |   |   |   |
| Loans and receivables (including cash and cash equivalents) |   |               | 189,564 |   |   |   | 202,037 |   |
|                                                             |   |               |    |   |   |   |   |   |
| Financial liabilities                                            |   |               |    |   |   |   |   |   |
| Derivative instruments                                           |   |               | -       |   |   |   | 432 |   |
|                                                             |   |               |    |   |   |   |   |   |
| Amortized cost                                                   |   |               | 296,581 |   |   |   | 263,827 |   |

----

|   | C. | Credit risk |
|--------|----|-------------|

|   | D. | Liquidity risk |
|--------|----|----------------|

----

|   | D. | Liquidity risk (cont.) |
|--------|----|------------------------|

|              |   | 1 year |    |   | 1-2 years |   |   | 2-5 years |   |   | Total  |   |
|-------------------|--------|--------|---------|--------|-----------|--------|--------|-----------|--------|--------|--------|--------|
| 2010              |   |   |    |   |      |   |   |      |   |   |   |   |
| Supplier payables |   |   | 182,182 |   |      |   | -      |      |   |   | -      |   |   |   | 182,182 |   |
| Borrowings'       |   |   | 97,375  |   |      |   | 3,062  |      |   |   | 7,355  |   |   |   | 107,729 |   |
| Dividend declared |   |   | 8,528   |   |      |   | -      |      |   |   | -      |   |   |   | 8,528 |   |
| Total             |   |   | 288,085 |   |      |   | 3,062  |      |   |   | 7,355  |   |   |   | 298,502 |   |
|              |   |   |    |   |      |   |   |      |   |   |   |   |   |   |   |   |
| 2009              |   |   |    |   |      |   |   |      |   |   |   |   |   |   |   |   |
| Supplier Payables |   |   | 170,337 |   |      |   | -      |      |   |   | -      |   |   |   | 170,337 |   |
| Borrowings'       |   |   | 81,027  |   |      |   | 4,318  |      |   |   | 10,419 |   |   |   | 95,764 |   |
| Total             |   |   | 251,364 |   |      |   | 4,318  |      |   |   | 10,419 |   |   |   | 266,101 |   |

|   | Average days of credit for trade payables are 114 days. |
|--------|---------------------------------------------------------|

|   | E. | Exchange rate risk |
|--------|----|--------------------|

|   |   | Liabilities |   |   | Assets |   |
|--------|--------|-------------|--------|--------|--------|--------|
|   |   | 2010        |   |   | 2009   |   |   | 2010 |   |   | 2009 |   |
|   |   | NIS         |   |   | NIS    |   |   | NIS |   |   | NIS |   |
|   |   |        |   |   |   |   |   |   |   |   |   |   |
| USD    |   |        | 77,408 |   |   |   | 56,020 |   |   |   | 27,852 |   |   |   | 37,692 |   |
| EUR    |   |        | 26,391 |   |   |   | 20,681 |   |   |   | 1,694 |   |   |   | 1,079 |   |

----

|   | E. | Exchange rate risk (cont.) |
|--------|----|----------------------------|

|               |   | USD Impact |   |   | EUR Impact |   |
|--------------------|--------|------------|--------|--------|------------|--------|
|               |   | 2010       |   |   | 2010       |   |
|               |   | NIS        |   |   | NIS        |   |
|               |   |       |   |   |       |   |
| Profit or loss (1) |   |       | 4,956  |   |       |   | 2,470 |   |

|   | (1) | This is mainly attributable to the exposure outstanding on receivables, cash and payables at year end in the Group, and forward foreign exchange contracts. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | F. | Fair value of financial instruments |
|--------|----|-------------------------------------|

----

|   | G. | Linkage Terms of Financial Instruments |
|--------|----|----------------------------------------|

|                                           |   | December 31, 2010                                           |    |   | December 31, 2009         |   |
|------------------------------------------------|--------|-------------------------------------------------------------|---------|--------|---------------------------|--------|
|                                           |   | In, or linked to, foreign currency (mainly Dollar and Euro) |    |   | Linked to the Israeli CPI |   |   | Not Linked |   |   | In, or linked to, foreign currency (mainly Dollar and Euro) |   |   | Linked to the Israeli CPI |   |   | Not Linked |   |
|                                           |   | NIS in thousands                                            |    |   | NIS in thousands          |   |
| Assets:                                        |   |                                                        |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                      |   |                                                        | 12,484  |   |                      |   | - |   |   |   | 627 |   |   |   | 12,379 |   |   |   | - |   |   |   | 4,697 |   |
| Trade and other receivables                    |   |                                                        | 17,062  |   |                      |   | - |   |   |   | 159,391 |   |   |   | 26,392 |   |   |   | - |   |   |   | 158,839 |   |
|                                           |   |                                                        | 29,546  |   |                      |   | - |   |   |   | 160,018 |   |   |   |  38,771 |   |   |   | - |   |   |   | 163,536 |   |
| Liabilities:                                   |   |                                                        |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term credit from banks                   |   |                                                        | -       |   |                      |   | - |   |   |   | 92,852 |   |   |   | - |   |   |   | - |   |   |   | 69,440 |   |
| Trade and other payables                       |   |                                                        | 103,799 |   |                      |   | 27,662 |   |   |   | 59,249 |   |   |   | 76,269 |   |   |   | 39,230 |   |   |   | 54,838 |   |
| Other financial liabilities                    |   |                                                        | -       |   |                      |   | - |   |   |   | - |   |   |   | 432 |   |   |   | - |   |   |   | - |   |
| Long term loans (including current maturities) |   |                                                        | -       |   |                      |   | - |   |   |   | 13,019 |   |   |   | - |   |   |   | 3,653 |   |   |   | 19,965 |   |
|                                           |   |                                                        | 103,799 |   |                      |   | 27,662 |   |   |   | 165,120 |   |   |   |  76,701 |   |   |   | 42,882 |   |   |   | 144,243 |   |

----

|   | A. | Transactions with Related Parties |
|--------|----|-----------------------------------|

|                                                 |   | Hadera Paper and its subsidiaries |   |   | Neusiedler Holding and its subsidiaries |   |
|------------------------------------------------------|--------|-----------------------------------|--------|--------|-----------------------------------------|--------|
|                                                 |   | Year ended December 31,           |   |   | Year ended December 31,                 |   |
|                                                 |   | 2010                              |   |   | 2009                                    |   |   | 2010 |   |   | 2009 |   |
|                                                 |   |                              |   |   |                                    |   |   |   |   |   |   |   |
| Sales to related parties                             |   |                              | 37,972 |   |                                    |   | 23,453 |   |   |   | - |   |   |   | - |   |
|                                                 |   |                              |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |
| Purchases of goods                                   |   |                              | -      |   |                                    |   | - |   |   |   | 1,780 |   |   |   | 6,225 |   |
|                                                 |   |                              |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |
| Cost of sales                                        |   |                              | 84,644 |   |                                    |   | 85,709 |   |   |   | 2,494 |   |   |   | 1,818 |   |
|                                                 |   |                              |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |
| Selling expenses, net                                |   |                              |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |
| (Participation in selling expenses, net)             |   |                              | -      |   |                                    |   | - |   |   |   | - |   |   |   | 166 |   |
|                                                 |   |                              |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |
| General and   administrative expenses |   |                              | 2,823  |   |                                    |   | 3,020 |   |   |   | - |   |   |   | - |   |
|                                                 |   |                              |   |   |                                    |   |   |   |   |   |   |   |   |   |   |   |
| Financing expenses ,net                              |   |                              | 2,045  |   |                                    |   | 3,349 |   |   |   | - |   |   |   | - |   |

|   | B. | Balances with Related Parties |
|--------|----|-------------------------------|

|                                |   | Hadera Paper and its subsidiaries |   |   | Neusiedler Holding and its subsidiaries |   |
|-------------------------------------|--------|-----------------------------------|--------|--------|-----------------------------------------|--------|
|                                |   | As of December 31,                |   |   | As of December 31,                      |   |
|                                |   | 2010                              |   |   | 2009                                    |   |   | 2010 |   |   | 2009 |   |
|                                |   |                              |   |   |                                    |   |   |   |   |   |   |   |
| Dividend declared                   |   |                              | 4,255  |   |                                    |   | - |   |   |   | 4,273 |   |   |   | - |   |
| Trade payables                      |   |                              | 54,455 |   |                                    |   |  57,595 |   |   |   | 796 |   |   |   |  2,752 |   |
| Other payables and accrued expenses |   |                              | -      |   |                                    |   | - |   |   |   | - |   |   |   |  166 |   |

|   | C. | (1) | The Group leases its premises from Hadera Paper and receives services (including energy, water, maintenance and professional services) under agreements, which are renewed based on shareholders agreements. See also Note 16A above. |
|--------|----|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | The Group pays commissions to Mondi Neusiedler GmbH for pulp purchase. |
|--------|-----|------------------------------------------------------------------------|

----

|   | D. | Compensation of key management personnel |
|--------|----|------------------------------------------|

|                |   | Year ended December 31, |   |
|---------------------|--------|-------------------------|--------|
|                |   | 2010                    |   |   | 2009 |   |
|                |   |                    |   |   |   |   |
| Short term benefits |   |                    | 6,030  |   |   |   | 5,175 |   |
| Share options       |   |                    | 530    |   |   |   | 648 |   |
|                |   |                    | 6,560  |   |   |   | 5,823 |   |

----

----

|                                                       | Page           |
|------------------------------------------------------------|----------------|
|                                                       |           |
| Auditor's                                                  | K - 1          |
| Consolidated Financial Statements:                         |           |
| Consolidated Statements of Financial Position              |  K - 2    |
| Consolidated Income Statements                             | K - 3          |
| Consolidated Statements of Comprehensive Income            | K - 4          |
| Consolidated Statements of Changes in Shareholders' Equity | K - 5 - K - 6  |
| Consolidated Statements of Cash Flows                      | K - 7 - K - 8  |
| Notes to the Financial Statements                          | K - 9 - K - 51 |

----

|   | Brightman Almagor ZoharHaifa Office5 Ma'aleh Hashichrur StreetHaifa, 33284P.O.B. 5648, Haifa 31055Israel Tel:      +972 (4) 860 7373Fax:      +972 (4) 867 2528Info-haifa@deloitte.co.ilwww.deloitte.com |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

HOGLA

|                                   |   |   | As of December 31, |   |
|----------------------------------------|--------|--------|--------------------|--------|
|                                   |   | Note   |               |   | 2 0 1 0 |   |   | 2 0 0 9 |   |
| Current Assets                         |   |   |               |   |   |   |   |   |   |
| Cash and cash equivalents              |   |   | 4                  |   |   |   | 16,732 |   |   |   | 106,996 |   |
| Trade receivables                      |   |   | 5                  |   |   |   | 289,094 |   |   |   | 289,680 |   |
| Inventories                            |   |   | 6                  |   |   |   | 241,803 |   |   |   | 180,631 |   |
| Current tax assets                     |   |   | 22                 |   |   |   | 54 |   |   |   | - |   |
| Other current assets                   |   |   | 7                  |   |   |   | 7,178 |   |   |   | 5,757 |   |
|                                   |   |   |               |   |   |   | 554,861 |   |   |   | 583,064 |   |
| Non-Current Assets                     |   |   |               |   |   |   |   |   |   |   |   |   |
| VAT Receivable                         |   |   |               |   |   |   | 51,223 |   |   |   | 47,171 |   |
| Property plant and equipment           |   |   | 8A                 |   |   |   | 350,560 |   |   |   | 334,604 |   |
| Goodwill                               |   |   | 9                  |   |   |   | 17,033 |   |   |   | 18,650 |   |
| Employee benefit assets                |   |   | 10                 |   |   |   | 639 |   |   |   | 517 |   |
| Deferred tax assets                    |   |   | 22                 |   |   |   | 3,864 |   |   |   | 4,899 |   |
| Prepaid expenses for operating lease   |   |   | 8B                 |   |   |   | 1,637 |   |   |   | 1,765 |   |
|                                   |   |   |               |   |   |   | 424,956 |   |   |   | 407,606 |   |
|                                   |   |   |               |   |   |   | 979,817 |   |   |   | 990,670 |   |
| Current Liabilities                    |   |   |               |   |   |   |   |   |   |   |   |   |
| Borrowings                             |   |   | 11                 |   |   |   | 36,640 |   |   |   | 25,977 |   |
| Trade payables                         |   |   | 12                 |   |   |   | 329,916 |   |   |   | 296,359 |   |
| Employee benefit obligations           |   |   | 10                 |   |   |   | 12,810 |   |   |   | 12,855 |   |
| Current tax liabilities                |   |   | 22                 |   |   |   | 22,583 |   |   |   | 26,631 |   |
| Dividend payables                      |   |   |               |   |   |   | 5,000 |   |   |   | 40,000 |   |
| Other payables and accrued expenses    |   |   | 13                 |   |   |   | 44,054 |   |   |   | 57,873 |   |
|                                   |   |   |               |   |   |   | 451,003 |   |   |   | 459,695 |   |
| Non-Current Liabilities                |   |   |               |   |   |   |   |   |   |   |   |   |
| Borrowings                             |   |   | 12                 |   |   |   | 6,941 |   |   |   | 33,736 |   |
| Employee benefit obligations           |   |   | 10                 |   |   |   | 7,899 |   |   |   | 7,515 |   |
| Deferred tax liabilities               |   |   | 22                 |   |   |   | 35,370 |   |   |   | 33,631 |   |
|                                   |   |   |               |   |   |   | 50,210 |   |   |   | 74,882 |   |
| Commitments and Contingent Liabilities |   |   | 14                 |   |   |   |   |   |   |   |   |   |
| Capital and reserves                   |   |   | 15                 |   |   |   |   |   |   |   |   |   |
| Issued capital                         |   |   |               |   |   |   | 265,246 |   |   |   | 265,246 |   |
| Reserves                               |   |   |               |   |   |   | (82,338 | ) |   |   | (60,156 | ) |
| Retained earnings                      |   |   |               |   |   |   | 295,696 |   |   |   | 251,003 |   |
|                                   |   |   |               |   |   |   | 478,604 |   |   |   | 456,093 |   |
|                                   |   |   |               |   |   |   | 979,817 |   |   |   | 990,670 |   |

|                               |   |                    |   |                    |
|------------------------------------|--------|-------------------------|--------|-------------------------|
| G .Calvo Paz                       |   | O. Lux                  |   | A. Melamud              |
| Chairman of the Board of Directors |   | Chief Financial Officer |   | Chief Executive Officer |

----

HOGLA

|                                |   |   |   |   | Year ended December 31, |   |
|-------------------------------------|--------|--------|--------|--------|-------------------------|--------|
|                                |   | Note   |   |   | 2 0 1 0                 |   |   | 2 0 0 9 |   |   | 2 0 0 8 |   |
|                                |   |   |   |   |                    |   |   |   |   |   |   |   |
| Revenue                             |   |   | 16     |   |                    |   | 1,697,509 |   |   |   | 1,726,627 |   |   |   | 1,608,576 |   |
| Cost of sales                       |   |   | 17     |   |                    |   | 1,165,219 |   |   |   | 1,164,949 |   |   |   | 1,097,567 |   |
|                                |   |   |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                        |   |   |   |   |                    |   | 532,290 |   |   |   | 561,678 |   |   |   | 511,009 |   |
|                                |   |   |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Operating costs and expenses        |   |   |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
|                                |   |   |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Selling and marketing expenses      |   |   | 19     |   |                    |   | 288,061 |   |   |   | 304,776 |   |   |   | 308,737 |   |
| General and administrative expenses |   |   | 20     |   |                    |   | 62,357 |   |   |   | 63,097 |   |   |   | 66,519 |   |
| Other income                        |   |   | 18     |   |                    |   | (4,731 | ) |   |   | - |   |   |   | - |   |
|                                |   |   |   |   |                    |   | 345,687 |   |   |   | 367,873 |   |   |   | 375,256 |   |
|                                |   |   |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Operating profit                    |   |   |   |   |                    |   | 186,603 |   |   |   | 193,805 |   |   |   | 135,753 |   |
|                                |   |   |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Finance expenses                    |   |   | 21B    |   |                    |   | (8,110 | ) |   |   | (3,041 | ) |   |   | (12,355 | ) |
| Finance income                      |   |   | 21A    |   |                    |   | 12,104 |   |   |   | 4,557 |   |   |   | 13,702 |   |
| Finance expenses, net               |   |   |   |   |                    |   | 3,994 |   |   |   | 1,516 |   |   |   | 1,347 |   |
|                                |   |   |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Profit before tax                   |   |   |   |   |                    |   | 190,597 |   |   |   | 195,321 |   |   |   | 137,100 |   |
|                                |   |   |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Income taxes charge                 |   |   | 22     |   |                    |   | (45,904 | ) |   |   | ( 44,226 | )  |   |   | (47,473 | ) |
|                                |   |   |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Profit for the year                 |   |   |   |   |                    |   | 144,693 |   |   |   | 151,095 |   |   |   | 89,627 |   |

----

HOGLA

|                                                                         |   | Year Ended December, 31 |    |
|------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                         |   | 2 0 1 0                 |    |   | 2 0 0 9 |   |   | 2 0 0 8 |   |
|                                                                         |   |                    |    |   |   |   |   |   |   |
| Profit for year                                                              |   |                    | 144,693 |   |   |   | 151,095 |   |   |   | 89,627 |   |
| Exchange differences arising on translation of foreign operations       |   |                    | (21,341 | ) |   |   | (1,375 | ) |   |   | (52,096 | ) |
| Cash flow hedges                                                             |   |                    | (2,315  | ) |   |   | 766 |   |   |   | (572 | ) |
| Transfer to profit or loss from equity on cash flow hedge               |   |                    | 1,192   |   |   |   | (2,270 | ) |   |   | 4,081 |   |
| Income tax relating to components of other comprehensive income         |   |                    | 282     |   |   |   | 403 |   |   |   | (987 | ) |
|                                                                         |   |                    |    |   |   |   |   |   |   |   |   |   |
| Other comprehensive income (loss) for the   year (net of tax) |   |                    | (22,182 | ) |   |   | (2,476 | ) |   |   | (49,574 | ) |
|                                                                         |   |                    |    |   |   |   |   |   |   |   |   |   |
| Total comprehensive income for the year                                      |   |                    | 122,511 |   |   |   | 148,619 |   |   |   | 40,053 |   |

----

HOGLA

|                                                                          |   | Share capital |   |   | Capital reserves |   |    | Foreign currency translation reserve |   |   | Cash flow hedges |   |   | Retained earnings |   |   | Total  |   |
|-------------------------------------------------------------------------------|--------|---------------|--------|--------|------------------|--------|---------|--------------------------------------|--------|--------|-----------------------|--------|--------|-------------------|--------|--------|--------|--------|
|                                                                          |   |          |   |   |             |   |    |                                 |   |   |                  |   |   |              |   |   |   |   |
| Year ended December 31, 2010                                                  |   |          |   |   |             |   |    |                                 |   |   |                  |   |   |              |   |   |   |   |
|                                                                          |   |          |   |   |             |   |    |                                 |   |   |                  |   |   |              |   |   |   |   |
| Balance - January 1, 2010                                                     |   |          | 29,638 |   |             |   | 235,608 |                                 |   |   | (60,228               | )      |   |              | 72     |   |   |   | 251,003 |   |   |   | 456,093 |   |
| Profit for the year                                                           |   |          | -      |   |             |   | -       |                                 |   |   | -                     |   |   |              | -      |   |   |   | 144,693 |   |   |   | 144,693 |   |
| Exchange differences arising on   translation of foreign operations |   |          | -      |   |             |   | -       |                                 |   |   | (21,341               | )      |   |              | -      |   |   |   | - |   |   |   | (21,341 | ) |
| Cash flow hedges                                                              |   |          | -      |   |             |   | -       |                                 |   |   | -                     |   |   |              | (841   | )      |   |   | - |   |   |   | (841 | ) |
| Dividend                                                                      |   |          | -      |   |             |   | -       |                                 |   |   | -                     |   |   |              | -      |   |   |   | (100,000 | ) |   |   | (100,000 | ) |
| Balance - December 31, 2010                                                   |   |          | 29,638 |   |             |   | 235,608 |                                 |   |   | (81,569               | )      |   |              | (769   | )      |   |   | 295,696 |   |   |   | 478,604 |   |

|                                                                         |   | Share capital |   |   | Capital reserves |   |    | Foreign currency translation reserve |   |   | Cash flow hedges |   |   | Retained earnings |   |   | Total  |   |
|------------------------------------------------------------------------------|--------|---------------|--------|--------|------------------|--------|---------|--------------------------------------|--------|--------|-----------------------|--------|--------|-------------------|--------|--------|--------|--------|
|                                                                         |   |          |   |   |             |   |    |                                 |   |   |                  |   |   |              |   |   |   |   |
| Year ended December 31, 2009                                                 |   |          |   |   |             |   |    |                                 |   |   |                  |   |   |              |   |   |   |   |
|                                                                         |   |          |   |   |             |   |    |                                 |   |   |                  |   |   |              |   |   |   |   |
| Balance - January 1, 2009                                                    |   |          | 29,638 |   |             |   | 235,608 |                                 |   |   | (58,853               | )      |   |              | 1,173  |   |   |   | 233,423 |   |   |   | 440,989 |   |
| Profit for the year                                                          |   |          | -      |   |             |   | -       |                                 |   |   | -                     |   |   |              | -      |   |   |   | 151,095 |   |   |   | 151,095 |   |
| Exchange differences arising on  translation of foreign operations |   |          | -      |   |             |   | -       |                                 |   |   | (1,375                | )      |   |              | -      |   |   |   | - |   |   |   | (1,375 | ) |
| Cash flow hedges                                                             |   |          | -      |   |             |   | -       |                                 |   |   | -                     |   |   |              | (1,101 | )      |   |   | - |   |   |   | (1,101 | ) |
| Dividend                                                                     |   |          | -      |   |             |   | -       |                                 |   |   | -                     |   |   |              | -      |   |   |   | (133,515 | ) |   |   | (133,515 | ) |
| Balance - December 31, 2009                                                  |   |          | 29,638 |   |             |   | 235,608 |                                 |   |   | (60,228               | )      |   |              | 72     |   |   |   | 251,003 |   |   |   | 456,093 |   |

----

|                                                                         |   | Share capital |   |   | Capital reserves |   |    | Foreign currency translation reserve |   |   | Cash flow hedges |   |   | Retained earnings |   |   | Total  |   |
|------------------------------------------------------------------------------|--------|---------------|--------|--------|------------------|--------|---------|--------------------------------------|--------|--------|-----------------------|--------|--------|-------------------|--------|--------|--------|--------|
|                                                                         |   |          |   |
| Year ended December 31, 2008                                                 |   |          |   |   |             |   |    |                                 |   |   |                  |   |   |              |   |   |   |   |
|                                                                         |   |          |   |   |             |   |    |                                 |   |   |                  |   |   |              |   |   |   |   |
| Balance - January 1, 2008                                                    |   |          | 29,638 |   |             |   | 235,608 |                                 |   |   | (6,757                | )      |   |              | (1,349 | )      |   |   | 143,796 |   |   |   | 400,936 |   |
| Profit for the year                                                          |   |          | -      |   |             |   | -       |                                 |   |   | -                     |   |   |              | -      |   |   |   | 89,627 |   |   |   | 89,627 |   |
| Exchange differences arising on  translation of foreign operations |   |          | -      |   |             |   | -       |                                 |   |   | (52,096               | )      |   |              | -      |   |   |   | - |   |   |   | (52,096 | ) |
| Cash flow hedges                                                             |   |          | -      |   |             |   | -       |                                 |   |   | -                     |   |   |              | 2,522  |   |   |   | - |   |   |   | 2,522 |   |
| Balance - December 31, 2008                                                  |   |          | 29,638 |   |             |   | 235,608 |                                 |   |   | (58,853               | )      |   |              | 1,173  |   |   |   | 233,423 |   |   |   | 440,989 |   |

----

HOGLA

|                                                                                                                           |   | Year ended December 31, |        |
|--------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|-------------|
|                                                                                                                           |   | 2 0 1 0                 |        |   | 2 0 0 9 |   |   | 2 0 0 8 |   |
| Cash flows – operating activities                                                                                        |   |                    |        |   |   |   |   |   |   |
| Net income for the year                                                                                                        |   |                    | 144,693     |   |   |   | 151,095 |   |   |   | 89,627 |   |
| Adjustments to reconcile operating profit to net cash provided by  operating activities  (Appendix A) |   |                    | (22,424     | ) |   |   | 90,548 |   |   |   | 12,972 |   |
| Net cash generated by operating activities                                                                                     |   |                    | 122,269     |   |   |   | 241,643 |   |   |   | 102,599 |   |
|                                                                                                                           |   |                    |        |   |   |   |   |   |   |   |   |   |
| Cash flows – investing activities                                                                                        |   |                    |        |   |   |   |   |   |   |   |   |   |
| Acquisition of property plant and equipment                                                                               |   |                    | (62,564     | ) |   |   | (42,484 | ) |   |   | (53,334 | ) |
|     Proceeds from disposal of Property plant and equipment                                                 |   |                    | 168         |   |   |   | 32 |   |   |   | 4,851 |   |
| Proceeds from realization of trademark                                                                                         |   |                    |  3,131 |   |   |   | - |   |   |   |  - |   |
| Repayment of capital note by shareholders                                                                                      |   |                    | -           |   |   |   | 32,770 |   |   |   | - |   |
| Interest received                                                                                                              |   |                    | 2,532       |   |   |   | 1,495 |   |   |   | 1,525 |   |
| Net cash used in investing activities                                                                                          |   |                    | (56,733     | ) |   |   | (8,187 | ) |   |   | (46,958 | ) |
|                                                                                                                           |   |                    |        |   |   |   |   |   |   |   |   |   |
| Cash flows – financing activities                                                                                        |   |                    |        |   |   |   |   |   |   |   |   |   |
| Dividend paid                                                                                                                  |   |                    | (135,000    | ) |   |   | (93,515 | ) |   |   | - |   |
| Borrowings received                                                                                                            |   |                    | -           |   |   |   | - |   |   |   | 82,947 |   |
| Borrowing paid                                                                                                                 |   |                    | (25,307     | ) |   |   | (23,904 | ) |   |   | - |   |
| Short-term bank credit                                                                                                         |   |                    | 9,975       |   |   |   | (28,139 | ) |   |   | (124,286 | ) |
| Interest paid                                                                                                                  |   |                    | (4,048      | ) |   |   | (3,381 | ) |   |   | (8,353 | ) |
| Net cash used in financing activities                                                                                          |   |                    | (154,380    | ) |   |   | (148,939 | ) |   |   | (49,692 | ) |
|                                                                                                                           |   |                    |        |   |   |   |   |   |   |   |   |   |
| Net  increase (decrease) in cash and cash equivalents                                                                |   |                    | (88,844     | ) |   |   | 84,517 |   |   |   | 5,949 |   |
| Cash and cash equivalents – beginning of year                                                                       |   |                    | 106,996     |   |   |   | 23,219 |   |   |   | 23,082 |   |
| Effects of exchange rate changes on the balance of cash held in foreign currencies                                        |   |                    | (1,420      | ) |   |   | (740 | ) |   |   | (5,812 | ) |
| Cash and cash equivalents - end of year                                                                                        |   |                    | 16,732      |   |   |   | 106,996 |   |   |   | 23,219 |   |

----

|                                                                               |   | Year ended December 31, |    |
|------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                               |   | 2 0 1 0                 |    |   | 2 0 0 9 |   |   | 2 0 0 8 |   |
| A.  Adjustments to reconcile operating profit tonet cash providedby |   |                    |    |   |   |   |   |   |   |
| operating activities                                                               |   |                    |    |   |   |   |   |   |   |
|                                                                               |   |                    |    |   |   |   |   |   |   |
|  Finance expenses adjustments to profit                                       |   |                    | 1,516   |   |   |   | 4,426 |   |   |   | 6,828 |   |
|  Taxes on income recognized in profit and loss                                |   |                    | 45,904  |   |   |   | 44,226 |   |   |   | 47,473 |   |
|  Depreciation and amortization                                                |   |                    | 31,195  |   |   |   | 29,213 |   |   |   | 24,367 |   |
|  Capital loss on disposal of property, plant and equipment          |   |                    | 991     |   |   |   | 948 |   |   |   | 2,878 |   |
|  Effect of discounting capital note to shareholder                       |   |                    | -       |   |   |   | - |   |   |   | (1,560 | ) |
| Capital gain from realization of trademark                                         |   |                    | (3,131  | ) |   |   | - |   |   |   | - |   |
|                                                                               |   |                    |    |   |   |   |   |   |   |   |   |   |
|                                                                               |   |                    |    |   |   |   |   |   |   |   |   |   |
|  Changes in assets and liabilities:                                           |   |                    |    |   |   |   |   |   |   |   |   |   |
|  Decrease (Increase) in trade receivables                                     |   |                    | (13,419 | ) |   |   | (19,566 | ) |   |   | 5,465 |   |
|  Decrease (Increase) in other current assets                                  |   |                    | (1,485  | ) |   |   | 597 |   |   |   | 3,872 |   |
|  Decrease (Increase)  in inventories                                |   |                    | (68,657 | ) |   |   | 54,144 |   |   |   | (66,659 | ) |
|  Increase in trade payables                                                   |   |                    | 33,914  |   |   |   | 11,927 |   |   |   | 18,407 |   |
|  Net change in balances with related parties                                  |   |                    | 27,266  |   |   |   | (12,911 | ) |   |   | 1,339 |   |
|  Increase (Decrease)  in other payables and accrued expenses   |   |                    | (21,357 | ) |   |   | 12,303 |   |   |   | 3,195 |   |
|  Effect of exchange rate differences on dividend payables                |   |                    | -       |   |   |   | (2,540 | ) |   |   | - |   |
|  Decrease in other long term asset                                            |   |                    | (8,795  | ) |   |   | (5,947 | ) |   |   | (9,163 | ) |
|  Change in employee benefit obligations, net                                  |   |                    | 507     |   |   |   | 1,089 |   |   |   | 5,414 |   |
|                                                                               |   |                    | 24,449  |   |   |   | 117,909 |   |   |   | 41,856 |   |
| Income taxes received                                                              |   |                    | 7,273   |   |   |   | 10,880 |   |   |   | 7,065 |   |
| Income taxes paid                                                                  |   |                    | (54,146 | ) |   |   | (38,241 | ) |   |   | (35,949 | ) |
|                                                                               |   |                    | (22,424 | ) |   |   | 90,548 |   |   |   | 12,972 |   |

----

HOGLA

| NOTE 1 | - | DESCRIPTION OF BUSINESS AND GENERAL |
|--------|---|-------------------------------------|

|   | A. | Description Of Business |
|--------|----|-------------------------|

|   | Hogla Kimberly Ltd. (“the Company”) and its Subsidiaries are engaged principally in the production and marketing of paper and hygienic products. The Company’s results of operations are affected by transactions with shareholders and affiliated companies. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company is owned by Kimberly Clark Corp. (“KC” or the “Parent Company”) (50.1%) Hadera Paper Ltd. (49.9%). |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Definitions: |
|--------|----|--------------|

|   | The Company | - | Hogla-Kimberly Ltd. |
|--------|-------------|---|---------------------|

|   | The Group | - | the Company and its Subsidiaries. |
|--------|-----------|---|-----------------------------------|

|   | Subsidiaries | - | companies in which the Company control, (as defined by IAS 27) directly or indirectly, and whose financial statements are fully consolidated with those of the Company. |
|--------|--------------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Related Parties | - | as defined by IAS 24. |
|--------|-----------------|---|-----------------------|

|   | Interested Parties | - | as defined in the Israeli Securities Regulations (Annual Financial Statements), 2010. |
|--------|--------------------|---|---------------------------------------------------------------------------------------|

|   | Controlling Shareholder | - | as defined in the 1968 Israeli Securities law and Regulations. |
|--------|-------------------------|---|----------------------------------------------------------------|

|   | NIS | - | New Israeli Shekel. |
|--------|-----|---|---------------------|

|   | CPI | - | the Israeli consumer price index. |
|--------|-----|---|-----------------------------------|

|   | Dollar | - | the U.S. dollar. |
|--------|--------|---|------------------|

|   | YTL | - | the Turkish New Lira. |
|--------|-----|---|-----------------------|

| NOTE 2 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|--------|---|--------------------------------------------|

|   | A. | Applying International Accounting Standards (IFRS) |
|--------|----|----------------------------------------------------|

|   | Statement of compliance |
|--------|-------------------------|

|   | The consolidated financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) for all reporting periods presented. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 2 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|--------|---|----------------------------------------------------|

|   | B. | Basis of preparation |
|--------|----|----------------------|

|   | Until December 31, 2003, Israel was considered a country in which hyper-inflation conditions exist. Therefore, non-monetary balances in the balance sheet were presented on the historical nominal amount and were adjusted to changes in the exchange rate of the U.S. dollar. As of December 31, 2003 when the economy ceases to be hyper-inflationary and the Company no longer adjusted its financial statements to the U.S. dollar, the adjusted amounts as of this date were used as the historical costs. The financial statements were edited on the basis of the historical cost, except for: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Assets and liabilities measured by fair value and derivative financial instruments. |
|--------|--------|-------------------------------------------------------------------------------------|

|   | · | Inventories are stated at the lower of cost and net realizable value. |
|--------|--------|-----------------------------------------------------------------------|

|   | · | Property, plant and equipment and intangibles assets are presented at the lower of the cost less accumulated amortizations and the recoverable amount. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Liabilities to employees as described in note 2Q. |
|--------|--------|---------------------------------------------------|

|   | C. | Foreign currencies |
|--------|----|--------------------|

|   | The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in the New Israeli Shekel ("NIS"), which is the functional currency of the Company and the presentation currency for the consolidated financial statements. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Exchange differences are recognised in profit or loss in the period in which they occur except for: |
|--------|-----------------------------------------------------------------------------------------------------|

|   | Ÿ | Exchange differences on transactions entered into in order to hedge certain foreign currency risks. |
|--------|--------|-----------------------------------------------------------------------------------------------------|

|   | Ÿ | Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation, and which are recognized in the foreign currency translation reserve and recognized in profit or loss on disposal of the net investment. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 2 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|--------|---|----------------------------------------------------|

|   | C. | Foreign currencies (Cont.) |
|--------|----|----------------------------|

|   | For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are expressed in NIS using exchange rates prevailing at the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | Cash and Cash Equivalents |
|--------|----|---------------------------|

|   | Cash and cash equivalents include bank deposits, available for immediate withdrawal, as well as unrestricted short-term deposits with maturities of less than three months from the date of deposit. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | E. | Basis of consolidation |
|--------|----|------------------------|

|   | The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. |
|--------|------------------------------------------------------------------------------------------------------|

|   | F. | Goodwill |
|--------|----|----------|

|   | Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 2 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|--------|---|----------------------------------------------------|

|   | G. | Property, plant and equipment |
|--------|----|-------------------------------|

|   | Property, plant and equipments are tangible items, which are held for use in the manufacture or supply of goods or services, or leased to others, which are predicted to be used for more than one period. The Company presents its property, plant and equipments items according to the cost model. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Under the cost method - a property, plant and equipment are presented at the balance sheet at cost (net of any investment grants), less any accumulated depreciation and any accumulated impairment losses. The cost includes the cost of the asset's acquisition as well as costs that can be directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Depreciation is calculated using the straight-line method at rates considered adequate to depreciate the assets over their estimated useful lives. Amortization of leasehold improvements is computed over the shorter of the term of the lease, including any option period, where the Company intends to exercise such option, or their useful life. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The annual depreciation and amortization rates are: | %      |
|-----------------------------------------------------|--------|
|                                                |   |
| Buildings                                           | 2-4    |
| Leasehold improvements                              | 10-25  |
| Machinery and equipment                             | 5-10   |
| Motor vehicles                                      | 15-20  |
| Office furniture and equipment                      | 6-33   |

|   | Scrap value, depreciation method and the assets useful lives are being reviewed by management in the end of every financial year. Changes are handled as a change of estimation and are applied from here on. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in the income statement. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | H. | Impairment of tangible and intangible assets excluding goodwill |
|--------|----|-----------------------------------------------------------------|

|   | At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 2 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|--------|---|----------------------------------------------------|

|   | H. | Impairment of tangible and intangible assets excluding goodwill (cont.) |
|--------|----|-------------------------------------------------------------------------|

|   | Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | I. | Inventories |
|--------|----|-------------|

|   | Inventories are assets held for sale in the ordinary course of business, in the process of production for such sale or in the form of materials or supplies to be consumed in the production process or in the rendering of services. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Inventories are stated at the lower of cost and net releasable value. Cost of inventories includes all the cost of purchase, direct labor, fixed and variable production over heads and other cost that are incurred, in bringing the inventories to their present location and condition. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Net releasable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Cost determined as follows: |
|--------|-----------------------------|

| Manufactured finished products                              | Based on standard cost method  |
|-------------------------------------------------------------|--------------------------------|
|                                                        |                           |
| Purchased finished goods raw, auxiliary materials and other | Based on moving-average basis. |

|   | Inventories that are purchased on differed settlement terms, which contains a financing element, are stated in purchase price for normal credit terms. The difference between the purchase price for normal credit terms and the amount paid is recognized as interest expense over the period of the financing. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | J. | Financial assets |
|--------|----|------------------|

|   | (1) | General |
|--------|-----|---------|

|   |   | Investments are recognised and derecognised on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | Financial assets are classified into Loans and receivables |
|--------|--------|------------------------------------------------------------|

----

| NOTE 2 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|--------|---|----------------------------------------------------|

|   | J. | Financial assets (Cont.) |
|--------|----|--------------------------|

|   | (2) | Loans and receivables |
|--------|-----|-----------------------|

|   |   | Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Impairment of financial assets |
|--------|-----|--------------------------------|

|   |   | Financial assets, are assessed for indicators of impairment at each balance sheet date. |
|--------|--------|-----------------------------------------------------------------------------------------|

|   |   | Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | For all other financial assets, objective evidence of impairment could include: |
|--------|--------|---------------------------------------------------------------------------------|

|   | ● | Significant financial difficulty of the issuer or counterparty; or |
|--------|---------|--------------------------------------------------------------------|

|   | ● | Default or delinquency in interest or principal payments; or |
|--------|---------|--------------------------------------------------------------|

|   | ● | It becoming probable that the borrower will enter bankruptcy or financial re-organization. |
|--------|---------|--------------------------------------------------------------------------------------------|

|   |   | For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 2 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|--------|---|----------------------------------------------------|

|   | K. | Other financial liabilities |
|--------|----|-----------------------------|

|   | Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | L. | Provisions |
|--------|----|------------|

|   | Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | M. | Derivative financial instruments |
|--------|----|----------------------------------|

|   | (1) | General |
|--------|-----|---------|

|   |   | The Group enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risk, including foreign exchange forward contracts. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Group designates certain derivatives as hedges of highly probable forecast transactions or hedges of foreign currency risk of firm commitments (cash flow hedges), |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 2 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|--------|---|----------------------------------------------------|

|   | M. | Derivative financial instruments (Cont.) |
|--------|----|------------------------------------------|

|   | (2) | Hedge accounting |
|--------|-----|------------------|

|   |   | The Group designates certain hedging instruments, which include derivatives, and non-derivatives in respect of foreign currency risk, as cash flow hedges. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | Cash flow hedges |
|--------|--------|------------------|

|   |   | The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the “finance income” or "finance expenses" lines of the income statement. Amounts deferred in equity are recycled in profit or loss in the periods when the hedged item is recognised in profit or loss, in the same line of the income statement as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | N. | Revenue recognition |
|--------|----|---------------------|

|   | Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (1) | Sale of goods |
|--------|-----|---------------|

|   |   | Revenue from the sale of goods is recognised when all the following conditions are satisfied: |
|--------|--------|-----------------------------------------------------------------------------------------------|

|   | · | The Group has transferred to the buyer the significant risks and rewards of ownership of the goods; |
|--------|--------|-----------------------------------------------------------------------------------------------------|

|   | · | The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The amount of revenue can be measured reliably; |
|--------|--------|-------------------------------------------------|

|   | · | It is probable that the economic benefits associated with the transaction will flow to the entity; and |
|--------|--------|--------------------------------------------------------------------------------------------------------|

|   | · | The costs incurred or to be incurred in respect of the transaction can be measured reliably. |
|--------|--------|----------------------------------------------------------------------------------------------|

----

| NOTE 2 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|--------|---|----------------------------------------------------|

|   | N. | Revenue recognition (Cont.) |
|--------|----|-----------------------------|

|   | (2) | Interest revenue |
|--------|-----|------------------|

|   |   | Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | O. | Taxation |
|--------|----|----------|

|   | Income tax expense represents the sum of the tax currently payable and deferred tax. |
|--------|--------------------------------------------------------------------------------------|

|   | (1) | Current tax |
|--------|-----|-------------|

|   |   | The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Deferred tax |
|--------|-----|--------------|

|   |   | Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 2 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|--------|---|----------------------------------------------------|

|   | O. | Taxation (Cont.) |
|--------|----|------------------|

|   | (3) | Current and deferred tax for the period |
|--------|-----|-----------------------------------------|

|   |   | Current and deferred tax are recognized as an expense or income in profit or loss, except when they relate to items credited or debited directly to equity, in which case the tax is also recognized directly in equity, or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or in determining the excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of the business combination. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | P. | prepaid expenses of operating lease |
|--------|----|-------------------------------------|

|   | Operating lease payments are recognised as an expense on a straight-line basis over the lease term. the Company's lands in Afula which were leased from the Israel Land Administration, shall be presented in the Company's balance sheet as prepaid expenses for operating lease in respect of lease, and amortized over the remaining period of the lease. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Q. | Employee benefits |
|--------|----|-------------------|

|   | (1) | Post-Employment Benefits |
|--------|-----|--------------------------|

|   |   | The Group's post-employment benefits include: benefits to retirees and liabilities for severance benefits. The Group's post-employment benefits are classified as either defined contribution plans or definedbenefit plans. Most of the Group's employees are covered by Article 14 to the Severance Law and therefore the Group's companies makes regular deposits (contributions) in the name of their employees and do not have an obligation to pay further contributions. The Group's deposits under the Defined Contribution Plan are carried to the income statements on the date of the provision of work services, in respect of which the Group is obligated to make the deposit and no additional provision in the financial statements is required. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | Expenses in respect of a Defined Benefit Plan are carried to the income statement in accordance with the Projected Unit Credit Method, while using actuarial estimates that are performed at each balance sheet date. The current value of the Group's obligation in respect of the defined benefit plan is determined by discounting the future projected cash flows from the plan by the market yields on government bonds, denominated in the currency in which the benefits in respect of the plan will be paid, and whose redemption periods are approximately identical to the projected settlement dates of the plan. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | Actuarial profits and losses are carried to the income statements on the date they were incurred. The Past Service Cost is immediately recognized in the Group's income statement to the extent the benefit has vested. A past service cost which has not yet vested is amortized on a straight-line basis over the average vesting period until the benefit becomes vested. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 2 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|--------|---|----------------------------------------------------|

|   | Q. | Employee benefits (Cont.) |
|--------|----|---------------------------|

|   | (1) | Post-Employment Benefits (Cont.) |
|--------|-----|----------------------------------|

|   |   | The Group's liability in respect of the Defined Benefit Plan which is presented in the Group's balance sheet, includes the current value of the obligation in respect of the defined benefit, with the addition (net of) actuarial past service cost that was not yet recognized. A net plan, which is created from said calculation, is limited to the amount of the actuarial losses and past service cost that were not yet recognized with the addition of the current value of available economic benefits in the shape of returns from the plan or in the shape of reduction in future contributions to the plan. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Other long term employee benefits |
|--------|-----|-----------------------------------|

|   |   | Other long term employee benefits are benefits which it is anticipated will be utilized or which are to be paid during a period that exceeds 12 months from the end of the period in which the service that creates entitlement to the benefit was provided. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | R. | Exchange Rates and Linkage Basis |
|--------|----|----------------------------------|

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

|     As of:  |   | Turkish Lira exchange rate vis-a-vis the U.S. dollar(TL’000 per $1) |   |   | Representative exchange rate of the dollar(NIS per $1) |   |   | CPI“in respect of”(in points) |   |
|---------------------------------|--------|---------------------------------------------------------------------------|--------|--------|--------------------------------------------------------|--------|--------|-------------------------------------------|--------|
|                            |   |                                                                      |   |   |                                                   |   |   |                                      |   |
| December 31, 2010               |   |                                                                      | 1,560  |   |                                                   |   | 3.549  |                                      |   |   | 117.38 |   |
| December 31, 2009               |   |                                                                      | 1,515  |   |                                                   |   | 3.775  |                                      |   |   | 114.77 |   |
| December 31, 2008               |   |                                                                      | 1,521  |   |                                                   |   | 3.802  |                                      |   |   | 110.55 |   |
|                            |   |                                                                      |   |   |                                                   |   |   |                                      |   |   |   |   |
| Increase (decrease) during the: |   | %                                                                         |   |   | %                                                      |   |   | %                                         |   |
| Year ended December 31, 2010    |   |                                                                      | 2.97   |   |                                                   |   | (5.99  | )                                         |   |   | 2.3 |   |
| Year ended December 31, 2009    |   |                                                                      | (0.4   | )      |                                                   |   | (0.71  | )                                         |   |   | 3.7 |   |
| Year ended December 31, 2008    |   |                                                                      | 29.38  |   |                                                   |   | (1.14  | )                                         |   |   | 3.9 |   |

----

| NOTE 2 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|--------|---|----------------------------------------------------|

|   | S. | Adoption of new and revised Standards and interpretations |
|--------|----|-----------------------------------------------------------|

|   | (1) | Standards and Interpretations Affecting Amounts Reported in the Current Period (and/ or prior periods) Standards Affecting Presentation and Disclosure |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | IAS 1 - Presentation of Financial Statements |
|--------|--------|----------------------------------------------|

|   |   | Amendment IAS 1 "presentation of financial statements", which stipulates that changes in the components of the other comprehensive income will be presented in the statement of changes in equity or in the notes to the financial statements, according to the company's policy. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | In accordance to the above, the company presents the changes in the components of the other comprehensive income in the changes in shareholder equity statements. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | IAS 36 |
|--------|--------|--------|

|   |   | The amendment to IAS 36 "Impairment of Assets" clarifies that in allocation of goodwill to cash-generating units or to groups of cash-generating units for impairment examination, each unit or group of units will not be larger than a segment, before grouping segments with similar economic characteristics to one segment. The amendment is implemented by way of "From now on" annual reporting periods beginning on January 1, 2010 or thereafter. The financial statements have not been effected by the amendment. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | IAS 17 - "Leases" |
|--------|--------|-------------------|

|   |   | According to the amendment land lease will be classified as operating lease or finance lease according to the standard's general guidance . |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | The amendment is effective commencing January 1 , 2010. |
|--------|--------|---------------------------------------------------------|

|   |   | The amendment have no material effect on the financial statements |
|--------|--------|-------------------------------------------------------------------|

|   |  (2) | Standards and Interpretations which have not been applied in these financialstatements were in issue but not yet effective |
|--------|-----------|----------------------------------------------------------------------------------------------------------------------------|

|   |   | IFRS 2 |
|--------|--------|--------|

|   |   | The amendments clarify the scope of IFRS 2, as well as the accounting for group cash-settled share-based payment transactions in the separate (or individual) financial statements of an entity receiving the goods or services when another group entity or shareholder has the obligation to settle the award. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | IFRS 7 - Disclosures of Financial Instruments |
|--------|--------|-----------------------------------------------|

|   |   | The amendments to IFRS 7 clarify the required level of disclosures about credit risk and collateral held and provide relief from disclosures previously required regarding renegotiated loans. The Group has applied the amendments in advance of their effective date (annual periods beginning on or after 1 January 2011). |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 2 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|--------|---|----------------------------------------------------|

|   | S. | Adoption of new and revised Standards and interpretations (Cont) |
|--------|----|------------------------------------------------------------------|

|   | (2) | Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective(Cont) |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------|

|   |   | IFRS 9 “Financial Instruments” |
|--------|--------|--------------------------------------------|

|   |   | The new Standard provides for the classification and measurement of financial assets and liabilities. In accordance with the Standard, all financial assets are to be treated as follows: |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Debt instruments will be classified and measured subsequent to initial recognition at amortized cost or at fair value through profit or loss.  The mode of measurement will be determined based on the entity’s business model for managing financial assets and in accordance with the characteristics of the contractual cash flows deriving from such financial assets. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A debt instrument which, according to the criteria, is measured at amortized cost may only be designated at fair value through profit or loss if such designation eliminates inconsistencies in the recognition and measurement that would have arose had the asset been measured at amortized cost. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Equity instruments will be measured at fair value through profit or loss. |
|--------|--------|---------------------------------------------------------------------------|

|   | · | Equity instruments may be designated at fair value through profit or loss, with any gains or losses being recognized in other comprehensive income.  Instruments that have been designated as aforesaid will cease to be tested for impairment and any related gain or loss will not be recognized in profit or loss, including in the event of disposal. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Embedded derivatives in financial assets will not be separated from the host contract.  Instead, hybrid contracts will be measured as a whole at amortized cost or at fair value, in accordance with the business model and the contractual cash flows criteria. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Debt instruments will be reclassified from amortized cost to fair value and vice versa only if the entity changes its business model for managing financial assets. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Investments in equity instruments that are not quoted on an active market, including derivatives on such assets, will be measured solely at fair value. The alternative measurement at cost under certain circumstances has been eliminated. Nevertheless, the Standard determines that, under limited circumstances, cost may be an appropriate estimate of fair value. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | The Standard also prescribes the following provisions with respect to financial liabilities: |
|--------|--------|----------------------------------------------------------------------------------------------|

|   | · | The change in the fair value of a financial liability that is designated at fair value through profit or loss upon initial recognition, which is attributed to changes in the credit risk of the liability, is recognized directly in other comprehensive income, unless such recognition gives rise to or increases accounting disparity. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 2 | - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|--------|---|----------------------------------------------------|

|   | S. | Adoption of new and revised Standards and interpretations (Cont) |
|--------|----|------------------------------------------------------------------|

|   | (2) | Standards and Interpretations which have not been applied in these financialstatements were in issue but not yet effective(Cont) |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------|

|   | · | Upon the repayment or settlement of a financial liability, the amount of the fair value recognized in other comprehensive income will not be classified to profit or loss. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | All derivatives, whether assets or liabilities, will be measured at fair value, including a derivative financial instrument that constitutes a liability, which is related to an unquoted equity instrument for which a fair value cannot be determined reliably. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | The provisions of the Standard are to be applied retrospectively, other than in a number of exceptions provided for in the Standard, to annual reporting periods commencing on January 1, 2013 or thereafter.  Early adoption is permitted. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | Entities that opt for early adoption of the Standard prior to January 1, 2012 are not required to apply the Standard retrospectively.  Additionally, subject to the transitional provisions of the Standard, early adoption solely of the provisions of the Standard with respect to financial assets, excluding the aforesaid provisions relating to financial liabilities, is permissible. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | The Company’s management estimates that the effect of the adoption of the Standard on the financial statements of the Group will be unsignificant. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| NOTE 3 | - | CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY |
|--------|---|--------------------------------------------------------------------------|

|   | A. | General |
|--------|----|---------|

|   | In the application of the Group’s accounting policies, which are described in Note 2, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Critical judgments in applying accounting policies |
|--------|----|----------------------------------------------------|

|   | The following are the critical judgments, apart from those involving estimations (see below), that the management have made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognized in financial statements. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 3 | - | CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (Cont) |
|--------|---|---------------------------------------------------------------------------------|

|   | Revenue recognition |
|--------|---------------------|

|   | In making their judgment, the management considered the detailed criteria for the recognition of revenue from the sale of goods set out in IAS 18 Revenue and, in particular, whether the Group had transferred to the buyer the significant risks and rewards of ownership of the goods. Following the detailed quantification of the Group’s liability in respect of rectification work, and the agreed limitation on the customer’s ability to require further work or to require replacement of the goods, the management is satisfied that the significant risks and rewards have been transferred and that recognition of the revenue in the current year is appropriate, in conjunction with the recognition of an appropriate provision for the rectification costs. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Impairment of goodwill |
|--------|------------------------|

|   | Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the management to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The carrying amount of goodwill at the balance sheet date was NIS 17 million. |
|--------|-------------------------------------------------------------------------------|

|   | Useful lives of property, plant and equipment |
|--------|-----------------------------------------------|

|   | As described at 2G above, the Group reviews the estimated useful lives of property, plant and equipment at the end of each annual reporting period. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Contingent liabilities |
|--------|------------------------|

|   | As of December 31, 2010 the company has a legal dispute with the tax authorities in Turkey regarding tax inspection that was performed during 2009.(see note 14) |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | According to the tax report the company need to pay additional tax and penalties  in the amount of 90 million Dollar. The company's management , based on the legal advisors, estimates that the possibility of a negative cash flow is not probable therefore did not provide any provisions. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Key sources of estimation uncertainty |
|--------|----|---------------------------------------|

|   | The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Employee retirement benefits |
|--------|------------------------------|

|   | The present value of the employee retirement benefits is based on an actuarial valuation using many assumptions inter alia the capitalization rate. Changes in the assumptions may influence the book value of the liabilities for retirement benefits.  The Company determines the capitalization rate once a year based on the basis of the capitalization rate of government bonds. Other key assumptions are based on the current prevailing terms in the market and the past experience of the Company (see also note 10). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 4 | - | CASH AND CASH EQUIVALENTS |
|--------|---|---------------------------|

|                      |   | As of December 31, |   |
|---------------------------|--------|--------------------|--------|
|                      |   | 2010               |   |   | 2009 |   |
|                      |   | NIS in thousands   |   |
|                      |   |               |   |   |   |   |
| Cash in banks             |   |               | 747    |   |   |   | 1,788 |   |
| Short term bank deposits  |   |               | 15,985 |   |   |   | 105,208 |   |
| Cash and cash equivalents |   |               | 16,732 |   |   |   | 106,996 |   |

| NOTE 5 | - | TRADE RECEIVABLES |
|--------|---|-------------------|

|   | Composition |
|--------|-------------|

|                                                                                                                                                       |   | As of December 31, |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|
|                                                                                                                                                       |   | 2010               |    |   | 2009 |   |
|                                                                                                                                                       |   | NIS in thousands   |    |
|                                                                                                                                                       |   |               |    |   |   |   |
| Domestic         -    Open accounts                                                                 |   |               | 177,147 |   |   |   | 179,902 |   |
| -    Checks receivable                                                                                                                 |   |               | 40,979  |   |   |   | 38,957 |   |
| -    Related parties                                                                                                                   |   |               | 1,519   |   |   |   | 940 |   |
|                                                                                                                                                       |   |               | 219,645 |   |   |   | 219,799 |   |
|                                                                                                                                                       |   |               |    |   |   |   |   |   |
| Foreign                    -   Open accounts |   |               | 45,450  |   |   |   | 38,470 |   |
| -    Related parties                                                                                                                   |   |               | 26,489  |   |   |   | 34,742 |   |
|                                                                                                                                                       |   |               | 71,939  |   |   |   | 73,212 |   |
|                                                                                                                                                       |   |               | 291,584 |   |   |   | 293,011 |   |
| Less - allowance for doubtful accounts                                                                                                                     |   |               | 2,490   |   |   |   | 3,331 |   |
|                                                                                                                                                       |   |               | 289,094 |   |   |   | 289,680 |   |

|   | The average credit period on sales of goods is 65 days. |
|--------|---------------------------------------------------------|

|   | For each customer, where possible, the Company checks its credit rating with an external credit rating companies to assess the potential customer’s credit quality and help in defining its credit limit. Credit limit for each customer is determined and approved according to the Company's policy taking into account its rating and collaterals. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Of the trade receivables balance at the end of the year, 40.3 million NIS (2009: 49.4 million) is due from Company A, and 27.8 million Nis (2009: 36 million) is due from customer B which are the Group’s largest customers .There are no other customers who represent more than 10% of the total balance of trade receivables. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Hogla Kimberly exposure to credit and currency risks and impairment losses related to trade and other receivables are disclosed in note 23. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------|

|   | Included in the Group's trade receivable balance, are debtors with a carrying amount of NIS 9,415 thousands which are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group is insured for NIS 130 million of these balances. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 5 | - | TRADE RECEIVABLES (Cont.) |
|--------|---|---------------------------|

|   | Ageing of past due but not impaired |
|--------|-------------------------------------|

|              |   | As of December 31, 2010 |   |
|-------------------|--------|------------------------------|--------|
|              |   |                         |   |
| 30-90 days        |   |                         | 931    |   |
| More then 90 days |   |                         | 8,484  |   |
|              |   |                         | 9,415  |   |

|   | Movement in provision for doubtful debts during the year |
|--------|----------------------------------------------------------|

|                                        |   | As of December 31 |   |
|---------------------------------------------|--------|-------------------|--------|
|                                        |   | 2010              |   |   | 2009 |   |
|                                        |   | NIS in thousands  |   |
|                                        |   |              |   |   |   |   |
| Balance at beginning of the year            |   |              | 3,331  |   |   |   | 7,465 |   |
| Impairment losses recognized on receivables |   |              | 112    |   |   |   | 315 |   |
| Amounts written off as uncollectible        |   |              | (379   | ) |   |   | (2,943 | ) |
| Amounts recovered during the year           |   |              | (439   | ) |   |   | (1,506 | ) |
| Foreign currency exchange rate differences  |   |              | (135   | ) |   |   | - |   |
|                                        |   |              |   |   |   |   |   |   |
| Balance at end of the year                  |   |              | 2,490  |   |   |   | 3,331 |   |

| NOTE 6 | - | INVENTORIES |
|--------|---|-------------|

|   | Composition |
|--------|-------------|

|                        |   | As of December 31, |    |
|-----------------------------|--------|--------------------|---------|
|                        |   | 2010               |    |   | 2009 |   |
|                        |   | NIS in thousands   |    |
|                        |   |               |    |   |   |   |   |   |
| Raw and auxiliary materials |   |               | 114,281 |   |   |   | 80,660 |   |
| Finished goods              |   |               | 106,345 |   |   |   | 79,012 |   |
| Spare parts and other       |   |               | 21,177  |   |   |   | 20,959 |   |
|                        |   |               | 241,803 |   |   |   | 180,631 |   |

|   | In 2010 raw materials and changes in finished goods recognized as cost of sales amounted to NIS 618,740  (2009 – NIS 597,791). |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As of December 31, 2010 and 2009 allowance for impairment of inventory amounted to NIS 7.1and NIS 5.7 million, respectively. |
|--------|------------------------------------------------------------------------------------------------------------------------------|

|   | All Finish goods and Raw and auxiliary materials inventories are expected to be recovered in period of no more than twelve months. |
|--------|------------------------------------------------------------------------------------------------------------------------------------|

| NOTE 7 | - | OTHER CURRENT ASSETS |
|--------|---|----------------------|

|               |   | As of December 31, |   |
|--------------------|--------|--------------------|--------|
|               |   | 2010               |   |   | 2009 |   |
|               |   | NIS in thousands   |   |
|               |   |               |   |   |   |   |   |   |
| Prepaid expenses   |   |               | 2,913  |   |   |   | 2,976 |   |
| Loans to employees |   |               | 489    |   |   |   | 473 |   |
| Other              |   |               | 3,776  |   |   |   | 2,308 |   |
|               |   |               | 7,178  |   |   |   | 5,757 |   |

----

| NOTE 8 | - | PROPERTY PLANT AND EQUIPMENT |
|--------|---|------------------------------|

|   | A. | Composition and movement |
|--------|----|--------------------------|

|                                          |   |             |   |   |         |   |   | Machinery |   |   |     |   |   | Furniture |   |   |   |   |
|-----------------------------------------------|--------|------------------|--------|--------|--------------|--------|--------|-----------|--------|--------|----------|--------|--------|-----------|--------|--------|--------|--------|
|                                          |   | Buildings        |   |   | Improvements |   |   | Equipment |   |   | Vehicles |   |   | Equipment |   |   | Total  |   |
|                                          |   | NIS in thousands |   |
| Cost:                                         |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |
| Balance - January 1, 2010                     |   |             | 53,267 |   |         |   | 18,150 |      |   |   | 515,556  |   |   |      | 12,338 |   |   |   | 14,440 |   |   |   | 613,751 |   |
| Changes during 2010:                          |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Additions                                     |   |             | 890    |   |         |   | 1,328  |      |   |   | 52,342   |   |   |      | -      |   |   |   | 1,035 |   |   |   | 55,595 |   |
| Dispositions                                  |   |             | (211   | )      |         |   | -      |      |   |   | (7,392   | )      |   |      | (667   | )      |   |   | (124 | ) |   |   | (8,394 | ) |
| Foreign currency translation adjustments |   |             | (2,624 | )      |         |   | (105   | )         |   |   | (7,568   | )      |   |      | (75    | )      |   |   | (472 | ) |   |   | (10,844 | ) |
| Balance - December 31, 2010                   |   |             | 51,322 |   |         |   | 19,373 |      |   |   | 552,938  |   |   |      | 11,596 |   |   |   | 14,879 |   |   |   | 650,108 |   |
|                                          |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Accumulated depreciation:                     |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Balance - January 1, 2010                     |   |             | 21,323 |   |         |   | 9,538  |      |   |   | 225,707  |   |   |      | 11,225 |   |   |   | 11,354 |   |   |   | 279,147 |   |
| Changes during 2010:                          |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Additions                                     |   |             | 1,313  |   |         |   | 1,535  |      |   |   | 26,731   |   |   |      | 460    |   |   |   | 1,028 |   |   |   | 31,067 |   |
| Dispositions                                  |   |             | (183   | )      |         |   | -      |      |   |   | (6,310   | )      |   |      | (666   | )      |   |   | (76 | ) |   |   | (7,235 | ) |
| Foreign currency translation adjustments |   |             | (478   | )      |         |   | (106   | )         |   |   | (2,464   | )      |   |      | (75    | )      |   |   | (308 | ) |   |   | (3,431 | ) |
| Balance - December 31, 2010                   |   |             | 21,975 |   |         |   | 10,967 |      |   |   | 243,664  |   |   |      | 10,944 |   |   |   | 11,998 |   |   |   | 299,548 |   |
|                                          |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Net book value:                               |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| December 31, 2010                             |   |             | 29,347 |   |         |   | 8,406  |      |   |   | 309,274  |   |   |      | 652    |   |   |   | 2,881 |   |   |   | 350,560 |   |

|                                          |   |             |   |   |         |   |   | Machinery |   |   |     |   |   | Furniture |   |   |   |   |
|-----------------------------------------------|--------|------------------|--------|--------|--------------|--------|--------|-----------|--------|--------|----------|--------|--------|-----------|--------|--------|--------|--------|
|                                          |   | Buildings        |   |   | Improvements |   |   | Equipment |   |   | Vehicles |   |   | Equipment |   |   | Total  |   |
|                                          |   | NIS in thousands |   |
| Cost:                                         |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |
| Balance - January 1, 2009                     |   |             | 51,090 |   |         |   | 15,718 |      |   |   | 482,521  |   |   |      | 12,343 |   |   |   | 13,862 |   |   |   | 575,534 |   |
| Changes during 2009:                          |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Additions                                     |   |             | 2,412  |   |         |   | 2,431  |      |   |   | 42,428   |   |   |      | -      |   |   |   | 618 |   |   |   | 47,889 |   |
| Dispositions                                  |   |             | (130   | )      |         |   | -      |      |   |   | (8,984   | )      |   |      | -      |   |   |   | (18 | ) |   |   | (9,132 | ) |
| Foreign currency translation adjustments |   |             | (105   | )      |         |   | 1      |      |   |   | (409     | )      |   |      | (5     | )      |   |   | (22 | ) |   |   | (540 | ) |
| Balance - December 31, 2009                   |   |             | 53,267 |   |         |   | 18,150 |      |   |   | 515,556  |   |   |      | 12,338 |   |   |   | 14,440 |   |   |   | 613,751 |   |
|                                          |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Accumulated depreciation:                     |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Balance - January 1, 2009                     |   |             | 20,208 |   |         |   | 8,241  |      |   |   | 209,087  |   |   |      | 10,663 |   |   |   | 10,161 |   |   |   | 258,360 |   |
| Changes during 2009:                          |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Additions                                     |   |             | 1,268  |   |         |   | 1,293  |      |   |   | 24,732   |   |   |      | 567    |   |   |   | 1,218 |   |   |   | 29,078 |   |
| Dispositions                                  |   |             | (130   | )      |         |   | -      |      |   |   | (8,004   | )      |   |      | -      |   |   |   | (18 | ) |   |   | (8,152 | ) |
| Foreign currency translation adjustments |   |             | (23    | )      |         |   | 4      |      |   |   | (108     | )      |   |      | (5     | )      |   |   | (7 | ) |   |   | (139 | ) |
| Balance - December 31, 2009                   |   |             | 21,323 |   |         |   | 9,538  |      |   |   | 225,707  |   |   |      | 11,225 |   |   |   | 11,354 |   |   |   | 279,147 |   |
|                                          |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Net book value:                               |   |             |   |   |         |   |   |      |   |   |     |   |   |      |   |   |   |   |   |   |   |   |   |   |
| December 31, 2009                             |   |             | 31,944 |   |         |   | 8,612  |      |   |   | 289,849  |   |   |      | 1,113  |   |   |   | 3,086 |   |   |   | 334,604 |   |

----

| NOTE 8 | - | PROPERTY PLANT AND EQUIPMENT (Cont.) |
|--------|---|--------------------------------------|

|   | B. | Prepaid expenses for operating lease |
|--------|----|--------------------------------------|

|   | Hogla-Kimberly leased land in Afula from the Israel Land Administration on January 1988 at the amount of NIS 4,600 thousand, the end of the leasing period is September 2023. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                      |   | As of December 31,     |   |
|-----------------------------------------------------------|--------|------------------------|--------|
|                                                      |   | 2 0 1 0                |   |   | 2 0 0 9 |   |
|                                                      |   | NIS  in thousands |   |
|                                                      |   |                   |   |   |   |   |
| Prepaid expenses for operating leases as of January, 1988 |   |                   | 4,600  |   |   |   | 4,600 |   |
| Accumulated expenses recognized in profit and loss        |   |                   | (2,963 | ) |   |   | (2,835 | ) |
|                                                      |   |                   | 1,637  |   |   |   | 1,765 |   |

| NOTE 9 | - | INVESTMENTS IN SUBSIDIARIES |
|--------|---|-----------------------------|

|   | A. | Goodwill |
|--------|----|----------|

|                    |   | As of December 31,    |   |
|-------------------------|--------|-----------------------|--------|
|                    |   | 2 0 1 0               |   |   | 2 0 0 9 |   |
|                    |   | NIS in thousands |   |
|                    |   |                  |   |   |   |   |   |   |
| Cost                    |   |                  | 26,009 |   |   |   | 26,009 |   |
| Translation adjustments |   |                  | (8,976 | ) |   |   | (7,359 | ) |
|                    |   |                  | 17,033 |   |   |   | 18,650 |   |

|   | B. | Annual impairment test |
|--------|----|------------------------|

|   | The goodwill is allocated to KCTR's activity, which is the cash generating unit for the purpose of calculating the recoverable amount. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|

|   | The recoverable amount value is based on the fair value of investment in KCTR less cost to sell, calculated by five years DCF forecast approved by the company's management and based on the following assumptions, determined by KC experience in similar markets. : |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1. | Long term growth ratio of 2.5%. |
|--------|----|---------------------------------|

|   | 2. | Weighted cost of capital of 14.5%. |
|--------|----|------------------------------------|

|   | C. | Investment in Kimberli Clark Tuketim Mallari Sanayi Ve Ticaret A.Ş. ("KCTR") |
|--------|----|----------------------------------------------------------------------------------------|

|   | As of December 31, 2010 and 2009, the Group’s investment in KCTR (a Turkish Subsidiary) amounted to NIS 224,099 and NIS 250,813 thousand respectively (including (including goodwill – see above). In recent years KCTR incurred significant losses from operations. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The company examined the investment in KCTR for impairment in accordance to its revocable amount. |
|--------|---------------------------------------------------------------------------------------------------|

|   | Based on the said examination, the company's business forecast and estimates made, no impairment is required. (see note 10 B above) |
|--------|-------------------------------------------------------------------------------------------------------------------------------------|

|   | During years 2005 - 2010, the Company provided KCTR NIS 583,758 thousand for the continuation of its on going operations. In addition, the Company has committed to financially support KCTR in 2011.  Such finance support may be granted to KCTR either by cash injections, long-term loans, or guaranties if required so by banks according to the financing needs of KCTR. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 9 | - | INVESTMENTS IN SUBSIDIARIES (Cont.) |
|--------|---|-------------------------------------|

|   | D. | Consolidated Subsidiaries |
|--------|----|---------------------------|

|   | The consolidated financial statements as of December 31, 2010, include the financial statements of the following Subsidiaries: |
|--------|--------------------------------------------------------------------------------------------------------------------------------|

|                                                                                      |   | Ownership and control as ofDecember 31,2010 |   |
|-------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|
|                                                                                      |   | %                                           |   |
|                                                                                      |   |                                        |   |
| Hogla-Kimberly Marketing Ltd. (“Marketing”)                                   |   |                                        | 100    |   |
|                                                                                      |   |                                        |   |   |
| Kimberly Clark Tuketim Mallari Sanayi Ve Ticaret A.Ş. (“KCTR”) |   |                                        | 100    |   |
| Mollet Marketing Ltd. (“Mollet”)                                              |   |                                        | 100    |   |
| H-K Overseas (Holland) B.V. (*)                                                           |   |                                        | 100    |   |
| Hogla-Kimberly Holding Anonim Sirketi (*)                                                 |   |                                        | 100    |   |

|   | (*) The company is inactive. |
|--------|------------------------------|

| NOTE 10 | - | EMPLOYEE BENEFITS |
|---------|---|-------------------|

|   | A. | Composition |
|--------|----|-------------|

|                                               |   | As of December 31,     |   |
|----------------------------------------------------|--------|------------------------|--------|
|                                               |   | 2 0 1 0                |   |   | 2 0 0 9 |   |
|                                               |   | NIS  in thousands |   |
|                                               |   |                   |   |   |   |   |
| Post Employment Benefits:                          |   |                   |   |   |   |   |
| Severance pay benefits:                            |   |                   |   |   |   |   |
| Severance pay liability                            |   |                   | 4,759  |   |   |   | 4,176 |   |
| Less – Amounts deposited with a general fund |   |                   | (2,205 | ) |   |   | (2,160 | ) |
| Severance pay net                                  |   |                   | 2,554  |   |   |   | 2,016 |   |
|                                               |   |                   |   |   |   |   |   |   |
| Liability for early retirement                     |   |                   | 3,410  |   |   |   | 4,237 |   |
|                                               |   |                   |   |   |   |   |   |   |
| Benefits to retirees                               |   |                   | 2,308  |   |   |   | 1,910 |   |
|                                               |   |                   |   |   |   |   |   |   |
| Other short term employee benefits:                |   |                   |   |   |   |   |   |   |
|                                               |   |                   |   |   |   |   |   |   |
| Liability for vacation pay                         |   |                   | 11,798 |   |   |   | 11,690 |   |
|                                               |   |                   |   |   |   |   |   |   |
| Stated in the balance sheet as follows:            |   |                   |   |   |   |   |   |   |
| Non current Assets                                 |   |                   | 639    |   |   |   | 517 |   |
| Short-term Liabilities                             |   |                   | 12,810 |   |   |   | 12,855 |   |
| Long-term Liabilities                              |   |                   | 7,899  |   |   |   | 7,515 |   |
|                                               |   |                   | 20,070 |   |   |   | 19,853 |   |

----

| NOTE 10 | - | EMPLOYEE BENEFITS (Cont.) |
|---------|---|---------------------------|

|   | B. | Defined contribution plan |
|--------|----|---------------------------|

|   | Most of the Company and its Israeli subsidiaries employees are covered by Article 14 to the Severance Law and therefore the Company and its Israeli subsidiaries makes regular deposits (contributions) in the name of their employees and do not have an obligation to pay further contributions. The Group's deposits under the Defined Contribution Plan are carried to the income statements on the date of the provision of work services, in respect of which the Group is obligated to make the deposit and no additional provision in the financial statements is required. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | During the year 2010 a sum of NIS 22,623 thousand was recognized in the income statement due to the defined contribution plan. |
|--------|--------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Actuarial assumptions |
|--------|----|-----------------------|

|   | The groups defined benefit plans and other long term employee benefits provisions, has been calculated by estimating the present value of the future probable obligation using actuarial valuation methods. The discounted rate is based on yield on government bonds at a fixed interest rate which have an average lifetime equal to that of the gross liability. The actuarial assumptions used in each plan are detailed bellow. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | Defined benefit plans |
|--------|----|-----------------------|

|   | The groups defined benefit plans include benefits to retirees and severance pay |
|--------|---------------------------------------------------------------------------------|

|   | 1. | The group's Severance pay liability. |
|--------|----|--------------------------------------|

|   |   | Severance pay provisions resulting from the Israeli companies and included in the financial statements of the group are due to increased severance pay which are not covered by deposits made on monthly basis. In respect of this part of the obligation, there is a reserve deposited in the Company's name in a recognized compensation fund |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | Under the Turkish Labor Law, the Company is required to pay employment termination benefits to each employee who has qualified. Also, employees are required to be paid their retirement pay provisions who retired by gaining right to receive retirement pay provisions according to current 506 numbered Social Insurance Law’s 6 March 1981 dated, 2422 numbered, 25 August 1999  dated and 4447 numbered  with 60th article that has been changed. Some transition provisions related to the pre-retirement service term was excluded from the law since the related law was changed as of 23 May 2002. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 10 | - | EMPLOYEE BENEFITS (Cont.) |
|---------|---|---------------------------|

|   | D. | Defined benefit plans (Cont.) |
|--------|----|-------------------------------|

|   | 1. | The group's Severance pay liability. (Cont.) |
|--------|----|----------------------------------------------|

|   |   | The principal assumptions used for the Severance pay liability in Israel actuarial valuations were as follows: |
|--------|--------|----------------------------------------------------------------------------------------------------------------|

|                             |   | Valuation at |   |
|----------------------------------|--------|--------------|--------|
|                             |   | 2010         |   |   | 2009 |   |
|                             |   |         |   |   |   |   |
| Discount rate                    |   |         | 4.88   | % |   |   | 5.47 | % |
| Expected rate of inflation       |   |         | 2.81   | % |   |   | 2.64 | % |
| Expected rate of salary increase |   |         | 4.25   | % |   |   | 4.25 | % |

|   |   | The provisions at the respective balance sheet dates in Turkish subsidiary have been calculated assuming an annual inflation rate of 5.1% and a discount rate of 10%, the anticipated rate of forfeitures is considered. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | The amounts recognized in profit or loss in respect of Severance pay liability are as follows: |
|--------|--------|------------------------------------------------------------------------------------------------|

|                                        |   | Year ended December 31, |   |
|---------------------------------------------|--------|-------------------------|--------|
|                                        |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                                        |   | NIS  in thousands  |   |
|                                        |   |                    |   |   |   |   |   |   |   |
| Current service cost                        |   |                    | 1,293  |   |   |   | 1,257 |   |   |   | 2,724 |   |
| Interest on obligations                     |   |                    | 232    |   |   |   | 192 |   |   |   | 135 |   |
| Actuarial losses recognized during the year |   |                    | 17     |   |   |   | 143 |   |   |   | 51 |   |
| Benefit paid during the year                |   |                    | (669   | ) |   |   | (744 | ) |   |   | (440 | ) |
| Foreign currency translation affect         |   |                    | (290   | ) |   |   | (13 | ) |   |   | (271 | ) |
|                                        |   |                    | 583    |   |   |   | 835 |   |   |   | 2,199 |   |

|   |   | The amount included in the balance sheet arising from the entity's obligation in respect of Severance pay liability is as follows: |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------|

|                                     |   | As of December 31,     |   |
|------------------------------------------|--------|-----------------------------|--------|
|                                     |   | 2010                        |   |   | 2009 |   |
|                                     |   | NIS  in thousands |   |
|                                     |   |                        |   |   |   |   |
| Present value of Severance pay liability |   |                        | 4,759  |   |   |   | 4,176 |   |

|   |   | The amount of Severance pay liability of 4,759 consists of: NIS 3,194 thousands (2009 – NIS 2,533 thousands) due to severance pay liability for of the Turkish subsidiary employees according to the Turkish law and NIS 1,565 thousand(2009 – NIS 1,643 thousands) due to liability for increased severance pay for certain employees according to a collective agreement. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 10 | - | EMPLOYEE BENEFITS (Cont.) |
|---------|---|---------------------------|

|   | D. | Defined benefit plans (cont.) |
|--------|----|-------------------------------|

|   | 1. | The group's Severance pay liability. (Cont.) |
|--------|----|----------------------------------------------|

|   |   | Movements in the present value of Severance pay liability in the current period were as follows: |
|--------|--------|-------------------------------------------------------------------------------------------------------|

|                                |   | As of December 31,     |   |
|-------------------------------------|--------|------------------------|--------|
|                                |   | 2010                   |   |   | 2009 |   |
|                                |   | NIS  in thousands |   |
|                                |   |                   |   |   |   |   |
| Opening defined benefit obligation  |   |                   | 4,176  |   |   |   | 3,341 |   |
| Current service cost                |   |                   | 1,293  |   |   |   | 1,257 |   |
| Interest cost                       |   |                   | 232    |   |   |   | 192 |   |
| Actuarial losses                    |   |                   | 17     |   |   |   | 143 |   |
| Benefit paid during the year        |   |                   | (669   | ) |   |   | (744 | ) |
| Foreign currency translation affect |   |                   | (290   | ) |   |   | (13 | ) |
| Closing defined benefit obligation  |   |                   | 4,759  |   |   |   | 4,176 |   |

|   | 2. | Benefits to retirees of holiday vouchers. |
|--------|----|-------------------------------------------|

|   |   | The financial statements include liability to benefits given to retirees – holiday gifts. |
|--------|--------|-------------------------------------------------------------------------------------------------|

|   |   | Employees who are not temporary are entitled to received holiday vouchers, after retirement, until the end of their life. In cases of death, the remaining spouses are entitled to receive the benefits until the end of their life. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | The principal assumptions used for the purposes of the actuarial valuations were as follows: |
|--------|--------|----------------------------------------------------------------------------------------------|

|                       |   | Valuation at |      |
|----------------------------|--------|--------------|-----------|
|                       |   | 2010         |      |   | 2009 |   |
|                       |   |         |      |   |   |   |
| Discount rate              |   |         | 4.88      | % |   |   | 5.54 | % |
| Expected rate of inflation |   |         | 2.81      | % |   |   | 2.61 | % |
| Expected rate of leaving   |   |         | 2.6%-15.1 | % |   |   | 2.6%-15.1 | % |

|   |   | The amounts recognized in profit or loss in respect of these defined benefit plans are as follows: |
|--------|--------|----------------------------------------------------------------------------------------------------|

|                                    |   | Year ended December 31, |   |
|-----------------------------------------|--------|-------------------------|--------|
|                                    |   | 2010                    |   |   | 2009 |   |   | 2008 |   |
|                                    |   | NIS in thousands        |   |
|                                    |   |                    |   |   |   |   |   |   |   |
| Current service cost                    |   |                    | 43     |   |   |   | 59 |   |   |   | 48 |   |
| Interest on obligations                 |   |                    | 106    |   |   |   | 105 |   |   |   | 92 |   |
| Actuarial losses recognized in the year |   |                    | 363    |   |   |   | 68 |   |   |   | 58 |   |
| Benefit paid during the year            |   |                    | (114   | ) |   |   | (112 | ) |   |   | (104 | ) |
|                                    |   |                    | 398    |   |   |   | 120 |   |   |   | 94 |   |

----

| NOTE 10 | - | EMPLOYEE BENEFITS (Cont.) |
|---------|---|---------------------------|

|   | D. | Defined benefit plans (cont.) |
|--------|----|-------------------------------|

|   | 2. | Benefits to retirees of holiday vouchers (Cont.) |
|--------|----|--------------------------------------------------|

|   |   | The amount included in the balance sheet arising from the entity's obligation in respect of its benefits to retirees' plans is as follows: |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                    |   | As of December 31,     |   |
|---------------------------------------------------------|--------|------------------------|--------|
|                                                    |   | 2010                   |   |   | 2009 |   |
|                                                    |   | NIS  in thousands |   |
|                                                    |   |                   |   |   |   |   |   |   |
| Present value of funded defined benefit obligation |   |                   | 2,308  |   |   |   | 1,910 |   |

|   |   | Movements in the present value of the defined benefit obligation in the current period were as follows: |
|--------|--------|---------------------------------------------------------------------------------------------------------|

|                               |   | As of December 31,     |   |
|------------------------------------|--------|------------------------|--------|
|                               |   | 2010                   |   |   | 2009 |   |
|                               |   | NIS  in thousands |   |
|                               |   |                   |   |   |   |   |
| Opening defined benefit obligation |   |                   | 1,910  |   |   |   | 1,995 |   |
| Current service cost               |   |                   | 43     |   |   |   | 31 |   |
| Interest cost                      |   |                   | 106    |   |   |   | 100 |   |
| Actuarial losses                   |   |                   | 363    |   |   |   | 59 |   |
| Benefits paid                      |   |                   | (114   | ) |   |   | (275 | ) |
| Closing defined benefit obligation |   |                   | 2,308  |   |   |   | 1,910 |   |

|   | E. | Other short term employee benefits |
|--------|----|------------------------------------|

|   | Other short term employee benefits are benefits which it is anticipated will be utilized or which are to be paid during a period that exceeds 12 months from the end of the period in which the service that creates entitlement to the benefit was provided. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | F. | Early retirement |
|--------|----|------------------|

|   | The obligation in respect of early retirement includes an obligation for pension for the period starting the date of the early retirement up to reaching the legal retirement age. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The amount included in the balance sheet arising from the entity's obligation in respect of early retirement is as follows: |
|--------|-----------------------------------------------------------------------------------------------------------------------------|

|                                                    |   | As of December 31,     |
|---------------------------------------------------------|--------|------------------------|
|                                                    |   | 2010                   |   |   | 2009 |   |
|                                                    |   | NIS  in thousands |
|                                                    |   |                   |   |   |   |   |   |   |
| Present value of funded defined benefit obligation |   |                   | 3,410 |   |   |   | 4,237 |   |

----

| NOTE 10 | - | EMPLOYEE BENEFITS (Cont.) |
|---------|---|---------------------------|

|   | F. | Early retirement (Cont) |
|--------|----|-------------------------|

|   | Movements in the present value of early retirement in the current period were as follows: |
|--------|-------------------------------------------------------------------------------------------|

|                               |   | As of December 31,     |   |
|------------------------------------|--------|------------------------|--------|
|                               |   | 2010                   |   |   | 2009 |   |
|                               |   | NIS  in thousands |   |
|                               |   |                   |   |   |   |   |
| Opening defined benefit obligation |   |                   | 4,237  |   |   |   | 5,009 |   |
| Interest cost                      |   |                   | 207    |   |   |   | 220 |   |
| Additions                          |   |                   | 163    |   |   |   | 402 |   |
| Benefits paid                      |   |                   | (1,197 | ) |   |   | (1,394 | ) |
| Closing defined benefit obligation |   |                   | 3,410  |   |   |   | 4,237 |   |

| Stated in balance sheet |   | As of December 31,     |   |
|-------------------------|--------|------------------------|--------|
|                    |   | 2010                   |   |   | 2009 |   |
|                    |   | NIS  in thousands |   |
|                    |   |                   |   |   |   |   |
| Short term liabilities  |   |                   | 1,013  |   |   |   | 1,165 |   |
| Long term liabilities   |   |                   | 2,397  |   |   |   | 3,072 |   |
|                    |   |                   | 3,410  |   |   |   | 4,237 |   |

| NOTE 11 | - | BORROWINGS |
|---------|---|------------|

|   | This Note provides information about the contractual terms of the interest-bearing loans and borrowings. For more information about the exposure of the Group to interest rate and foreign currency risks, see Note 23 |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A. | Composition |
|--------|----|-------------|

|                                           |   | December 31, 2010 |   |   | December 31, 2009 |   |
|------------------------------------------------|--------|-------------------|--------|--------|-------------------|--------|
|                                           |   | NIS thousands     |   |
| Current liabilities to banks                   |   |              |   |   |              |   |
| Short-term borrowings                          |   |              | 9,845  |   |              |   | 670 |   |
| Current maturities of long term bank loans (*) |   |              | 26,795 |   |              |   | 25,307 |   |
|                                           |   |              | 36,640 |   |              |   | 25,977 |   |
| Non-current liabilities to banks and others    |   |              |   |   |              |   |   |   |
| Long tern bank loans                           |   |              | 6,941  |   |              |   | 33,736 |   |
|                                           |   |              | 43,581 |   |              |   | 59,713 |   |
|                                           |   |              |   |   |              |   |   |   |

|   | (*) | The loans are not linked and bear interest at a variable rate. The principal of the loan and interest are paid quarterly. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 11 | - | BORROWINGS (Cont.) |
|---------|---|--------------------|

|   | B. | Terms and debt repayment table |
|--------|----|--------------------------------|

|                                  |      |   | Nominal interest |    |   | Current Liabilities |   |   | Non-Current liabilities |   |
|---------------------------------------|-----------|--------|------------------|---------|--------|---------------------|--------|--------|-------------------------|--------|
|                                  |      |   | rate (*)         |    |   | December 31,        |   |   | December 31,            |   |
|                                  |      |   |             |    |   | 2010                |   |   | 2009                    |   |   | 2010 |   |   | 2009 |   |
|                                  | Currency  |   | %                |    |   | NIS in thousands    |   |
| Loans and borrowings from banks: |      |   |             |    |   |                |   |   |                    |   |   |   |   |   |   |   |
| Borrowing:                            |      |   |             |    |   |                |   |   |                    |   |   |   |   |   |   |   |
| NIS nominated                         |  NIS |   |             | 3.8-4.7 |   |                |   | -      |                    |   |   | - |   |   |   | - |   |   |   | - |   |
| YTL nominated                         |  YTL |   |             | 7.8     |   |                |   | 9,845  |                    |   |   | 670 |   |   |   | - |   |   |   | - |   |
| Loans:                                |      |   |             |    |   |                |   |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |
| NIS nominated                         | NIS       |   |             | 3.5     |   |                |   | 26,795 |                    |   |   | 25,307 |   |   |   | 6,941 |   |   |   | 33,736 |   |
|                                  |      |   |             |    |   |                |   | 36,640 |                    |   |   | 25,977 |   |   |   | 6,941 |   |   |   | 33,736 |   |

|   | Terms and debt repayment table |
|--------|--------------------------------|

|   | On January 2008, the Company made an agreement with an Israeli bank for prime linked interest loan in the amount of NIS 100 million which will be repaid during a four years period. As part of the agreement the Company agreed to the following covenants: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1. | It's shareholder's equity will not be less than NIS 250 million and not less than 25% of the total consolidated assets. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Both the Company's shareholder's Kimberly Clark and Hadera Paper separately or together, will not hold less than 51% of the Company's share capital. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As of December 31, 2010 the Company meets all covenants agreed with banks. |
|--------|----------------------------------------------------------------------------|

|                          |   | As of December 31, |   |
|-------------------------------|--------|--------------------|--------|
|                          |   | 2 0 1 0            |   |
|                          |   | NIS in thousands   |   |
| Maturities of long term loans |   |               |   |
| First year - 2011             |   |               | 26,795 |   |
| Second year - 2012            |   |               | 6,941  |   |
|                          |   |               | 33,736 |   |

| NOTE 12 | - | TRADE PAYABLES |
|---------|---|----------------|

|                 |   | As of December 31, |    |
|----------------------|--------|--------------------|---------|
|                 |   | 2 0 1 0            |    |   | 2 0 0 9 |   |
|                 |   | NIS in thousands   |    |
| In Israeli currency: |   |               |    |   |   |   |
| Open accounts        |   |               | 145,420 |   |   |   | 143,957 |   |
| Related parties      |   |               | 32,767  |   |   |   | 28,611 |   |
| In foreign currency: |   |               |    |   |   |   |   |   |
| Open accounts        |   |               | 115,085 |   |   |   | 95,164 |   |
| Related parties      |   |               | 36,644  |   |   |   | 28,626 |   |
|                 |   |               | 329,916 |   |   |   | 296,358 |   |

|   | The average credit period is 103 days. |
|--------|----------------------------------------|

|   | Regarding exposure to currency risks are disclosed in note 23. |
|--------|----------------------------------------------------------------|

|   | The Trade payables balance include an amount of NIS 8,485 Thousands (2009: NIS 15,454 thousands) due to fixed assets purchases. |
|--------|---------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 13 | - | OTHER PAYABLES AND ACCRUED EXPENSES |
|---------|---|-------------------------------------|

|                                 |   | As of December 31, |   |
|--------------------------------------|--------|--------------------|--------|
|                                 |   | 2 0 1 0            |   |   | 2 0 0 9 |   |
|                                 |   | NIS in thousands   |   |
|                                 |   |               |   |   |   |   |
| Accrued payroll and related expenses |   |               | 30,926 |   |   |   | 36,689 |   |
| Value Added Tax                      |   |               | 4,472  |   |   |   | 7,955 |   |
| Advances from customers              |   |               | 142    |   |   |   | 278 |   |
| Derivatives liabilities (*)          |   |               | 2,124  |   |   |   | 119 |   |
| Sales Agent fee accrual              |   |               | 3,594  |   |   |   | 6,534 |   |
| Other                                |   |               | 2,796  |   |   |   | 6,298 |   |
|                                 |   |               | 44,054 |   |   |   | 57,873 |   |

|   | (*) Derivatives liabilities see note 23. |
|--------|------------------------------------------|

| NOTE 14 | - | COMMITMENTS CONTINGENT LIABILITIES AND OTHER INFORMATION |
|---------|---|----------------------------------------------------------|

|   | A. | Commitments |
|--------|----|-------------|

|   | (1) | The Group is obligated to pay royalties to a shareholder - see also Note 24B. |
|--------|-----|-------------------------------------------------------------------------------|

|   | (2) | The Company and its Subsidiaries lease a number of their facilities under operating leases for varying periods with renewal options. The Company does not have an option to purchase the leased assets at the end of the lease period .In addition the company has a vehicles lease agreement for the period between 2008-2014 Future minimum lease  and vehicles leasing rentals as of December 31, 2010 are as follows: |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                |   | NIS in thousands |    |
|---------------------|--------|------------------|---------|
|                |   |             |    |
| 2011                |   |             | 27,846  |   |
| 2012-2015           |   |             | 86,665  |   |
| 2016 and thereafter |   |             | 77,149  |   |
|                |   |             | 191,660 |   |

|   | B. | Guarantees |
|--------|----|------------|

|   | (1) | As part of their normal course of business, the Company and its Subsidiaries provided third parties with bank guarantees for contract performance, the balance of which as of December 31, 2010 amounted to NIS 180 thousand. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | A Subsidiary has given letter of guarantees to the local banks for a number of contingent liabilities that have arisen as a result of the Company’s importing transactions. The amount disclosed of NIS 2,425 thousands represents the aggregate amount of such contingent liabilities for which the Company as an importer is liable. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 14 | - | COMMITMENTS CONTINGENT LIABILITIES AND OTHER INFORMATION (Cont.) |
|---------|---|-----------------------------------------------------------------------|

|   | C. | Legal proceedings |
|--------|----|-------------------|

|   | 1. | In July 2005, Clubmarket Marketing Chains Ltd. (“Clubmarket”), a customer of the Company and one of the largest retail groups in Israel, applied for the regional court in Tel-Aviv (“Court”) for a staying of procedures by creditors. In December 2005, the Court approved a creditors settlement submitted by the trustees, according to which, amongst other matters, the Company is to receive about 51% of Clubmarket’s debt to the Company. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | On September 2007 a compromise was made between the trustees and the company, which was approved by the court, that the total approved debt of clubmarket to the company is NIS 23.9 million. Until December 31, 2010, NIS 11 million was received as part of the creditors' settlement. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | There is not any remaining net balance of Clubmarket's debt as of December 31, 2010, that is in excess of the doubtful accounts provision recorded in the financial statements. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | On July 12, 2007 a lawsuit was filled against KCTR, a Hogla Kimberly subsidiary, by a former distributor, claiming financial loss caused to him. The amount claimed is approximately YTL 832 thousands (NIS 2,045 thousands).KCTR filed a counter claim for it's damage in the amount of approximately YTL 355 thousands ( NIS 873 thousands). Based on the Company’s legal counsels, management estimates that the Company has valid arguments to oppose the lawsuit, and it is probable that its arguments will be accepted. Therefore, no provision was recorded in the financial statements relating to this lawsuit. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | During 2009, as part of a formal tax inspection of the Turkish Tax Authorities, KCTR's Financial Reports for the years 2004-2008 were examined. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | On February 16, 2010, KCTR received a tax inspection report, following the aforementioned inspection, according to which KCTR is required to an additional tax payment for two matters audited, as detailed below, on the total amount of 135 millions YTL (approximately 90 millions USD) including interest and penalty. On July 2010, an amount of 264 thousands YTL was paid to Turkish Tax Authorities regarding settlement in the stamp duty issue. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | Regarding the second matter, which is the essential part of the tax demand (tax on capital injection from Hogla- Kimberly to KCTR), KCTR, based on its tax consultant opinion, estimates that the likelihood that it will be demanded for the additional tax payment in this matter, is not probable, and therefore it will not provide a provision at Its Financial Reports for December 31, 2010. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | Based on its tax consultant opinion, during 2010, KCTR decided to pursuit a law case against the Turkish Tax Authorities demands regarding the second matter. First level court proceedings are continuing as date of this report . |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 14 | - | COMMITMENTS CONTINGENT LIABILITIES AND OTHER INFORMATION (Cont.) |
|---------|---|------------------------------------------------------------------|

|   | C. | Legal proceedings (Cont.) |
|--------|----|---------------------------|

|   | 4. | On June 15, 2010, a petition was filed against Hogla-Kimberly and against another competitor for the approval of a class action. According to the petition, the Competitor and Hogla-Kimberly has misled the public by presenting plastic bags as oxo biodegradable and therefore environmentally friendly, while the products are breaking down into fragments. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | The plaintiff estimates the scope of the petition, if approved as class action, to be approximately NIS 111 million. At this early stage Hogla-Kimberly legal advisor opinion is that the probability of the request for approval of a class action lawsuit will be rejected is higher than the probability that it will be approved. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5. | On October 24, 2010 a new lawsuit was received, filed against the company in the amount of approximately NIS 1.5 million, by a former distributer, regarding termination of distribution agreement by the company. The former distributor claims for the existence of employer-employee relations. Due to the preliminary stage of the proceedings, management is unable to estimate the possible outcome of the lawsuit. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| NOTE 15 | - | SHARE CAPITAL |
|---------|---|---------------|

|   | A. | Composition of Share Capital in Nominal NIS as of December 31, 2010, 2009 and 2008: |
|--------|----|-------------------------------------------------------------------------------------|

|                                  |   | Number of Shares |       |
|---------------------------------------|--------|------------------|------------|
|                                  |   |             |       |   | Issued and |   |
|                                  |   | Authorized       |       |   | fully paid up |   |
|                                  |   |             |       |   |   |   |
| Ordinary Shares of NIS 1.00 par value |   |             | 11,000,000 |   |   |   | 9,113,473 |   |

|   | B. | Holders of ordinary shares are entitled to participate equally in the payment of cash dividends and bonus share (stock dividend) distributions and, in the event of the liquidation of the Company, in the distribution of assets after satisfaction of liabilities to creditors. Each ordinary share is entitled to one vote on all matters to be voted on by shareholders. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | The company issued one preference Share to Hadera Paper Ltd, which gives Hadera Paper the right to receive special dividends according to the decision of the Board from time to time. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 16 | - | REVENUE |
|---------|---|---------|

|                                                                              |   | Year ended December 31, |    |
|-----------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                              |   | 2 0 1 0                 |    |   | 2 0 0 9 |   |   | 2 0 0 8 |   |
|                                                                              |   | NIS in thousands        |    |
|                                                                              |   |                    |    |   |   |   |   |   |   |   |   |   |
| A.        Sales of the Turkish subsidiary |   |                    | 471,304 |   |   |   | 489,560 |   |   |   | 404,024 |   |
|                                                                              |   |                    |    |   |   |   |   |   |   |   |   |   |
| B.        Sales to major customers        |   |                    |    |   |   |   |   |   |   |   |   |
| (as percentage from total net sales)                                              |   |                    |    |   |   |   |   |   |   |   |   |   |
| Customer A                                                                        |   |                    | 13.2    | % |   |   | 14 | % |   |   | 13.2 | % |
| Customer B                                                                        |   |                    | 8.4     | % |   |   | 9.5 | % |   |   | 10.5 | % |

| NOTE 17 | - | COST OF SALES |
|---------|---|---------------|

|                               |   | Year ended December 31, |      |
|------------------------------------|--------|-------------------------|-----------|
|                               |   | 2 0 1 0                 |      |   | 2 0 0 9 |   |   | 2 0 0 8 |   |
|                               |   | NIS in thousands        |      |
|                               |   |                    |      |   |   |   |   |   |   |
| Material consumed                  |   |                    | 618,740   |   |   |   | 597,791 |   |   |   | 564,455 |   |
| Purchases (*)                      |   |                    | 280,127   |   |   |   | 267,842 |   |   |   | 271,688 |   |
| Salaries and related expenses      |   |                    | 122,222   |   |   |   | 119,867 |   |   |   | 110,844 |   |
| Manufacturing expenses             |   |                    | 134,872   |   |   |   | 133,098 |   |   |   | 140,991 |   |
| Depreciation                       |   |                    | 29,449    |   |   |   | 27,387 |   |   |   | 21,883 |   |
|                               |   |                    | 1,185,410 |   |   |   | 1,145,985 |   |   |   | 1,109,861 |   |
| Change in finished goods inventory |   |                    | (20,191   | ) |   |   | 18,964 |   |   |   | (12,294 | ) |
|                               |   |                    | 1,165,219 |   |   |   | 1,164,949 |   |   |   | 1,097,567 |   |

|   | (*) | The purchases of the group are related principally to commercial operations. |
|--------|-----|------------------------------------------------------------------------------|

| NOTE 18 | - | OTHER  INCOME |
|---------|---|-------------------------|

|                                       |   | Year ended December 31, |   |
|--------------------------------------------|--------|-------------------------|--------|
|                                       |   | 2 0 1 0                 |   |   | 2 0 0 9 |   |   | 2 0 0 8 |   |
|                                       |   | NIS in thousands        |   |
|                                       |   |                    |   |   |   |   |   |   |   |
| Capital gain from realization of trademark |   |                    | 3,131  |   |   |   | - |   |   |   | - |   |
| Refund from mutual fund                    |   |                    | 1,600  |   |   |   | - |   |   |   | - |   |
|                                       |   |                    | 4,731  |   |   |   | - |   |   |   | - |   |

----

| NOTE 19 | - | SELLING AND MARKETING EXPENSES |
|---------|---|--------------------------------|

|                                    |   | Year ended December 31, |    |
|-----------------------------------------|--------|-------------------------|---------|
|                                    |   | 2 0 1 0                 |    |   | 2 0 0 9 |   |   | 2 0 0 8 |   |
|                                    |   | NIS in thousands        |    |
|                                    |   |                    |    |   |   |   |   |   |   |
| Salaries and related expenses           |   |                    | 83,611  |   |   |   | 80,930 |   |   |   | 81,744 |   |
| Maintenance and transportation expenses |   |                    | 84,547  |   |   |   | 83,132 |   |   |   | 82,676 |   |
| Advertising and sales promotion         |   |                    | 66,923  |   |   |   | 82,936 |   |   |   | 85,589 |   |
| Commissions to distributors             |   |                    | 9,819   |   |   |   | 11,941 |   |   |   | 11,541 |   |
| Royalties                               |   |                    | 29,780  |   |   |   | 31,117 |   |   |   | 29,584 |   |
| Depreciation                            |   |                    | 1,460   |   |   |   | 1,668 |   |   |   | 1,695 |   |
| Other                                   |   |                    | 11,921  |   |   |   | 13,052 |   |   |   | 15,908 |   |
|                                    |   |                    | 288,061 |   |   |   | 304,776 |   |   |   | 308,737 |   |

| NOTE 20 | - | GENERAL AND ADMINISTRATIVE EXPENSES |
|---------|---|-------------------------------------|

|                                 |   | Year ended December 31, |   |
|--------------------------------------|--------|-------------------------|--------|
|                                 |   | 2 0 1 0                 |   |   | 2 0 0 9 |   |   | 2 0 0 8 |   |
|                                 |   | NIS in thousands        |   |
|                                 |   |                    |   |   |   |   |   |   |   |
| Salaries and related expenses        |   |                    | 31,312 |   |   |   | 36,434 |   |   |   | 35,224 |   |
| Administrative and computer services |   |                    | 12,506 |   |   |   | 13,005 |   |   |   | 12,118 |   |
| Services provided by Shareholder     |   |                    | 1,400  |   |   |   | 1,373 |   |   |   | 1,380 |   |
| Office maintenance                   |   |                    | 4,507  |   |   |   | 3,549 |   |   |   | 4,392 |   |
| Depreciation                         |   |                    | 730    |   |   |   | 832 |   |   |   | 749 |   |
| Provision for doubtful accounts      |   |                    | (710   | ) |   |   | (1,724 | ) |   |   | 1,459 |   |
| Other                                |   |                    | 12,612 |   |   |   | 9,628 |   |   |   | 11,197 |   |
|                                 |   |                    | 62,357 |   |   |   | 63,097 |   |   |   | 66,519 |   |

| NOTE 21 | - | FINANCING INCOME AND EXPENSES |
|---------|---|-------------------------------|

|   | A. | Financing income |
|--------|----|------------------|

|                                                                   |   | Year ended December 31, |   |
|------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                   |   | 2 0 1 0                 |   |   | 2 0 0 9 |   |   | 2 0 0 8 |   |
|                                                                   |   | NIS in thousands        |   |
| Exchange rate differences                                              |   |                    | 9,318  |   |   |   | 1,024 |   |   |   | 8,388 |   |
| Interest from long-term and short-term bank deposits              |   |                    | 144    |   |   |   | 213 |   |   |   | 612 |   |
| Interest income from tax authorities                                   |   |                    | 2,382  |   |   |   | 1,164 |   |   |   | 631 |   |
| Application of amortized cost method on Receivables and payables. |   |                    | 251    |   |   |   | 1,434 |   |   |   | 2,379 |   |
| Finance expense from derivative                                        |   |                    | -      |   |   |   | 683 |   |   |   |   |   |
| Due to capital note to related parties                                 |   |                    | -      |   |   |   | - |   |   |   | 1,560 |   |
| Other                                                                  |   |                    | 9      |   |   |   | 39 |   |   |   | 132 |   |
|                                                                   |   |                    | 12,104 |   |   |   | 4,557 |   |   |   | 13,702 |   |
|                                                                   |   |                    |   |   |   |   |   |   |   |   |   |   |

----

| NOTE 21 | - | FINANCING INCOME AND EXPENSES (Cont.) |
|---------|---|---------------------------------------|

|   | B. | Financing expenses |
|--------|----|--------------------|

|                                 |   | Year ended December 31, |   |
|--------------------------------------|--------|-------------------------|--------|
|                                 |   | 2 0 1 0                 |   |   | 2 0 0 9 |   |   | 2 0 0 8 |   |
|                                 |   | NIS in thousands        |   |
|                                 |   |                    |   |   |   |   |   |   |   |
| Interest on long-term bank loans     |   |                    | 1,360  |   |   |   | 1,395 |   |   |   | 4,595 |   |
| Interest on Short-term bank loans    |   |                    | 1,290  |   |   |   | 807 |   |   |   | 4,499 |   |
| Interest expenses to tax authorities |   |                    | 1,267  |   |   |   | - |   |   |   |   |   |
| Finance Expenses from derivative     |   |                    | 3,560  |   |   |   |  - |   |   |   | 3,002 |   |
| Other                                |   |                    | 633    |   |   |   | 839 |   |   |   | 259 |   |
|                                 |   |                    | 8,110  |   |   |   | 3,041 |   |   |   | 12,355 |   |
|                                 |   |                    |   |   |   |   |   |   |   |   |   |   |
|                                 |   |                    | 3,995  |   |   |   | 1,516 |   |   |   | 1,347 |   |

----

| NOTE 22 | - | INCOME TAX |
|---------|---|------------|

|   | A. | Recognised tax assets and deferred tax liabilities |
|--------|----|----------------------------------------------------|

|   | Tax assets and deferred tax liabilities are attributed to the following items Changes in temporary differences during the year (NIS in thousands) |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|                          |   | Balance at January 1, 2009 |    |    | Charged to profit and loss |   |   | Charged to other comprehensive income |   |   | Change in Tax rate |   |   | Balance at December 31, 2009 |   |    | Charged to profit and loss |   |     | Charged to other comprehensive income |   |   | Exchange difference |   |   | Change in Tax rate |   |   | Balance at December 31, 2010 |   |
|-------------------------------|--------|----------------------------|---------|---------|----------------------------|--------|--------|---------------------------------------|--------|--------|--------------------|--------|--------|------------------------------|--------|---------|----------------------------|--------|----------|---------------------------------------|--------|--------|---------------------|--------|--------|--------------------|--------|--------|-----------------------------------|--------|
|                          |   |                       |    |    |                       |   |   |                                  |   |   |               |   |   |                         |   |    |                       |   |     |                                  |   |   |                |   |   |               |   |   |                              |   |
| Property, plant and equipment |   |                       | (39,498 | )  |                       |   | (1,562 | )                                |   |   | -                  |   |   |                         | 6,287  |    |                       |   | (34,773  | )                                |   |   | (1,729              | )      |   |               | -      |   |                              |   | 79 |   |   |   | - |   |   |   | (36,423 | ) |
| Doubtful debts                |   |                       | 1,399   |    |                       |   | (975   | )                                |   |   | -                  |   |   |                         | 27     |    |                       |   | 451      |                                  |   |   | (200                | )      |   |               | -      |   |                              |   | - |   |   |   | 9 |   |   |   | 260 |   |
| Derivatives                   |   |                       | ( 433   | )  |                       |   | -      |                                  |   |   | 401                |   |   |                         | -      |    |                       |   | (32      | )                                |   |   | -                   |   |   |               | 282    |   |                              |   | - |   |   |   | - |   |   |   | 250 |   |
| Employee benefits             |   |                       | 4,848   |    |                       |   | 791    |                                  |   |   | -                  |   |   |                         | (50    | )  |                       |   | 5,589    |                                  |   |   | (1,252              | )      |   |               | -      |   |                              |   | - |   |   |   | 82 |   |   |   | 4,419 |   |
| Expenses accruals             |   |                       | -       |    |                       |   | -      |                                  |   |   | -                  |   |   |                         | -      |    |                       |   | -        |                                  |   |   | -                   |   |   |               | -      |   |                              |   | - |   |   |   | - |   |   |   | - |   |
| Tax carry forward losses      |   |                       | -       |    |                       |   | -      |                                  |   |   | -                  |   |   |                         | -      |    |                       |   | -        |                                  |   |   | -                   |   |   |               | -      |   |                              |   | - |   |   |   | - |   |   |   | - |   |
| Other                         |   |                       | 59      |    |                       |   | (25    | )                                |   |   | -                  |   |   |                         | -      |    |                       |   | 33       |                                  |   |   | (45                 | )      |   |               | -      |   |                              |   | - |   |   |   | - |   |   |   | (12 | ) |
|                          |   |                       | (33,625 | )  |                       |   | (1,772 | )                                |   |   | 401                |   |   |                         | 6,264  |    |                       |   | ( 28,732 | )                                |   |   | (3,226              | )      |   |               | 282    |   |                              |   | 79 |   |   |   | 91 |   |   |   | (31,506 | ) |

----

| NOTE 22 | - | INCOME TAX (Cont.) |
|---------|---|--------------------|

|   | B. | Deferred taxes are presented in the balance sheet as follows: |
|--------|----|---------------------------------------------------------------|

|                                                          |   | 2010             |   |   | 2009   |   |
|---------------------------------------------------------------|--------|------------------|--------|--------|--------|--------|
|                                                          |   | NIS in thousands |   |
| Long-term liabilities (in respect of depreciable assets) |   |             | 35,370 |   |   |   | 33,631 |   |
| Long-term Assets                                              |   |             | (3,864 | )      |   |   | (4,899 | ) |
|                                                          |   |             | 31,506 |   |   |   | 28,732 |   |

|   | For 2010-2011 - Deferred taxes were computed at rates between 18%-25%, primarily – 20.5%. |
|--------|-------------------------------------------------------------------------------------------------|

|   | As of December 31, 2010 deferred tax assets at the amount of NIS 250 thousand (2009 – NIS 32 thousand tax liability) due to revaluation of financial instruments treated as cash flow hedges was recognized directly to equity. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Deferred tax assets that were not recognised |
|--------|----|----------------------------------------------|

|   | The calculation of deferred taxes does not take into account the taxes that would be applicable in case of realization of the investment in subsidiaries and associates, since the Group intends to retain the investment. Deferred taxes in respect of a distribution of profit in Israeli subsidiaries were also not taken into account, since the dividends are not taxable. In addition, unutilized deferred tax assets in respect of losses carried forward, were not recognized in cases where future taxable income against which they can be utilized, is not foreseen. As of December 31, 2010 carry forward tax losses deriving from the Turkish subsidiary sum up to NIS 165.7 (72.8 YTL) millions. The Company has examined the validity of the deferred tax assets deriving from its Turkish subsidiary. As of December 31, 2010 deferred tax assets were not recognized in respect of utilizing tax losses in the Turkish subsidiary since it is not anticipated that there will be taxable income against which the tax benefits can be utilized. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | According to the Turkish law, carry forward tax losses can be utilized for a five years period only, unrecognized tax losses of KCTR will expire as follow: An amount of NIS 74.5, 73.6, 7, 6.3 and 4.2 will expire between 2011-2015, respectively. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | Income tax attributable directly to other comprehensive income |
|--------|----|----------------------------------------------------------------|

|                                    |   | 2010             |   |   | 2009   |   |   | 2008   |   |
|-----------------------------------------|--------|------------------|--------|--------|--------|--------|--------|--------|--------|
|                                    |   | NIS in thousands |   |
|                                    |   |             |   |   |   |   |   |   |   |
| Total tax recognized directly in equity |   |             | 579    |   |   |   | (199   | )      |   |   | 155 |   |

----

| NOTE 22 | - | INCOME TAX (Cont.) |
|---------|---|--------------------|

|   | E. | Tax Composition |
|--------|----|-----------------|

|                            |   | 2010             |   |   | 2009   |   |
|---------------------------------|--------|------------------|--------|--------|--------|--------|
|                            |   | NIS in thousands |   |
|                            |   |             |   |   |   |   |
| Current taxes                   |   |             | 42,771 |   |   |   | 48,715 |   |
| Taxes in respect of prior years |   |             | -      |   |   |   | - |   |
| Deferred taxes - A. above       |   |             | 3,133  |   |   |   | (4,489 | ) |
|                            |   |             | 45,904 |   |   |   | 44,226 |   |

|   | F. | Reconciliation of the statutory tax rate to the effective tax rate: |
|--------|----|---------------------------------------------------------------------|

|                                                                |   | 2 0 1 0          |    |   | 2 0 0 9 |   |    | 2 0 0 8 |   |
|---------------------------------------------------------------------|--------|------------------|---------|--------|---------|--------|---------|---------|--------|
|                                                                |   | NIS in thousands |    |
| Income before income taxes                                          |   |             | 190,598 |   |    |   | 195,321 |    |   |   | 137,100 |   |
|                                                                |   |             |    |   |    |   |    |    |   |   |   |   |
| Statutory tax rate (see H. below)                                   |   |             | 25      | %      |    |   | 26      | %       |   |   | 27 | % |
| Tax computed by statutory tax rate-                                 |   |             | 47,650  |   |    |   | 50,783  |    |   |   | 37,017 |   |
|                                                                |   |             |    |   |    |   |    |    |   |   |   |   |
| Tax increments (savings) due to:                                    |   |             |    |   |    |   |    |    |   |   |   |   |
| Income (Expenses) in reduced tax rate                               |   |             | (3,561  | )      |    |   | (4,268  | )       |   |   | (2,104 | ) |
| Non-deductible expenses                                             |   |             | 1,483   |   |    |   | 1,024   |    |   |   | 2,297 |   |
| Non-taxable income                                                  |   |             | (797    | )      |    |   | (48     | )       |   |   | (90 | ) |
| Unrecorded deferred taxes in connection with tax loss carry forward |   |             | 1,074   |   |    |   | 3,027   |    |   |   | 5,483 |   |
| Amortizing differed taxes                                           |   |             | -       |   |    |   | -       |    |   |   | 4,244 |   |
| Reduction in corporate tax rates (see H. below)                     |   |             | (239    | )      |    |   | (6,177  | )       |   |   | 651 |   |
| Differences arising from basis of measurement                       |   |             | (178    | )      |    |   | (185    | )       |   |   | 579 |   |
| Income (Expenses) taxes for prior years                             |   |             | -       |   |    |   | -       |    |   |   | 221 |   |
| Other differences, net                                              |   |             | 472     |   |    |   | 70      |    |   |   | (825 | ) |
|                                                                |   |             | 45,904  |   |    |   | 44,226  |    |   |   | 47,473 |   |

|   | G. | Current Tax Balance |
|--------|----|---------------------|

|                    |   | 2010             |   |   | 2009   |   |
|-------------------------|--------|------------------|--------|--------|--------|--------|
|                    |   | NIS in thousands |   |
|                    |   |             |   |   |   |   |
| Current taxes assets    |   |             | 54     |   |   |   | - |   |
| Current tax liabilities |   |             | 22,583 |   |   |   | 26,631 |   |

----

| NOTE 22 | - | INCOME TAX (Cont.) |
|---------|---|--------------------|

|   | H. | The Company and its Israeli Subsidiaries are subject to the Income Tax Ordinance and the Income Tax Law (Inflationary Adjustments), 1985. Under the inflationary adjustments law, results for tax purposes are measured in real terms, having regard to the changes in the Israeli CPI.  The Company and its subsidiaries in Israel are taxed under this law. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On February 26, 2008, the Knesset ratified the third reading of the Income Tax Law ("Inflation Adjustments") (Amendment 20) (Limitation of Term of Validity) - 2008 (hereinafter: "The Amendment"), pursuant to which the application of the inflationary adjustment law will terminate in tax year 2007 and as of tax year 2008, the law will no longer apply, other than transition regulations whose intention it is to prevent distortions in tax calculations. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | According to the amendment, in tax year 2008 and thereafter, the adjustment of revenues for tax purposes will no longer be considered a real-term basis for measurement. Moreover, the linkage to the CPI of the depreciated sums of fixed assets and carryover losses for tax purposes will be discontinued, in a manner whereby these sums will be adjusted until the CPI at the end of 2007 and their linkage to the CPI will end as of that date. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Non-Israeli Subsidiaries are subject to income tax provisions of their home country. |
|--------|--------------------------------------------------------------------------------------|

|   | The Company is an industrial company in conformity with the Law for the Encouragement of Industry (Taxes), 1969. The principal benefit that the Company is entitled to under this law is accelerated depreciation rates and reduced tax rates. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | According to this law the Company and Shikma (formerly a subsidiary) filed consolidated tax returns until December 31, 2005. On December 31, 2005, Shikma was merged into the Company. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On January 15,2009  the Company received an approval from the investment center for the merger of the Company and its subsidiary Shikma which took place at the end of 2005. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | During 2002, the Company’s program for the establishment of a new facility for manufacturing paper was granted Approved Enterprise status in accordance with the Law for the Encouragement of Capital Investments, 1959, under “alternative benefits” track. The approval program was originally for total investments of approximately NIS 97 million. According to the terms of the program, income derived from the Approved Enterprise will be tax-exempt for a period of 10 years commencing in the year in which the program was substantially completed. Distribution of dividends from tax exempt profits of the Approved Enterprise will be subject to income tax at a rate equal to the income tax rate of the Approved Enterprise had the Company not elected the alternative benefits track. The Company completed the investments relating to the new facility. Commencement of operations was during 2003. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | During May 2010,the Company recived the approval of the final report from the Investment center for total investments of NIS 109, and approval for the merger of Shikma into the company. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company and its subsidiary Shikma Ltd. possess final tax assessments through 2003. Hogla Kimberly Marketing Ltd., a subsidiary of the Company, posses' final tax assessments through 2004. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 22 | - | INCOME TAX (Cont.) |
|---------|---|--------------------|

|   | H. | (Cont.) |
|--------|----|---------|

|   | Mollet Marketing Ltd., a subsidiary of the Company, posses' final tax assessments through 2004. |
|--------|-------------------------------------------------------------------------------------------------|

|   | On July 14, 2009 Knesset passed the Economic Efficiency Law (legislative amendments to implement the economic plan for the years 2009 and 2010) - 2009, which stipulates, inter alia, an additional gradual reduction in the rate of companies tax to 18% in the 2016. tax year and thereafter. According to these amendments, the rate of company tax applying to the 2010 tax year and thereafter are as follows: 2009 tax year - 26%, 2010 tax year - 25%, 2011 tax year - 24%, 2012 tax year - 23%, 2013 texture - 22%, 2014 tax year - 21%, 2015 tax year - 20%, and in the 2016 tax year and thereafter there will be a companies tax rate of 18%. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The change in the tax rates have decreased the deferred taxes liability as of December 31, 2009 in the amount of NIS 6,177 thousand. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------|

|   | I. | On the 29th December, 2010 the Knesset ratified the Economic Policy 2011-2012 Law (amendments), 2011 that was published in the articles on the 6th January, 2011. Within this law, the Law for the Encouragement of Capital Investments – 1959 was amended (hereafter "amendment"). According to the amendment the different income tax channels were abolished & instead fixed income tax rates on the industrial taxable income were set as follows: |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2011-2012: 15% (area "A" – 10%) |
|--------|---------------------------------------|

|   | 2013-2014: 12.5% (area "A" – 7%) |
|--------|----------------------------------------|

|   | 2015 onwards: 12% (area "A" -6%) |
|--------|----------------------------------|

|   | These amendments came in force as from 1st January, 2011. Each company is entitled to to choose whether to be included within this amendment & to forego the outstanding benefits of the previous law or to waive this amendment. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The company has uncertainty as to its ability to confirm to the amendments stipulations &, as such, has not recognized the tax income derived from the amendment. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | J. | Tax inspection report was received during 2010 to KCTR, see note 14 C . |
|--------|----|------------------------------------------------------------------------------|

| NOTE 23 | - | FINANCIAL INSTRUMENTS |
|---------|---|-----------------------|

|   | General |
|--------|---------|

|   | In the normal course of business, Hogla-Kimberly is exposed to credit, liquidity and market risks, as well as interest and currency risks. The Company monitors these risks on a constants basis. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Group's policy is to hedge the exposure from fluctuations in foreign exchange rates to minimize its exposure to fluctuations of foreign currency rates. The hedging is according to a policy adopted by the Company's Board of Directors. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A. | Significant accounting policies |
|--------|----|---------------------------------|

|   | Details as to the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognized, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 23 | - | FINANCIAL INSTRUMENTS (Cont.) |
|---------|---|-------------------------------|

|   | B. | Categories of financial instruments |
|--------|----|-------------------------------------|

|                                                                     |   | As of December 31, |    |
|--------------------------------------------------------------------------|--------|--------------------|---------|
|                                                                     |   | 2010               |    |   | 2009 |   |
|                                                                     |   | NIS in thousands   |    |
| Financial assets                                                         |   |               |    |   |   |   |
| Cash (including cash equivalents)  and Trade receivables       |   |               | 310,091 |   |   |   | 399,457 |   |
|                                                                     |   |               |    |   |   |   |   |   |
| Financial liabilities                                                    |   |               |    |   |   |   |   |   |
| Borrowings  and Trade payables                                 |   |               | 366,556 |   |   |   | 322,336 |   |
| Derivative instruments in designated hedge accounting relationships |   |               | 2,124   |   |   |   | 119 |   |

|   | Measured at the fair value |
|--------|----------------------------|

|   | C. | Credit risk |
|--------|----|-------------|

|   | Credit risk refers to the possibility that counterparty will fail to meet its contractual obligations, resulting in financial loss to the Company. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Commencing November 2007 Hogla Kimberly is covered by a credit insurance policy, which partially covers it's most major customers. In accordance with its policy conditions, the company will be reimbursed starting from an annual loss of US dollars 200 thousands to a maximum of US dollars 10  million, subject to deductible conditions. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The revenues of the Company and its Israeli subsidiaries are mainly in Israel and derived from two major customers and a large number of smaller customers. Trade receivables in the Turkish subsidiary consist of a limited number of customers, where no single counterparty or any company of counterparties having similar characteristics. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company has a policy of creditworthy customers and obtaining sufficient collaterals where possible as a means of mitigating the risk of financial loss from defaults, |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | For each customer, where possible, the Company checks its credit rating with an external credit rating companies to assess the potential customer’s credit quality and help in defining its credit limit. Credit limit for each customer is determined and approved according to the Company's policy taking into account its rating and collaterals. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Management regularly monitors the balance of trade receivables and the financial statements include an allowance for doubtful accounts based on management's estimation. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The exposure to credit risks relating to trade receivables is limited due to the relatively large number of customers and to the credit insurance. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the group's maximum exposure to credit risk (without taking account of the value of any collateral obtained). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Cash and cash equivalents are deposited with major banks in Israel and abroad. Therefore, it is not expected that such banks will fail to meet their obligations. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 23 | - | FINANCIAL INSTRUMENTS (Cont.) |
|---------|---|-------------------------------|

|   | D. | Liquidity risk |
|--------|----|----------------|

|   | Liquidity risk is the risk that the Group could experience difficulties in meeting its commitments to creditors as financial liabilities fall due for payment. The Group manages its liquidity risk by maintaining sufficient reserves, committed borrowing facilities and other credit lines as appropriate. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The following table presents the Group's outstanding contractual maturity profile for its non-derivative financial liabilities. The analysis presented is based on the undiscounted contractual maturities of the Group's financial liabilities, including any interest that will accrue. Non-interest bearing financial liabilities which are due to be settled in less than 12 months from maturity equal their carrying values, since the impact of the time value of money is immaterial over such a short duration. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Maturity profile of outstanding financial liabilities |
|--------|-------------------------------------------------------|

|              |   | 1 year           |    |   | 1-2 years |   |   | 2-4 years |   |   | Total  |   |
|-------------------|--------|------------------|---------|--------|-----------|--------|--------|-----------|--------|--------|--------|--------|
|              |   | NIS in thousands |    |
| 2010              |   |             |    |   |      |   |   |      |   |   |   |   |
| Supplier payables |   |             | 329,916 |   |      |   | -      |      |   |   | -      |   |   |   | 329,916 |   |
| Borrowings        |   |             | 36,640  |   |      |   | 6,941  |      |   |   | -      |   |   |   | 43,581 |   |
| Total             |   |             | 366,556 |   |      |   | 6,941  |      |   |   | -      |   |   |   | 373,497 |   |
|              |   |             |    |   |      |   |   |      |   |   |   |   |   |   |   |   |
| 2009              |   |             |    |   |      |   |   |      |   |   |   |   |   |   |   |   |
| Supplier payables |   |             | 296,359 |   |      |   | -      |      |   |   | -      |   |   |   | 296,359 |   |
| Borrowings        |   |             | 25,977  |   |      |   | 26,795 |      |   |   | 6,941  |   |   |   | 59,713 |   |
| Total             |   |             | 322,336 |   |      |   | 26,795 |      |   |   | 6,941  |   |   |   | 356,072 |   |

|   | E. | Exchange rate risk |
|--------|----|--------------------|

|   | The Group is exposed to foreign currency risks mainly due to payments for purchases of raw materials and finished goods inventory and purchases of equipment and spare parts linked to the dollar or the Euro. In applying a policy of minimizing the exposure, the Group makes forward transactions against the dollar and euro. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|

|                      |   | 31, December 2010 NIS thousands |    |
|---------------------------|--------|--------------------------------------|---------|
|                      |   | USD                                  |    |   | EURO |   |   | YTL |   |
|                      |   | NIS  in thousands               |    |
|                      |   |                                 |    |   |   |   |   |   |   |
| Cash and cash equivalents |   |                                 | 4,146   |   |   |   | 2,127 |   |   |   | 3,058 |   |
| Trade receivables         |   |                                 | 30,116  |   |   |   | - |   |   |   | 40,354 |   |
|                      |   |                                 | 34,262  |   |   |   | 2,127 |   |   |   | 43,412 |   |
| Borrowings                |   |                                 | -       |   |   |   | - |   |   |   | 9,845 |   |
| Trade payables            |   |                                 | 109,449 |   |   |   | 30,499 |   |   |   | 15,829 |   |
|                      |   |                                 | 109,449 |   |   |   | 30,499 |   |   |   | 25,674 |   |

----

| NOTE 23 | - | FINANCIAL INSTRUMENTS (Cont.) |
|---------|---|-------------------------------|

|   | E. | Exchange rate risk (Cont) |
|--------|----|---------------------------|

|                      |   | 31, December 2009NIS thousands |   |
|---------------------------|--------|--------------------------------|--------|
|                      |   | USD                            |   |   | EURO |   |   | YTL |   |
|                      |   | NIS  in thousands         |   |
| Cash and cash equivalents |   |                           | 38,586 |   |   |   | 748 |   |   |   | 22,975 |   |
| Trade receivables         |   |                           | 35,583 |   |   |   | 1,328 |   |   |   | 34,738 |   |
|                      |   |                           | 74,168 |   |   |   | 2,076 |   |   |   | 57,713 |   |
| Borrowings                |   |                           | -      |   |   |   | - |   |   |   | 670 |   |
| Trade payables            |   |                           | 61,536 |   |   |   | 25,002 |   |   |   | 30,576 |   |
|                      |   |                           | 61,536 |   |   |   | 25,002 |   |   |   | 31,246 |   |

|   | The following table details the Group's sensitivity to a 10% increase and decrease in the NIS against the relevant foreign currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management's assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number below indicates an increase in profit and other equity where the NIS strengthens 10% against the relevant currency. For a 10% weakening of the NIS against the relevant currency, there would be an equal and opposite impact on the profit and other equity, and the balances below would be negative. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|               |   | USD Impact             |   |   | EUR Impact |   |   | YTL Impact |   |
|--------------------|--------|------------------------|--------|--------|------------|--------|--------|------------|--------|
|               |   | 2010                   |   |   | 2009       |   |   | 2010       |   |   | 2009 |   |   | 2010 |   |   | 2009 |   |
|               |   | NIS  in thousands |   |
| Profit or loss (1) |   |                   | (2,465 | )      |       |   | (5,671 | )          |   |   | (160 | ) |   |   | (542 | ) |   |   | 2,068 |   |   |   | 2,008 |   |
| Other equity (2)   |   |                   | 1,692  |   |       |   | 1,737  |       |   |   | 1,457 |   |   |   | 740 |   |   |   | - |   |   |   | - |   |

|   | (1) | This is mainly attributable to the exposure outstanding on receivables, cash and payables at year end in the Group, and forward foreign exchange contracts. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | This is as a result of the changes in fair value of derivative instruments designated as cash flow hedges. |
|--------|-----|------------------------------------------------------------------------------------------------------------|

|   | Forward foreign exchange contracts |
|--------|------------------------------------|

|   | The Company hedges its exposure of itself and its Israeli subsidiaries by entering into forward foreign exchange contracts, according to a policy adopted by the Company's Board of Directors, to manage the risk associated with anticipated purchase transaction. The Company hedges 80% of its forecasted payments to suppliers of its forecasted exposure for a period of six month forward. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | These hedging transactions are treated as cash flow hedges and the resulting gain or loss is recognized in other comprehensive income. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 23 | - | FINANCIAL INSTRUMENTS (Cont.) |
|---------|---|-------------------------------|

|   | E. | Exchange rate risk (Cont.) |
|--------|----|----------------------------|

|   | The following table details the forward foreign currency (FC) contracts outstanding as at the reporting date: |
|--------|---------------------------------------------------------------------------------------------------------------|

| Outstanding contracts | Buy Currency |   | Sell Currency |   | Fair value NIS |   |
|-----------------------|--------------|--------|---------------|--------|----------------|--------|
|                  |         |   |          |   |           |   |
| Less than 3 months    | USD          |   | NIS           |   |           | 1,224  |   |
| 3 to 6 months         | USD          |   | NIS           |   |           | 254    |   |
| Less than 3 months    | EUR          |   | NIS           |   |           | 460    |   |
| 3 to 6 months         | EUR          |   | NIS           |   |           | 185    |   |

|   | The Company does not hedge its foreign currency exposure to the YTL in respect of its investment in the Turkish subsidiary. |
|--------|-----------------------------------------------------------------------------------------------------------------------------|

|   | F. | Fair Value of Financial Instruments |
|--------|----|-------------------------------------|

|   | The financial instruments of the Group consist primarily of non-derivative assets and liabilities. Non-derivative assets include cash and cash equivalents, receivables and other current assets. Non-derivative liabilities include trade payables and other current liabilities. Due to the nature of these financial instruments, their fair value, generally, is identical or close to the value at which they are presented in the financial statements, unless stated otherwise. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| NOTE 24 | - | RELATED PARTIES AND INTERESTED PARTIES |
|---------|---|----------------------------------------|

|   | The Company is owned by Kimberly Clark Corp. (“KC” or the “Parent Company”) (50.1%) and Hadera Paper Ltd. (“Hadera Paper”) (49.9%). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the group and other related parties are disclosed below: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A. | Balances with Related Parties |
|--------|----|-------------------------------|

|                 |   | December 31,  |   |
|----------------------|--------|---------------|--------|
|                 |   | 2 0 1 0       |   |   | 2 0 0 9 |   |
|                 |   | NIS Thousands |   |
|                 |   |          |   |   |   |   |
| Trade receivables    |   |          | 27,968 |   |   |   | 35,682 |   |
| Other current assets |   |          | 3,228  |   |   |   |  948 |   |
| Trade payables       |   |          | 84,629 |   |   |   | 72,339 |   |

----

| NOTE 24 | - | RELATED PARTIES AND INTERESTED PARTIES (Cont.) |
|---------|---|------------------------------------------------|

|   | B. | Transactions with Related Parties |
|--------|----|-----------------------------------|

|                                        |   | December 31,  |    |
|---------------------------------------------|--------|---------------|---------|
|                                        |   | 2 0 1 0       |    |   | 2 0 0 9 |   |   | 2 0 0 8 |   |
|                                        |   | NIS Thousands |    |
| Sales to related parties (1)                |   |          | 222,018 |   |   |   | 243,212 |   |   |   | 216,841 |   |
|                                        |   |          |    |   |   |   |   |   |   |   |   |   |
| Cost of sales (2)                           |   |          | 328,466 |   |   |   | 256,696 |   |   |   | 268,476 |   |
|                                        |   |          |    |   |   |   |   |   |   |   |   |   |
| Royalties to the shareholders (3)           |   |          | 29,780  |   |   |   | 31,117 |   |   |   | 29,584 |   |
|                                        |   |          |    |   |   |   |   |   |   |   |   |   |
| General and administrative expenses (*) (4) |   |          | 9,707   |   |   |   | 11,980 |   |   |   | 12,488 |   |

|   | (*) | Company - excludes Subsidiaries. |
|--------|-----|----------------------------------|

|   | C. |   |
|--------|----|--------|

|   | (1) | Sales of finished goods to companies in KC group and Hadera Paper. |
|--------|-----|--------------------------------------------------------------------|

|   | (2) | Mainly purchase of finished goods from companies in KC group and Hadera Paper group. |
|--------|-----|--------------------------------------------------------------------------------------|

|   | (3) | The group is obligated to pay royalties to KC. |
|--------|-----|------------------------------------------------|

|   | (4) | The Company leases its premises in Hadera and Naharia from Hadera Paper and receives certain services (including energy, water, maintenance, computer and professional services) under agreements, which are renewed based on shareholders agreements. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | Compensation of key management personnel |
|--------|----|------------------------------------------|

|   | Total remuneration of key management during the year was NIS 9,344 thousands (2009: NIS 9,891 thousands). The amounts include costs relating to options (*) granted to senior managements to shares of the Company's shareholders. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (*) | The Company's senior management was rewarded by allotment of KC's and Hadera Paper's share options. The cost of the benefit was determined as the fair value on the grant day and this amount is being charged to the income statement over the vesting period. The company's debt resulting from the grant will be paid in cash to both shareholders. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   | The fair value of the options granted as aforementioned was estimated by applying the economic models. |
|--------|--------|--------------------------------------------------------------------------------------------------------|

|   |   | The total expenses resulting from the aforementioned grant for the year ended December 31, 2010 was NIS 1,042 thousand (2009: NIS 589 thousands). |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTE 25 | - | DIVIDENDS |
|---------|---|-----------|

|   | A. | On October 22, 2009 the board of directors decided to distribute Dividend in the amount of NIS 40 million from the unapproved enterprise retained earnings accumulated as of September 30, 2009 to the holders of the ordinary shares. The dividend was paid on January 20, 2010. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | On February 18, 2010 the board of directors decided to distribute Dividend in the amount of NIS 20 million from the unapproved enterprise retained earnings to the holders of the ordinary shares. The dividend was paid on May 12, 2010. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | On April 22, 2010, the board of directors decided to distribute Dividend in the amount of NIS 40 million from the unapproved enterprise retained earnings to the holders of the ordinary shares. The dividend was paid on July 15, 2010. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | Following the last Board's decision from July 27, 2010 to distribute a dividend in the amount of NIS 40 million from unapproved enterprise earnings, the payment is subject to availability of funds and the agreement of KC, The Board approved to pay at the fourth quarter of 2010 the amount of NIS 35 million and at 2011 the amount of NIS 5 million.  A divided of NIS 35 million was paid on November 29, 2010. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| NOTE 26 | - | SUBSEQENT EVENTS |
|---------|---|------------------|

|   | On February 23, 2011 the board of directors declared dividend distribution of NIS 30 million from the unapproved enterprise retained earnings.  Actual payment will take place at Q2/2011 subject to no major negative development in the tax case in KCTR. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----