2011 was a year of two quite different halves. Demand for sulphate pulp was good during the first six months of the year, which resulted in prices increasing to a new record level of USD 1,025 per tonne by midsummer. However, the price of mechanical pulp remained virtually static despite the good momentum for chemical pulp. Global stock levels for pulp increased, which was probably due to purchasers worrying about further price rises. The market psychology changed during the summer; demand for printing and writing paper was weak, the financial crisis worsened in Member States in the Eurosystem and high levels of pulp stock suddenly became a good reason to push pulp prices down. This price correction did not cease during the third quarter but accelerated instead during the autumn, and the final months of the year were noticeably weak. Purchasers of pulp were very inclined to postpone any buying as pulp would soon be cheaper, and the risk of running out of pulp was considered to be worth taking in spite of consumer stocks being at a record low. The price of NBSK (bleached long fibre sulphate pulp) fell to approximately USD 830 per tonne by the end of the year. Stocks continued to rise despite global pulp producers taking significant production curtailments. These price fluctuations occurred against the background of the US dollar weakening during the first half of the year and then strengthening again during the autumn. For the Swedish pulp industry this means that the average pulp price for the year was almost SEK 500 per tonne lower than in 2010, despite record high USD pulp prices. This obviously had an adverse effect on the result. Before the one-off items charged to Quarter 3, the full-year result for Rottneros before depreciation fell from SEK 224 to 98 million.

We completed extensive improvements and investments at Vallvik Mill during the last quarter of the year; this satisfied the requirements imposed on us by the authorities, but also boosted production capacity at the factory by almost 20%. These investments constituted an important reason for our financial reconstruction and rights issue which took place at the end of 2009. Weak demand during the third quarter meant that no costly measures were approved to minimise production losses during the shutdown and start up, which resulted in volume losses being slightly higher than estimated. These have been included under the item ‘negative effect on result from annual maintenance shutdown’; they were previously forecast at SEK 15-20 million, but ended up as SEK 25 million. So far the results of these investments appear to be very promising. A full evaluation cannot be made until the operation has been running for a longer period and it has been possible to see the impact of both winter and summer climates on the process and biological water purification plant.

Negotiations have been concluded in respect of the improvement programme at Rottneros Mill, which was announced in September, and notices of termination given and early retirements arranged. The programme will be fully implemented during the summer. The mill restricted production quite significantly during the last quarter – approximately one week per month – in order to balance stocks while avoiding unnecessary price compression through focussing on volumes.

• Profit after net financial items amounted to SEK 28 (138) million for the full year 2011 before write-downs and one-off costs. Profit after net financial items amounted to SEK -44 (13) million for the fourth quarter of 2011. Costs of SEK 25 million for the normal maintenance shutdown at Vallvik Mill have been charged to this quarter.
• The result for the third quarter of 2011 was charged with write-downs of SEK -118 million and one-off costs of SEK -30 million (SEK -148 million in total). Loss after net financial items amounted to SEK -120 million for the full year 2011 after these write-downs and one-off costs.
• As a consequence of the weak market for mechanical pulp, Rottneros Mill is implementing an improvement programme involving changes to the product range as well as staff reductions and cutting other production costs.
• The board proposes a dividend of 0.10 (0.20) Swedish kronor per share for the financial year 2011.

There was certainly a high level of macroeconomic uncertainty at the start of 2012, at least in those Member States in the Eurosystem and, as regards the export industry, a disadvantageous relationship between the value of the Euro and the Swedish krona. On the other hand, our customers’ stock levels are low, activity is good in China – a country that is becoming increasingly important – Swedish timber prices are falling and electricity has been at its lowest winter level for some time. The official pulp price index (PIX) experienced a slight upturn in January after having continuously fallen since the end of June, so there are signs that the pulp price has bottomed out this time round.

The prospects for 2012 are unusually uncertain although they appear to be brighter. The situation seems more promising on leaving the gloomy fourth quarter behind us at a time when timber and electricity prices are falling and also as the fall in PIX prices of pulp in Europe tailed off in December and started to rise slightly in January.

Ole Terland

President and CEO

ACCOUNTING PRINCIPLES

This interim report has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’, which complies with Swedish law through the application of the Swedish Financial Reporting Board’s Recommendation RFR 1 ‘Supplementary Accounting Rules for Groups’ together with RFR 2 ‘Accounting for Legal Entities’, in respect of the parent company.

The accounting principles, definitions of key ratios and calculation methods are the same as those applied in the last Annual Report, except as regards the following:

• Amendments to the existing standard IAS 24, which entered into force on 1 January 2011. Revised IAS 24 ‘Related Party Disclosures’ clarifies and simplifies the definition of ‘related party’. Rottneros has applied the revised standard with effect from 1 January 2011. The amended accounting principle has not yet had any effect on recognised amounts, though requires further information in the company’s financial reports.

• The parent company’s comparative figures have been amended as a consequence of the Swedish Financial Accounting Board having withdrawn UFR 2 . Group contributions are reported for the financial year commencing on 1 January 2011 or later in accordance with RFR 2[IAS27]p2 and also RFR 2[IAS18]p3. This amendment applies retroactively. The amended reporting had a positive effect of SEK 114 million on the net income of the parent company for the full year 2010. The amendment had no effect on the company’s equity.

FORECAST for 2012

The company is not providing an earnings forecast for 2012.

FORTHCOMING FINANCIAL INFORMATION

The AGM for Rottneros AB will be held in Stockholm on Thursday 19 April 2012.

The Annual Report for 2011 will be available from the company’s website during Week 11 of 2012.

For more information, please visit Rottneros’ updated website, www.rottneros.com.

Stockholm, 27 January 2012