Interim Report January-June 2011

CEO’s statement

Rottneros can report a rising profit after net financial items, from SEK 19 million in the first quarter to SEK 37 million for the second quarter. This can primarily be ascribed to higher sales prices for NBSK pulp. Increases in the USD price in April, May and June more than compensated for the weak US dollar. The operating margin was nine per cent and return on capital employed was eleven per cent.

Historically, stock levels for long-fibre chemical pulp (NBSK) are still relatively low, particularly in Europe, but there has been an increase globally in the stock of short-fibre pulp (BHK). This combined with weak growth in the demand for printing paper during the second quarter – in particular coated fine paper – put pressure on the price of pulp at the start of the third quarter. The fundamentals for NBSK continue to look good. The abundant supply of short-fibre pulp and reduced Chinese purchasing activity resulted in price cuts from July. The weakened BHK market also provides an explanation for why growth in demand and price trends were weak for mechanical pulp during the year and did not follow the NBSK price increases at all. We limited our production of both CTMP and groundwood pulp during the quarter to avoid building up a high level of stock. Energy costs are moving in the right direction following a miserable winter. Unfortunately we suffered a fire in one of the flash dryers at Rottneros Mill in June which resulted in some consequential loss and loss of production up until the time of our planned holiday shutdown from mid-July. We consider that the financial consequence will be approximately SEK 7 million, which has been charged to Q2.

There has been progress in respect of our preparations to possibly develop both of our pulp mills so that they are also able to produce vehicle fuel in the future. In May and June, the EU within the framework of what is referred to as the ‘NER300 programme’ approved for consideration the extensive applications regarding support for the production of renewable fuels that we had previously reported, which were two of the five Swedish projects.

Ole Terland

President and CEO

(For full report, see attached files)