Annual report 2009

Content

Highlights of 2009 ... 3

Rottneros in brief... 5

CEO’s statement... 7

Business concept, objectives and strategies ... 10

Markets and products ... 11

Units belonging to the Group ... 15

Supply of raw materials ... 20

Rottneros’ responsibility – General ... 22

Rottneros' responsibility – Personnel ... 23

Rottneros' responsibility – Environment ... 25

Opportunities and risks ... 29

The Rottneros share ... 34

Directors’ report ... 37

Income statements – Group ... 47

Balance sheets – Group ... 48

Statement of changes in shareholders’ equity – Group ... 50

Cash flow statements – Group ... 51

Income statements – Parent company ... 52

Balance sheets – Parent company ... 53

Statement of changes in shareholders’ equity – Parent company ... 54

Cash flow statements – Parent company ... 55

Supplementary disclosure and notes ... 56

Audit report ... 74

Corporate governance report ... 75

Board of Directors, management team and auditors ... 82

Six-year review ... 86

Glossary ... 87

Definitions of key ratios and figures ... 88

Annual General Meeting ... 89

The Annual Report ... 89

Highlights of 2009

• The operation at Rottneros’ pulp mill in Miranda, Spain ceased at the turn of the year 2008/2009. This situation arose as a result of a combination of factors, including the rapidly ris- ing cost of eucalyptus pulpwood, natural gas and chemicals, falling sales prices and volumes and planned investments related to the environment, all of which made it impossible to continue run- ning this mill. The mill is being wound up ac- cording to Spanish insolvency legislation.

• Fixed assets at Rockhammar Mill were sold to Korsnäs Rockhammar AB on 1 April 2009 at a price of SEK 145 million. This sale was a step in Rottneros' strategic transformation to manufac- ture primarily long-fibre pulp in the northern hemisphere. This is due to the unfavourable price trend for short-fibre wood, primarily aspen in relation to eucalyptus, in the southern hemi- sphere. This sale should also be viewed as a way of strengthening the Group's financial status, as it meant that the Group's level of debt could be reduced by SEK 116 million.

• In July, Rottneros redeemed its entire bond loan of SEK 150 million, which was issued by the company in October 2004, by paying

SEK 40 million to the bondholder. This was done following negotiations with the bondholder, the banking syndicate and Nemus Holding AB. This has reduced Rottneros' net level of debt by SEK 110 million.

• As a step in reorganising the financial structure of Rottneros, a preferential rights issue of SEK 225 million was carried out in 2009 as well as a set-off issue, which converted SEK 200 mil- lion of liabilities into shares. This means that equity rose by SEK 402 million following a de- duction for guarantee and issue expenses.

• Rottneros' financial status was considerably strengthened by the disposal of Rockhammar, the redemption of the bond loan, the preferential rights issue and the conversion of liabilities. The equity/assets ratio rose from 40 per cent at the beginning of the year to 78 per cent at the end of the year, while net liabilities dropped from SEK 729 million to an interest-bearing net re- ceivable of SEK 10 million.

• A decision was made in December 2009 to invest SEK 77 million in the evaporation plant at Vall- vik Mill. This investment is the first step in measures to improve the environment and the mill's energy efficiency and is also part of the in- crease in capacity planned for the next few years. Installation is scheduled for the fourth quarter of 2010 in conjunction with the annual maintenance shutdown.

ROTTNEROS IN NUMBERS

2009 2008 2007 2006 2005

Total Remaining

operations 2004

Total Remaining operations

Net turnover, SEK m

2,663 2,927 2,690 2,429 2,411 2,356 2,272

Profit/loss after net financial items, SEK m

–385 –384 –23 –103 –141 –121 –38

Investment in fixed assets, SEK m

191 163 113 234 234 283 283

Average no. of employees

667 718 754 804 800 835 807

Ratios, %

Equity/assets ratio

40 45 57 58 58 65 65

Return on capital employed

Neg Neg Neg Neg Neg Neg Neg

Return on equity

Neg Neg Neg Neg Neg Neg Neg

Operating margin

–11.5 –12.3 –0.3 –5.3 –3.7 –1.5 –4.9

SEK/share

Equity per share

4.49 5.83 7.78 8.45 8.45 9.28 9.28

Profit/loss after tax per share

–1.84 –1.67 –0.05 –0.35 –0.50 –0.50 –0.16

Operating cash flow per share¹

–1.33 –0.56 0.19 –2.28 –2.28 –0.41 –0.41

Dividend² – – – 0.10 0.10 0.10 0.20 0.20

¹ Cash flow after investments, but excluding strategic investments.

² Proposed dividend for 2009.

QUARTERLY DATA, GROUP (SEK M)

2009 2008 2007

Net turnover

534 601 780 748 721 687 779 740

Operating profit/loss before

depreciation

4 14 –19 –81 9 –44 51 60

Depreciation

–139 –27 –29 –29 –320 –38 –40 –38

Operating profit/loss

–135 –13 –48 –110 –311 –82 11 22

Net financial items

–34 –24 –9 –12 –10 0 –6 –8

Profit/loss after financial items

–169 –37 –57 –122 –321 –82 5 14

Tax

–9 13 17 33 71 22 –1 –9

Profit/loss after tax

–178 –24 –40 –89 –250 –60 4 5

Pulp production, thousand tonnes

119.5 136.3 162.6 184.3 190.0 177.9 186.1 176.1 Pulp deliveries, thousand tonnes

118.4 137.1 186.3 176.1 174.2 164.5 193.2 182.9 Pulp price, NBSK list price, USD¹

746 885 900 878 844 803 777 752

¹ The PIX price is the source of the NBSK list price.

Rottneros in brief

Rottneros, with its origins in the 1600s, is a non- integrated, customer-aligned supplier of high- quality paper pulp.

Rottneros produces market pulp; that is, paper pulp sold on the open market in contrast to pulp pro- duced at mills with integrated paper production.

Rottneros has a production capacity of nearly 400,000 tonnes of pulp per year at two mills:

Rottneros Mill and Vallvik Mill.

In 2006 Rottneros started producing food packaging made from pulp fibre under the SilviPak brand.

In the spring of 2007, Rottneros and NCT Forestry Co-Operative Limited ('NCT'), a South African for- estry company, signed a declaration of intent to explore the possibility of building a mill to produce CTMP mechanical pulp in Richards Bay, South Africa.

OPERATIONAL STRUCTURE Rottneros

Vallvik Mill Rottneros Mill Strategic projects Vallvik Mill Rottneros Mill Strategic

projects

South Africa SilviPak

Rockhammar Mill (Disposed)

Rottneros Miranda (Closed)

Utansjö Mill (Closed)

Net turnover and profit/loss

-2,000 -1,000 0 1,000 2,000 3,000 4,000

2005 2006 2007 2008 2009

-500 -250 0 250 500 750 1,000

Net turnover, SEKm Profit/loss, SEKm

The Group's products – percentage of turnover

Sulphate pulp 62%

CTMP 21%

Groundwood pulp 16%

Timber 1%

Geographical distribution of turnover

Italy 25.6%

Sweden 12.2%

US 11.3%

Germany 11.1%

Netherlands 5.1%

China 3.9%

Switzerland 3.5%

Finland 3.1%

Norway 3.1%

Spain 3.1%

Rest of Europe 8.3%

Rest of the world 9.8%

Rottneros' global market shares for market pulp 2009

THE GROUP'S PULP MILLS

Mill Pulp type Area of application Manufacturing

capacity Average no. of employees

Rottneros Mill Groundwood

CTMP

Writing and printing paper, LWC/ULWC, paperboard Writing and printing paper, paperboard, tissue Writing and printing paper, fine paper Paperboard, filters

170,000 tonnes 119

Vallvik Mill Long-fibre sulphate Fine paper, writing and printing paper, LWC/ULWC, paper- board, tissue, filters

Filters, electrical applications, absorbent products

220,000 tonnes 170

TOTAL 390,000 tonnes 289

Emissions of oxygen-demanding substances at Vallvik Mill have fallen as a result of internal measures that have been taken,

such as improved pulp washing and other steps. The continuous digester can be seen in the middle of the photo, directly in front

of a new pressure diffusion washer (Stage 1 of pulp washing). The modified atmospheric diffusion washer (Stage 2 of pulp wash-

ing) is shown a little to the right.

Pulp is our passion

In 2009, we were forced to drastically restructure the Rottneros Group – both in terms of its operations and finances – owing to pressure from a deep global recession and a financial system that was in turmoil. We reduced the number of our mills by half and managed to clean up our balance sheet. Despite carrying a loss of SEK 69 million, we succeeded in producing a positive cash flow in a year that was extremely troublesome for the forestry industry. This was achieved by our timely decision to hold back on all investments and by freeing up liquidity from our accounts receivable and inventories.

Altogether, these restructuring measures resulted in our production capacity falling to below 400,000 tonnes of market pulp, compared with a figure of around 600,000 tonnes in early 2009. We started last year with a net debt of SEK 730 million and were able to report a net liquid position of SEK 10 million by the end of the year. Now, at the beginning of 2010, I am convinced that we have good potential to build a profitable group of companies, centred on our remaining mills at Vallvik and Rottneros. Our project in South Africa is a perfect part of our market strategy and it is now time to reemploy the capital lying dormant in the equipment at Utansjö.

Ole Terland, President and CEO of Rottneros.

STRATEGIC AND OPERATIONAL ADAPTATION

Global pulp production has changed significantly over the past few years through the emergence of large hardwood plantations in South America and Asia that are quickly exploited by enormous locally based pulp mills that are highly efficient. Our slow- growing fibres in high cost areas face stiff competi- tion from fast-growing fibres, which are being grown in low-cost countries. These fast-growing fibres have properties that are perfect for the most recently built paper machines, which have the lat- est technology and are more forgiving. When de- mand and consequently pulp prices fell to a level where low-cost producers could survive, Rottneros was forced to wind up or sell its three mills that were dependent on short fibre. The mills at Utansjö and Miranda in Spain were closed down at consid- erable cost with consequential write-downs, al-

though we managed to dispose of Rockhammar at the right time on excellent terms.

The sale of the operation at Rockhammar Mill is considered to be one of the most crucial components of our successful financial restructuring of Rott- neros. When work started on the sale in 2008, it was driven by the strategic reasons mentioned above and not by reasons forced on us by the finan- cial situation.

REFINANCING AND THE NEW FINANCIAL STRUCTURE

Before the recession, the Group's debt was already at a level that was causing some rumblings among the banks financing our operations. Once the global financial crisis hit in late 2008, some members of the bank consortium became increasingly pessimis- tic and questioned Rottneros' potential to get through the crisis. Despite having exhausted all of our credit facilities, our action programme for free- ing up operating capital and minimising expendi- ture enabled us to pay all of our invoices from sup- pliers as well as make interest and loan payments on time. Although the result for 2009 shows a loss of SEK 69 million, this was an improvement of SEK 309 million compared with 2008. I am pleased to report that the Group's cash flow, after interest and ordinary debt amortisation, has remained posi- tive. Both of the operational pulp mills have bol- stered this situation by showing positive cash flows despite the economic crash. The improvement in the financial result for 2009 stems from eliminating sources of loss, making cost savings and taking measures to improve efficiency.

It goes without saying that the most important task

in 2009 for the senior management and Board of

Directors was to ensure the survival of the company

and to develop a new financial structure. This was achieved in several stages. The monies received from the sale of Rockhammar enabled an additional loan payment to be made to the banks in the second quarter. We were able to implement share issues in the autumn as a result of the very favourable re- demption that we managed to negotiate for the company's bond loan. This SEK 150 million bond loan was redeemed for SEK 40 million and we were able to implement this not least thanks to support from the company's main shareholders. With this support and by reducing our debts by almost SEK 300 million, we were able to reach an agree- ment with the banks, main shareholders and guar- antors for a new share issue. Additional debts have been paid off thanks to all of the shareholders who participated in the preferential rights share issue for SEK 225 million. The bank consortium con- verted loans of SEK 200 million into new shares in the company and then disposed of 45 per cent of its holdings, primarily to a new shareholder that is now the second largest shareholder in Rottneros.

The banks' remaining shareholdings include call options with a maturity of two years that have been allocated to those shareholders who participated in the new share issue. Altogether these measures mean that the company has taken two steps to achieve a partially changed ownership composition.

Furthermore, the company was free of net debt at the beginning of the year, with an equity/assets ratio of 78 per cent and a cash flow which has given us reasonable scope for manoeuvre and has made us strong enough to enter a new era.

Our strong financial base and the fact that we are largely free of net debt have enabled us to make the aggressive investments required to make our two mills at Rottneros and Vallvik competitive and prof- itable in the long term.

OPERATIONAL OUTLOOK

First of all, we will do what we said we would do in the new issue prospectus. The improvement pro- jects for Rottneros that have the highest priority are at Vallvik Mill. These projects aim to improve competitiveness by increasing the production of both pulp and green energy while also finding cost- effective solutions for the emissions of oxygen- demanding substances with wastewater. Initial decisions have already been made about rebuilding and expanding the mill's internal recycling proc- esses, which are planned to be put into operation during the shutdown in the autumn of 2010. Deci- sions about the next phase of improvements will be made after an evaluation has been conducted.

It is highly desirable to build the eucalyptus-based CTMP mill in South Africa, which we have planned alongside local partners. This should re-establish growth in Rottneros, from the perspectives of both size and profitability. Rottneros' strong balance sheet means that we are now the reliable project partner and part-owner that we anticipated we would be. We still intend to retrieve fixed assets from Utansjö Mill for a part-owned project company with its own financing. A recovery is not only taking place on the part of Rottneros but also in global financial markets, and it should be possible to make a decision on the project as soon as the South Afri- can pricing policy for electric power has been clari- fied. As the clock is ticking, we are of course now considering other options.

The packaging venture under the SilviPak brand slowed down in 2009, partly because we lost control of the new investments made in Spain as a result of Miranda's insolvency procedure, and partly because the production technology had not been fully devel- oped. Although the market is enthusiastic about the product, we are uncertain about the willingness of customers to pay for it. In 2010 we disposed of cer- tain assets from Rottneros Packaging, but above all were joined by a large technical enterprise with considerable development resources. Even if our remaining SilviPak operation stays where it is for the time being, there may be new opportunities for us in the future.

THE MARKET AND PRICE TRENDS Radical changes in the global pulp market took place in 2009. An extremely sluggish start to the year, with quick and dramatic drops in prices, re- sulted in prices falling up until April, with the ref- erence price for long-fibre sulphate pulp dropping to USD 550 per tonne following its last peak of around USD 900 per tonne in the summer of 2008. Follow- ing the drop in demand and prices in the spring of 2009, prices have recovered surprisingly quickly, mainly driven by demand from China. The price once again reached around USD 800 per tonne at the end of the year, while global pulp stocks were at unusually low levels. In Europe, we saw a large drop in paper consumption in 2009. This was partly due to the recession, which resulted in considerably fewer advertising campaigns using printed media, and the need for packaging declined as industrial production dropped.

The hygiene sector has been the only major market

segment that has coped well. Demand for packaging

is now recovering, and the improvement in the in-

dustry's business cycle, an increase in consumer

confidence and a greater willingness to spend will

also help the situation for printing paper through higher advertising volumes. However, we are likely to see an improvement in the initially weak demand for daily newspapers, driven by Internet trends and the new habits of young people. This led to the price of newsprint being cut dramatically at the end of 2009 and in early 2010, when agreements were terminated between paper manufacturers and printers of daily newspapers in Europe.

Unfortunately, this will also mean a downturn for magazine paper. Newsprint manufacturers do not use a great deal of market pulp, but manufacturers of magazine paper do, so pulp producers like us will have to get used to a customer segment that is un- der a huge amount of pressure. New newsprint machines are unfortunately being commissioned during 2009 and 2010, so the excess supply will be a heavy burden despite several machines being taken out of production.

Overall global pulp consumption rose slightly in 2009 thanks to a strong second half of the year. The prospects for 2010 look good and the start of the year has been fuelled by low stocks of pulp, a satis- factory level of demand and prices continuing to rise. We will undoubtedly see an increasing ten- dency to use more short-fibre pulp from the south- ern hemisphere, but the absolute quantity of long- fibre pulp should also start to rise again. No signifi- cant new pulp capacity will be commissioned in 2010, so the market appears to be balanced from a global perspective. There will be a continuing trend

for the share of global paper production, and thereby pulp consumption, to reduce in Europe and North America, and increase primarily in Asia.

Political ambitions to profile environmental friend- liness by favouring energy production based on biofuel, for example, are likely to continue and have even been reinforced by the high price of oil forcing up the price of coal and natural gas, and conse- quently the price of electricity. As a result, the for- estry industry will also be optimised slightly differ- ently than we are accustomed to and Rottneros must take this opportunity to improve its relative competitiveness and absolute profitability. We are working on several prospective investments related to bioenergy and hope to be able to approve the best of these during 2010.

THANK YOU FOR ALL YOUR SUPPORT IN 2009

The past year was a tough one, but many people have stood by Rottneros in a way that has deeply impressed us. I would like to draw to a close by thanking all of our customers, employees and sup- pliers who supported us over the past year. I would particularly like to thank all of our shareholders – both old and new – who expressed their confidence in us at the end of 2009 by investing in the company once again. Let us hope that 2010 will be a good year, so that we can reward those who have in- vested in shares by creating value and reintroduc- ing dividends!

Stockholm, February 2010

Ole Terland

President and CEO of Rottneros

Business concept, objectives and strategies

Focus on products offering a strong market position

The overall objective of Rottneros is to provide its shareholders with a competitive return over a business cycle. In order to achieve this objective, the Group needs to create added value for its customers as well as be an attractive employer and competitive producer.

Rottneros creates value by focusing on segments where the Group can secure a strong position in the market for market pulp through its production focus and applications. Examples include mechanical market pulp, where Rottneros is a leading supplier, and chemical pulp for electrical applications, where the Group has developed unique expertise. Rottneros’ strategy is to produce both mechanical and chemical pulp so that it can offer its customers a broad portfolio of products.

By communicating the latest information about pulp applications, Rottneros also creates value for its customers that can strengthen their position in their respective markets.

BUSINESS CONCEPT

Rottneros’ business concept is to be an independent and flexible supplier of high-quality, customised pulp. This business concept is based on the success factors identified by the Board of Directors and management; namely, to be a company that solely concentrates on producing pulp and focuses on the requirements of its customers as well as niche areas and efficient production. Rottneros adapts its product range to meet the needs and high expecta- tions of its customers by continuously developing its products and providing high delivery reliability, technical support and service. Rottneros’ business concept serves as the basis for the strategy applied by the Group, which has specialisation, niche- thinking and a focus on customers as its corner- stones.

Rottneros has invested considerable resources in product development, production, logistics, market- ing and IT in order to improve its profitability over the course of a business cycle. These investments have been supplemented by an ongoing develop- ment programme for management and skills, which is building the foundation for a common set of values and an integrated approach among Group employees.

OBJECTIVES AND STRATEGIES

The Group’s management has a number of overall objectives for operational activities, which are intended to result in competitive returns for share- holders through value development and dividend yields. The ambition is for the Company to

gradually lay the foundation for less volatile move- ments in the share price over the course of a business cycle by focusing increasingly on more

specialised grades of pulp and consequently

achieving less drastic fluctuations in the Company’s results. At the same time, the Company intends to adapt its Dividend Policy so that dividends as far as possible follow the earnings trend over an entire business cycle rather than the earnings for an indi- vidual year. These objectives are based on the assumption that the business cycle will follow a normal cyclical pattern, and that external factors that Rottneros only has a limited ability to influence will evolve in a rational manner.

DIVIDENDS AND DIVIDEND POLICY Dividends are adjusted on a par with the per- formance level, financial status and future develop- ment prospects of Rottneros.

Our objective is to consider our capacity to pay dividends over an entire business cycle rather than for an individual year. This means that in good years, dividends will be limited in order to facilitate the payment of dividends in years that are not as good. Our capacity to pay dividends will also depend on Rottneros’ future investment needs.

It should also be noted that following renegotiations prior to the new issue in the autumn of 2009, the contract for the Group’s syndication loan stated that dividends for an individual year may not exceed 50 per cent of profit after tax. Furthermore, the banking syndicate is entitled to receive

increased repayment instalments from the company if its cash flow exceeds certain stipulated levels.

This may temporarily limit our capacity to pay dividends in the event of high profits.

The board proposes that no dividend be distributed for the 2009 operating year.

B U S I N E S S C O N C E P T V I S I O N

Rottneros is an independent and flexible supplier of customised, high-

quality pulp. By continuously developing its products and providing high delivery reliability, technical support and service, Rottneros can adapt its product range to meet the needs and high expectations of its customers.

Rottneros shall be perceived as the market leader that can meet the

needs and high expectations of pulp customers. This in turn shall result

in stable profitability over the course of a business cycle.

Markets and products

Strong demand in Asia yielded high volumes

Rottneros is a global supplier of bleached and unbleached long-fibre chemical pulp, mechanical CTMP pulp from spruce, aspen and pine as well as groundwood pulp. The market for market pulp represents a volume of around 46 million tonnes globally, of which approximately 15 million tonnes is targeted for Europe.

EUROPEAN MARKET

Europe represents Rottneros’ largest market, so the company has a strong emphasis on having a sales organisation that can meet the demands of this market. Combined with a focus on intensified cooperation with customers in certain segments, this strategy serves as a good platform for con- tinued expansion in profitable customer segments.

In 2009, the European market purchased approxi- mately 15 million tonnes of paper pulp and was thus the world’s largest market region.

This serves as a solid foundation for continued expansion in profitable customer segments in conjunction with customers being offered the paper pulp, or a combination of paper pulps, meeting their requirements for their respective end products, while ensuring optimal cost-effectiveness as well as resource efficiency.

WORLD MARKET

A clear trend in 2009 was the rapid growth of the pulp market in Asia, predominantly China. This situation has resulted in pulp volumes being redistributed between Europe/North America and China. The volumes of the deliveries made to China increased by 55 per cent in 2009 (from 5.3 to 8.2 million tonnes), whereas aggregate volumes in the European and US markets fell by 11 per cent (from 24.1 to 21.5 million tonnes).

Global production of paper pulp amounted to around 225 million tonnes in 2009, of which around 46 million tonnes comprised market pulp. 47 per cent of the total global market for market pulp is bleached short-fibre chemical pulp, 42 per cent is bleached long-fibre pulp and the remainder is unbleached chemical pulp and mechanical pulps.

This can be compared with Rottneros’ production, of which 55 per cent constitutes chemical pulp – solely long-fibre pulp – and 45 per cent constitutes mechanical pulp.

In recent years, mainly producers of the more expensive long-fibre chemical pulp have been adversely affected by a drop in demand, as new paper machines have been built enabling more extensive use of short-fibre chemical eucalyptus pulp. However, it is likely that this change in the raw materials for fibre will not reduce the absolute need for, or requirements imposed on, strong long fibre. The main reason for using long-fibre pulp is to take advantage of the strong qualities that this

fibre gives to paper, and the increased use of fibre- based packaging materials as well as tissue means that it is reasonable to assess that this consumption will not decline.

The high price of electricity and wood, combined with slowing demand at the end of 2008 (which basically meant a complete halt to all pulp deliveries), resulted in several pulp producers shutting down or significantly restricting their production. On the part of Rottneros, Utansjö Mill and Rottneros Miranda were closed down in 2008 and early 2009 respectively and the operation at Rockhammar Mill was disposed of in the spring of 2009.

Demand for pulp remained weak at the start of 2009, prices fell and there were significant restrictions in production. Thanks to these

considerable production restrictions and very strong demand for all grades of pulp from Asia, the market has recovered significantly since the second quarter of 2009. The market for the full year 2009 was therefore characterised by strong delivery volumes, but poor profitability. The largest volume growth in 2009 was seen in short-fibre chemical pulp.

PRICE TRENDS

Market pulp prices are largely set in USD. The price that the Swedish mills receive in SEK is consequently determined by a combination of the price trend for market pulp and the USD rate.

Pulp prices in USD and SEK, 1980–2009

0 100 200 300 400 500 600 700 800 900 1,000

1980 1985 1990 1995 2000 2005 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

Pulp price in USD per tonne, left Pulp price in SEK per tonne, right

Source: The Riksbank and FOEX Indexes Ltd, 2009

Following plummeting USD prices at the end of 2008 and beginning of 2009, these prices have recovered quickly since the second quarter in pace with the market recovery. However, the falling USD rate counteracted the increase in turnover in SEK, and it was not until the autumn that the impact of the positive market trend brought about increased turnover in Swedish kronor.

Geographical distribution of turnover

Italy 25.6%

Sweden 12.2%

US 11.3%

Germany 11.1%

Netherlands 5.1%

China 3.9%

Switzerland 3.5%

Finland 3.1%

Norway 3.1%

Spain 3.1%

Rest of Europe 8.3%

Rest of the world 9.8%

Rottneros’ global market shares for market pulp, 2009

Deliveries of chemical market pulp

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

North America

Western Europe

Eastern Europe

Latin America

Japan China Rest of world

-40%

-20%

0%

20%

40%

60%

80%

100%

2009 2008 Percentage change

Development of global stocks and NBSK prices

0 100 200 300 400 500 600 700 800 900 1,000

1 2006 1 2007 1 2008 1 2009

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500

Global stocks, thousand tonnes NBSK price, USD/tonne

Markets and products

The Group’s pulp products

Long-fibre chemical pulp is produced at Vallvik Mill and mechanical pulp is manufactured at the mill in Rottneros.

LONG-FIBRE CHEMICAL PULP

Global production of bleached long-fibre chemical market pulp amounted to 19 million tonnes in 2009, which were 9 per cent less compared with 2008.

Several mills in both North America and Europe, including Sweden and Finland, that produced long- fibre chemical pulp were (permanently) closed in 2008 and 2009. Rottneros’ largest market for long- fibre chemical pulp was the US in 2009; 18 per cent of deliveries were made to the American market.

This was followed by Germany (14 per cent) and Sweden (11 per cent).

Long-fibre pulp accounts for approximately 42 per cent of the total market for bleached chemical market pulp. The largest producers in this market are Arauco (Chile), Domtar and Canfor

(US/Canada), Södra (Sweden) and Mercer (Canada/Germany/US).

The long-fibre chemical pulp that is manufactured by Rottneros at Vallvik Mill accounts for 55 per cent of the Group’s total pulp production. Vallvik Mill only produces sulphate pulp, which is a long-fibre chemical pulp manufactured from pine and spruce.

Most of the sulphate pulp is ECF pulp (Elemental Chlorine Free), which is primarily used for tissue, writing and printing paper. Long-fibre pulp con- stitutes the strength component for various

qualities of paper, which is why reinforcement is an important function of this pulp.

Pulp is porous before being pressed and packed in bales.

Other production of sulphate pulp consists of UKP (Unbleached Kraft Pulp), which is an extremely pure kind of unbleached pulp. The UKP pulp produced by Vallvik Mill has been developed over many years and its quality has made this mill the leading supplier of pulp for transformer and cable manufacturers. The pulp manufactured at Vallvik is flash-dried and for this reason is particularly well suited to filters and other absorbent products.

The Group’s products, percentage of turnover

MECHANICAL PULP

Global production of mechanical market pulp amounted to approximately 2.2 million tonnes in 2009. This is 15 per cent less compared with 2008.

In 2009, the manufacture of mechanical pulp dropped mainly owing to the weak market and changes in ownership. The Canadian companies Tembec and West Fraser are the largest producers of mechanical pulp in the market for market pulp.

Rottneros’ largest markets for mechanical pulp in 2009 were Italy (to which 48 per cent of deliveries were made), followed by Sweden (accounting for 12 per cent) and China (accounting for 7 per cent).

The mechanical pulps manufactured by Rottneros at Rottneros Mill include CTMP (chemithermo- mechanical pulp) and groundwood pulp. These pulps represent 45 per cent of the Group’s overall production.

When manufacturing CTMP, the wood receives a gentle chemical pre-treatment at a raised tempera- ture. This pulp is available in both bleached and unbleached grades. The main types of wood used are spruce, pine and aspen, which are combined to provide different grades of pulp.

Applications for CTMP vary depending on the wood used. CTMP made from aspen is mainly used for printing and writing paper, while CTMP from pine and spruce is largely used by paperboard

Sulphate pulp 62%

CTMP 21%

Groundwood pulp 16%

Timber 1%

manufacturers. Other applications for special CTMP grades include the manufacture of filters and tissue paper. Rottneros produces several grades of groundwood pulp specially adapted for manu- facturing of different types of printing paper.

Another important application is paperboard.

Spruce is the raw material used, and groundwood pulp is produced in both unbleached and bleached grades with varying levels of brightness. All of Rottneros’ pulps are TCF bleached, i.e. totally chlorine-free.

ROTTNEROS’ PULP TYPES AND GRADES

Type of pulp Wood Bleaching Type of

bleaching Areas of application Groundwood pulp Spruce Unbleached/

bleached TCF Printing and writing paper, LWC/ULWC, paperboard

CTMP Spruce Unbleached/

bleached

TCF Printing and writing paper, paperboard, tissue

Aspen Bleached TCF Printing and writing paper, fine paper

Mechanical pulp

Pine Unbleached/

bleached TCF Paperboard, filters

Long-fibre sulphate pulp Pine/spruce Bleached ECF Fine paper, printing and writing paper, LWC/ULWC, paperboard, tissue, filters

Chemical

pulp Unbleached Filters, electrical applications, absorbent products

Units belonging to the Group

The Rottneros Group comprises the manufacturing units Vallvik Mill and Rottneros Mill, as well as Rottneros Packaging, which develops and produces SilviPak food packaging. As a result of the operational restructuring implemented by Rottneros, the number of its mills was reduced from five to two. This means that the Group’s organisation has been changed so it is now better adapted to the new structure. What these two mills have in common is that as of 1 January 2010 they are responsible for the entire business process, from the purchase of raw materials to sales of pulp, signifying that the respective organisation has been adapted to enable it to deal with the entire chain.

The Group also includes the Latvian company SIA Rottneros Baltic, which purchases and exports pulpwood, mainly to Vallvik, in addition to a sales company based in Belgium.

CURRENT OPERATIONS ROTTNEROS MILL

Rottneros Mill has around 125 employees and a production capacity of approximately

170,000 tonnes per year. In 2009, 131,500 tonnes were produced, which represents a drop of 9 per cent compared with 2008. This reduction is mainly attributed to adapting CTMP pulp production to the low level of demand in 2009.

Rottneros Mill is one of the world’s largest pro- ducers of mechanical market pulp and manu- factures two grades of mechanical pulp: ground- wood and CTMP pulp. Both manufacturing

processes are highly eco-friendly with a low level of

wood consumption per tonne of pulp produced due to high raw material utilisation. Production takes place on two separate production lines.

By disposing of Rockhammar Mill in 2009, the Group’s production of CTMP pulp is now concentrated to Rottneros Mill. This has led to a review of the customer and product mixes.

The main application for groundwood pulp is high wood content printing paper requiring good opacity, or in other words, thin paper that is very opaque.

The main applications for CTMP pulp include paperboard, filter paper and high bulk writing and printing paper, in addition to various special applications.

Approximately 65 per cent of the pulp supplied by Rottneros Mill is transported by rail.

Spruce roundwood is used to produce mechanical pulp, while CTMP pulp is mainly produced using spruce and pine chips, as well as aspen and birch chips.

In recent years, Rottneros Mill has striven to increase its productivity and conserve energy. Since 2004, production capacity has increased by 20 per cent while the number of employees has dropped by almost 50, corresponding to a reduction exceeding 30 per cent. This means a near 50 per cent increase in productivity. Despite the higher level of

production, the mill’s total energy consumption of electricity and oil has been decreasing over this period.

The customer and product mixes at Rottneros Mill were reviewed in 2009. This review resulted in a greater focus on segments where customers can utilise the unique characteristics of mechanical pulp. These include the production of paperboard, filter paper, high bulk writing and printing paper, and also thin printing paper.

No major investments were made in 2009. However, the investment made in 2008 to establish a new operations centre from which the entire mill can be controlled (both the groundwood and CTMP lines)

has been fully realised. This investment improves work efficiency and operators have greater overall control of the process at the same time as fewer individuals are needed to manage the process.

Another priority area highlighted in recent years is the importance of fresh wood material and its impact on quality and cost, especially the cost of bleaching.

There was a continued focus on improving

productivity and energy efficiency, at the same time as a number of business development projects were run. These included projects aimed at rationalising capital, improving logistics, warehouse/installation- related projects, improving the efficiency of

administrative processes and developing skills.

The long-term investment plan drawn up in 2009 will start to be implemented in 2010. This plan mainly includes increasing the capacity of the CTMP line while also being able to improve quality and reduce costs.

VALLVIK MILL

Vallvik Mill has around 170 employees and an annual production capacity of around

220,000 tonnes. In 2009, 193,400 tonnes were produced, which is 4 per cent less than in 2008.

Vallvik Mill, which is dominated by its tall continuous digester (in the centre). The smokestacks for the soda boiler and the blast

furnace can be seen to the left. This is where chemicals are recovered and green energy is generated. To the far left is the bark

boiler, where bark (a biofuel) is used to generate steam; this steam is then used to produce green electricity.

Vallvik Mill produces two grades of long-fibre sulphate pulp: fully bleached sulphate pulp (ECF – Elemental Chlorine Free) and unbleached sulphate pulp (UKP – Unbleached Kraft Pulp).

Investment activity was limited in 2009. Instead, production improvements revolved around syste- matic work relating to preventive maintenance, enhanced system support for maintenance work and adapting to a changed mix of raw materials.

Reinforcement is the main area of application for bleached pulp (ECF), which means that the primary function of chemical long-fibre pulp is to give paper the strength required for production and printing.

Reinforcement pulp is mainly used when manu- facturing fine paper, SC paper, LWC paper and various grades of thin paper. When producing reinforcement pulp, it is important to have large- scale supplies of fresh spruce and pine from local wood suppliers.

Electrical applications and filters are important areas of application for unbleached pulp (UKP).

These areas were further reinforced in 2009.

In 2007, a new steam turbine was commissioned to produce electricity using back pressure power. The turbine has a capacity of 28 MW, which corresponds to over 230 GWh. Production of electricity amount- ed to approximately 113 GWh in 2009 and con- sumption 167 GWh, giving a self-sufficiency level of 68 per cent. This implies that the turbine is dimen- sioned for higher future production levels at the mill. Full capacity utilisation presupposes both a sufficient supply of high-pressure steam as well as consumption of low-pressure steam.

A substantial increase in productivity and greater energy efficiency are needed to enable Vallvik Mill to compete in a pulp market that is under con- siderable pressure. This is despite the plant

generally being viewed as modern and efficient from the perspectives of human resources and chemical

handling, with a compact infrastructure that includes both rail and disposal sites together with a port in the area. For this reason, objectives include greater output of electricity, becoming a net seller of electricity and reducing petroleum consumption.

When investing in increased capacity, the strategy at the mill is to dimension all equipment to the capacity for when the soda boiler has been fully extended; that is, at approximately 800 tonnes of pulp per day, corresponding to 280,000 tonnes per year. The main prerequisite for achieving this level is investment in the soda boiler and the evaporation facility, as the plant in general is essentially

already dimensioned for a higher level of production.

Vallvik Mill has had a pending case with the public authorities for several years now about a require- ment for a biotreatment plant or a corresponding purification plant to meet the purification con- ditions for wastewater from the plant. As of the Supreme Court rejecting Rottneros’ request for a leave to appeal against the judgment of the Environmental Court of Appeal in November, this judgement has entered into legal force.

The mill has an investment plan, which includes measures aiming to increase its capacity while meeting the environmental requirements imposed in the environmental judgment.

Resolved and planned investments

A decision was made at the end of 2009 to invest SEK 77 million in the evaporation facility, which means that the final phase of the modernisation work that took place between 2003 and 2005 is now complete. This investment, which will be made in the fourth quarter of 2010, is a step towards increasing capacity at Vallvik and reducing the specific emissions to water and air. Increasing the mill’s evaporation capacity will also reduce the need to invest n an external water purification plant.

ROTTNEROS’ PULP MILLS

Employees Type of pulp Production Pulp deliveries

Average no. Mechanical Chemical 2008, tonnes 2009, tonnes

Decrease

2008/2009, % 2005–2009, thousand tonnes Rottneros Mill 119 Groundwood

CTMP Total

73,000 71,000 144,000

71,800 59,700 131,500

2%

16%

9%

147 146 154 149 131

Vallvik Mill 170 Long-fibre

sulphate 200,500 193,400 4%

196 201 190 193 216

• A rebuilt soda boiler will make it possible to increase the production of steam at higher pressure, which is a precondition for increasing the production of green electricity. Some of the increased production of green electricity and greater energy efficiency will also be achieved by investing in a bark drier, which will utilise the surplus low pressure steam from the back pressure turbine.

This investment will also mean less dependence on petroleum. A decision has been made to invest SEK 45 million as a first step in the rebuilding of the soda boiler. This investment is one of several environmental and energy improvement measures. The investment is also part of the increase in capacity planned for the next few years.

• Increasing production from 200,000 to

280,000 tonnes per year is expected to generate an additional 40–50 GWh of green electricity while reducing the need to use bark as fuel.

Surplus bark, possibly in a dried form, may be sold as a biofuel that is transport efficient while also being environmentally friendly.

• These investments shall be made in stages according to plan. The first stage is expected to yield a capacity corresponding to 230,000 tonnes per year and therefore requires an extended permit. An application for a three-year tem- porary permit to increase production by 10 per cent (22,000 tonnes per year) is planned to be submitted to the Environmental Court in the second quarter of 2010. A decision is expected during the autumn of 2010. Other investments can be made during these three years and a new application for permission to produce

300,000 tonnes per year will be submitted to the Environmental Court.

• According to the plan, approximately

280,000 tonnes per year could be produced as of 2014, which, together with a planned reduction in staff, would correspond to a near 50 per cent increase in productivity.

SIA ROTTNEROS BALTIC

The Swedish mills import some of their raw materials, mainly from Latvia, through their sub- sidiary SIA Rottneros Baltic. SIA Rottneros Baltic represents a strategic part of the Rottneros Group’s supply of raw materials. The company also assists in the procurement of wood from the rest of the Baltic region in addition to Russia and Belarus.

The volume of imported raw materials has dropped as a consequence of the closure of Utansjö Mill and the Group’s clear commitment to increase its acquisition of raw materials produced locally in

Sweden. This has resulted in SIA Rottneros Baltic reducing its operations, moving to smaller, more suitable premises and reducing the number of its employees from 25 to seven.

ROTTNEROS PACKAGING – SILVIPAK Rottneros Packaging AB is a subsidiary of the Rottneros Group that produces food packaging made from pulp fibre under the brand name Silvi- Pak. This brand of packaging is primarily used for frozen and chilled pre-portioned food for small households and is for example sold in supermarkets and by industrial kitchens and restaurants. This operation started in the spring of 2006. SilviPak is produced at Rottneros Mill.

Manufacturing capacity has not increased to the scope planned, primarily owing to the machinery not being developed on schedule and because the SilviPak facility at Miranda has become drawn into the insolvency of this pulp mill in Spain and was never put into operation.

Rottneros has devoted a great deal to time to developing this operation. Large and discriminating customers have expressed a high level of interest in the product that was developed. However, it has been shown that Rottneros is not financially capable of pursuing further development work on its own at the pace required, mainly in terms of developing machinery. As previously mentioned, the main focus is therefore on identifying a partner that could help to make this project a commercial success.

In early 2010, Rottneros concluded an agreement with SIG Combibloc, a Swiss packaging company, concerning the transferral of intangible assets, mainly in the form of patents and patent applica- tions. The SilviPak brand food tray operation belonging to Rottneros Packaging is not encompassed by this agreement.

POTENTIAL OPERATIONS PULP UNITED – SOUTH AFRICA

In the spring of 2007, Rottneros and NCT Forestry Co-Operative Ltd. (‘NCT’), a South African forestry company, signed a declaration of intent to explore the possibility of constructing a mill to produce CTMP mechanical pulp in Richards Bay, South Africa.

The project in South Africa offers very significant

benefits through guaranteed access to very high

quality eucalyptus wood at a competitive price,

thanks to a partnership with the NCT forestry

owners’ association. The intention is for the CTMP

plant at the now closed Utansjö Mill, which was

shut down in early summer 2008, to be upgraded

and sold to a jointly-owned company in Richards

Bay. This plant, which was only in operation for

three years and is now being renovated to a

virtually new condition, is planned to form the basis of the new plant.

There is a plentiful supply of eucalyptus wood from planta- tions in the region near Richards Bay, the location of the planned pulp mill in South Africa.

The principle structure implies that Rottneros undertakes to complete a mill with a production capacity of 165,000 tonnes for the production of CTMP pulp using eucalyptus as a raw material.

The investment is intended to be project-financed by the jointly-owned company.

The deficient power supply in South Africa was in focus for much of 2008. The situation has since improved, but this issue, which is key to the project, must be fully clarified prior to making an

investment decision.

The intention is for the planned operation to be managed by a jointly-owned company, Pulp United (Pty) Ltd., in which Rottneros and NCT shall serve as partners, but where financial investors will also be offered an opportunity to participate. The pulp, which will mainly be exported to South-East Asia and Europe, will be sold through Rottneros’ market- ing organisation. The plan includes Rottneros entering as the main partner. The project is now in its final phase and the main issues remaining are financing and contracts, primarily with the project partners NCT Forestry Products, Swedfund and the South African development bank, IDC.

If the project is realised according to the current plan, it will already from the outset constitute a material capital gain.

OPERATIONS THAT HAVE BEEN WOUND UP OR DISPOSED OF

ROTTNEROS MIRANDA

Operations at Rottneros’ pulp mill based in

Miranda, Spain ceased at the end of 2008. The mill produced sulphate pulp from eucalyptus wood.

Production amounted to just over 130,000 tonnes in 2008 and just over 145,000 tonnes in the preceding year. Total production capacity was around 150,000 tonnes.

The background to this situation was that the mill was affected by sharp increases in the cost of pulp- wood, natural gas and chemicals. The combination of rapidly rising costs and declining sales prices and volumes, in addition to planned future investments related to the environment, meant that it was impossible to continue running this mill. In early April 2009, the company announced the suspension of payments and it is now being wound up in accordance with Spanish insolvency legislation.

Rottneros is of the view that the company’s assets exceed its liabilities, for which reason it should be possible to wind the company up without it having to go into bankruptcy.

ROCKHAMMAR MILL

The fixed assets at Rockhammar Mill were sold to Korsnäs Rockhammar AB on 1 April 2009 as a step in Rottneros’ strategic transformation to the manu- facture of pulp based on long fibre in the northern hemisphere and, through the planned part-owned pulp mill in South Africa, to allocate production based on short fibre to the southern hemisphere, where the price of the raw materials for short fibre is substantially lower.

Rockhammar Mill produced CTMP mechanical pulp, with 62,000 tonnes being produced in 2008.

The company still owns the property which was the former site of a sawmill as well as premises used to store timber that were leased for an extended period of time. The intention is to sell off the remaining assets as well.

UTANSJÖ MILL

Production at Utansjö Mill, which produced mechanical groundwood and CTMP pulp, was discontinued at the beginning of June 2008.

Since that time the focus has been on developing the Utansjö Företagsbruk business park in the area. This has resulted in a number of operations being established; these include Utansjöverken, which carries out barking and chipping for Domsjö Fabriker in Örnsköldsvik, PQ Sweden AB, which produces water glass for the pulp and paper industry, Suntib, a contractor, and the SÅTAB biofuel company.

Efforts are also being made to prepare for possibly moving the CTMP plant to South Africa and reusing processing equipment within the Group, or selling it to external buyers.

At the end of 2008, the property at Utansjö Mill,

including land, buildings and the business park,

was sold to Domsjö Utansjöverken AB, a subsidiary

of Domsjö Fabriker AB.

Supply of raw materials

A strategic function

WOOD SUPPLY

The Group has a wood supply organisation in Sweden and a wood procurement company in Latvia. In the past few years, Rottneros has endeavoured to reduce the proportion of imported wood for cost reasons, at the same time as there was less need for such imports when Utansjö Mill had been closed down.

Rottneros’ objective is to have appropriate small stocks of pulpwood to optimise the supply of fresh wood, which is cost effective for several reasons.

The wood is better used fresh and it minimises the amount of capital that is tied up. Fresh wood also reduces the use of bleaching chemicals, which is beneficial both in terms of the environment and cost.

The market presence in the Baltic States is an important factor that reduces the level of risk in terms of the wood supply, as any shortage in the supply of Swedish wood can be compensated for through ‘quick’ imports. Imports are also important for supplying ‘FSC certified raw materials’ (see below).

Working with small stocks requires a steady and reliable flow of pulpwood, which presupposes good and stable relationships with wood suppliers. The Group’s two main suppliers of wood are the Mellan- skog forest owners’ association and Sveaskog, which is a state-owned enterprise.

To avoid unnecessary transport for both environ- mental and cost reasons, Rottneros endeavours to use Swedish wood that is felled as close to the mill as possible. This is why forest industry companies commonly swap timber supplies with each other.

The wood that is imported to Sweden is transported by sea. The main destination is Vallvik Mill, which is located on the coast and has its own port.

Rottneros Mill, which is close to the Norwegian border, purchases a small proportion of its raw materials in Norway, which is still considered normal cross-border trade.

Rottneros’ routines for ‘traceability certification’ to monitor the origin of the pulpwood used by the Group are of increasing importance to pulp customer relations. The aim of traceability certification and its routines is to ensure that no wood used in the Group’s industrial operations has illegal or controversial origins. The Group has traceability certification according to FSC and PEFC standards, which are the two international systems used in Sweden. This means that the

Swedish mills have a joint traceability certification system.

The Latvian subsidiary, SIA Rottneros Baltic, also has traceability certification according to FSC.

WOOD MARKET

There was a good supply of pulpwood in the first six months of 2009. However, the supply

deteriorated after this period, which resulted in rising prices. One contributory factor was the rainy summer and autumn, which caused poor bearing capacity in forests in many areas. This made it difficult to transport the felled pulpwood.

The wood market stabilised towards the end of the year, with an improved flow. The price of wood nevertheless rose within the area that is Rottneros’

main source of wood: the Mälar Valley, Värmland, Dalarna and South Norrland.

One problem for small forestry companies such as Rottneros that do not have their own forests is that a large proportion of the timber volumes felled by forestry-owning stakeholders do not reach the open market but are instead subject to closed barter transactions. This means, for example, that the companies supply sawn timber to sawmills and receive chips and pulpwood in return. This results in large volumes becoming inaccessible to

companies such as Rottneros.

The timber outlook for 2010 is good for Vallvik Mill nevertheless, supported by imports from the Baltic States, Belarus and Russia. Rottneros Mill has a satisfactory supply of spruce, which is the raw material used when producing groundwood pulp.

On the other hand, the mill has some problems with accessing the volumes of aspen required for the manufacture of CTMP, among other things owing to substantial volumes being used within the heating and energy sector. Rottneros Mill is resolving this problem by replacing some of the aspen with birch.

The price of timber showed a tendency to rise towards the end of 2009.

POWER SUPPLY

The price of electricity, which has been one of

Rottneros’ main problems for several years now,

stabilised in 2009 at an average price of 39 öre per

kWh, to be compared with 49 öre in 2008. It peaked

temporarily in mid-December at an average price of

81 öre per kWh for a period of one week. Apart from

this peak, prices remained stable compared with

immediately preceding years. For early 2010, the

price of electricity is being set at a record level with

extreme fluctuations. The average price exceeds 65 öre per kWh as a consequence of major disrupt- tions to production and shutdowns, mainly on the part of nuclear power plants in Sweden. This situa- tion has also hiked the price level for the remainder of 2010. More long-term price levels for future years are in the interval 40–45 öre per kWh.

Rottneros continued its efforts to conserve energy, by continuing its work with low energy segments and heat exchangers at Rottneros Mill.

In 2010, Rottneros is planning to make an environ- mental and energy investment at Vallvik, part of which involves a greater proportion of fibre substances that can be burnt being recovered and incinerated, increasing the production of green electricity in turn.

CHEMICALS

The chemical market for the forestry industry was characterised by excess supply in 2009, resulting in market-related production stoppages at several major producers. The reason for this excess supply is several pulp mills, primarily in Finland but also in Sweden, having been wound up over the past few years. In its turn, this excess supply has led to prices falling slightly, which has benefitted Rottneros. The proportion of the Group’s chemical costs in relation to variable costs is approximately 16 per cent.

The agreements concluded by the Group with chemical suppliers indicate stabilising price levels for 2010.

Approximately 20 per cent of the wood used by Rottneros in its production is purchased as chips.

Rottneros’ responsibility

Taking responsibility lays the foundation for interdependence

At Rottneros we value good relationships with our stakeholders. We make an effort to act responsibly to- wards those who depend on us and on whom we depend. It is only by working with our stakeholders that we can build long-term shareholder value, prosperity and quality of life. We work to protect human rights and our common environment and to promote sustainable development. Our approach to people is consistently based on respect for the equality and integrity of each individual.

GRI

To facilitate the evaluation and follow-up of our goals within our corporate social responsibility (CSR) work, we have initiated certain reporting activities in line with the Global Reporting Initia- tive (GRI). Here, particular emphasis is placed on responsibility.

CUSTOMERS AND SUPPLIERS

Rottneros acts responsibly towards its customers by always striving to offer products of the highest pos- sible quality. We create value for our customers by offering new knowledge that has the potential to strengthen their position in the market. We also act responsibly towards our suppliers and other part- ners. Rottneros’ representatives are prohibited from engaging in misappropriation for personal gain and giving the company an undue competitive advan- tage. Rottneros does not enter into business rela- tionships with companies that wilfully and system- atically violate laws, regulations or international human rights conventions.

EMPLOYEES

We act responsibly towards our employees by pro- moting good health, safety and a good work envi- ronment. We offer good employment terms as well as opportunities for development. We protect the rights of our employees, act to eradicate all forms of discrimination and harassment and promote diver- sity at the workplace.

SOCIETY

We act responsibly towards society. Rottneros’ mills often have strong ties to the local community, and the company is often the biggest employer in the area. This gives us a financial as well as a social responsibility. We cooperate with municipal au- thorities where we operate, offering apprenticeships and organising mill visits and other initiatives.

ENVIRONMENT

We assume our environmental responsibility by ensuring that all production units in the Group comply with the environmental standards set out in acts and ordinances. Our goal is to reduce emissions

to levels that are technologically feasible, finan- cially viable and ecologically justified. Rottneros’

environmental goals are followed up on a regular basis in our financial reporting, and we conduct an active dialogue with stakeholders on the environ- mental impact of our operations and products. For the third consecutive year, Rottneros has received the highest average environmental rating among companies on the Small Cap list in Folksam’s an- nual corporate responsibility index. Rottneros re- ceived an average rating of five out of seven possible stars. Rottneros received six stars for environ- mental management and five stars for environ- mental performance.

SHAREHOLDERS

We act responsibly towards our shareholders by

working to maximise shareholder value within the

framework of what is permitted by laws, regula-

tions and industry standards. Our capital market

activities are characterised by transparency and

honesty. We openly report the actions, salary terms

and benefits of senior management and the Board

of Directors. We comply with the laws, regulations

and ethical guidelines that apply to capital mar-

kets. We aim to reduce the Group’s risk exposure

and pay steady dividends to our shareholders.

Rottneros' responsibility: Personnel

Adapting to the Group's new structure

The most important task for the personnel function at Rottneros in 2009 was to adapt Group staff and all other employees to the Group's new size and structure. The closure of Utansjö Mill, which was finalised in 2009, the closure of the pulp mill in Spain, Rottneros Miranda, and the disposal of the operation at Rockhammar Mill meant that the number of employees in the Group reduced by 370, of whom 200 were in Sweden. This is in addition to around 30 people, who either left the Group in 2009 or plan to leave in 2010 as a result of the new streamlined organisation at Vallvik Mill and the transition from six to five shifts at Rottneros Mill.

DECENTRALISATION OF GROUP FUNCTIONS

Some of the change work within the Group has involved our marketing, sales and technical cus- tomer services moving from the head office (that is,

Rottneros AB) to the mills. This, combined with some minor changes, has resulted in the number of employees in the parent company reducing from 20 to 10 people. This entails a saving for the parent company of around SEK 10 million per year. Be- sides the immediate cost savings, the aim of this decentralisation is for the mills to take greater re- sponsibility for their entire operation and their own income statements and balance sheets.

The payroll function, which was previously run from the individual mills and head office, will be largely based at Vallvik Mill in 2010.

Measures to improve the efficiency of its marketing and administrative functions have resulted in the Group now having an organisation that is adapted to the scope of its operations.

Cutting wood at Rottneros Mill: debarking and cutting of wood for the groundwood line is operated from a control room.

ONGOING PROFESSIONAL DEVELOP- MENT

Rottneros has been working with R-plus for several years now. R-plus is a programme for leadership and professional development based on modules.

The purpose of this programme is improved aware- ness of key ratios and figures and market conditions that are crucial for the Group, and to foster a com- mon understanding of leadership and the values and strategies serving as the foundation of Rott- neros’ business.

This programme, which was launched in 2003, has created a common platform, making it possible to decentralise important functions and locate them at our mills without a loss of identity. Two modules of the programme were completed in 2009.

LOW STAFF TURNOVER

Staff turnover remained low and absence owing to sickness was 2.9 per cent in 2009, which is a com- paratively low figure. These two key figures help to ensure continuity in both daily and long-term work carried out by the units belonging to Rottneros.

The average number of Group employees was 387 in 2009, 338 of whom were employed in Sweden. The average period of employment is approximately 23 years and the average age is around 49 years.

Fourteen per cent of Group employees are women.

In 2009, salaries and other remuneration paid to employees, excluding social security contributions, amounted to SEK 167.6 (285.9) million. This corre- sponded to about 11 (11) per cent of the Group's total turnover in 2009.

The average term of employment and age for Rottneros, Vallvik, parent company and Group.

0 10 20 30 40 50 60

Rottneros Vallvik Parent

company

Group

Average term of employment Average age