Annual Report 2008
Contents
1 Highlights of 2008 2 Rottneros in brief4 Comments by the President
6 Business concept, objectives and strategies 8 Markets and products
12 Group units 18 Raw material supply
21 Rottneros’ responsibility – General 22 Rottneros’ responsibility – employees 24 Rottneros’ responsibility – environment 28 opportunities and risks
32 the Rottneros share
34 Contents – Financial reporting 35 Directors’ report and financial review 40 Income statements – Group 41 Balance sheets – Group
42 statement of changes in shareholders’
equity – Group
43 Cash-flow statements – Group 44 Income statements – Parent company 44 statement of changes in shareholders’
equity – Parent company
45 Balance sheets – Parent company 46 Cash-flow statements – Parent company 47 supplementary information and notes 62 Audit report63 Corporate governance 68 Board of Directors and auditors 70 senior executives
72 six-year review
Definitions, glossary Addresses
All amounts are expressed in swedish kronor (seK). Million swedish kronor is abbreviated as seK million or seK m.
and billion swedish kronor is abbreviated as seK billion or seK bn. Million Us dollars is abbreviated as UsD million or UsD m. Figures in parentheses refer to 2007 or the corresponding period the previous year, unless otherwise indicated. Data on markets and competition constitute Rottneros’ own assessments, unless a specific source is cited.
the results for 2004 have been restated in accordance with IFRs.
FINANCIAL INFORMATION
Annual General Meeting 23 April 2009
Interim report (Jan.–March 2009) 23 April 2009
Interim report (Jan.–June 2009) 24 July 2009
Interim report (Jan.–sept. 2009) 23 october 2009
Year-end release for 2009 2 February 2010
AnnUAl GeneR Al Mee tInG
shareholders are welcome to attend the Annual General Meeting of Rottneros AB at 2 p.m. on thursday, 23 April 2009 at Hotel selma spa, sundsbergsvägen 3 in sunne, sweden.
shareholders wishing to participate in the AGM must be registered in the register of shareholders maintained by euroclear sweden AB (formerly VPC AB) no later than 17 April 2009 and register their intention to attend with the company no later than Friday, 17 April 2009.
Registration to attend may be done by phone +46 8 590 010 00 by fax +46 8 590 010 01 by e-mail info@rottneros.com or
by mail Rottneros AB, Box 600, 194 26 Upplands Väsby, sweden.
shareholders whose shares are registered in the name of a nominee must temporarily re-register their shares in their own name to be entitled to par- ticipate in the AGM. such temporary re-registration, so-called voting right registration, must be requested well in advance of Friday, 17 April 2009 from the bank or fund manager administering the shares.
When registering their intention to attend, shareholders must provide their name personal/corporate ID number, address and telephone number, and the names of any assistants who will be attending. shareholders who will be represented by proxy must send an original power of attorney to the company before the Annual General Meeting. the power of attorney form may be obtained upon request from the company and is also available at the company’s website www.rottneros.com. Anyone representing a legal entity must be able to present a copy of the registration certificate no more than one year old, or an equivalent document showing the names of persons entitled to represent the legal entity.
text and production: Hallvarsson & Halvarsson. Graphic design: Meze Design. Photos: Cover Johnér/Hans Geijer and small photo on page 6 Johnér/sven Halling, page 17 MostPhotos/liane Matrisch. other photos Rottneros and Victor Brott. Repro and printing: elanders Gummessons in Falköping, March 2009.
this annual report is printed on environmentally friendly paper. the cover is 200g Arctic Volume and the paper inside is 115g Arctic Volume pro- duced by Arctic Paper Håfreströms AB. the paper contains pulp from the Rottneros Group.
23 AnnUAl GeneRAl MeetInG April
1
Rottneros Annual Report 2008
H I G H l I G H t s o F 2 0 0 8Highlights of 2008
• Earnings after net financial items for the full year 2008 were negative at SEK -385 (-384) million, of which seK 106 million relates to write-downs of fixed assets at Miranda following an impairment test, and seK -115 million relates to closure costs and losses up to the closure of Utansjö Mill, which was closed in 2008.
• On 1 February Ole Terland took over as President and CEO of Rottneros.
• The planned and announced closure of Utansjö Mill was implemented during the year. The mill stopped producing pulp in June. the debarking and chipping operation at the mill and the land and buildings have been sold off in stages to Domsjö Fabriker AB.
• The factory that produces SilviPak food packaging adjacent to the Spanish mill in Miranda went into operation in the autumn. When fully extended, the factory would have a production capacity of around 200 million food trays per year. Development of the venture has been slowed down somewhat due to both financial and production technology issues.
• In October Rottneros signed an agreement for a new credit facility of USD 83.3 million, equivalent to around seK 620 million. this was part of a refinancing of Rottneros’ syndicated loan from 2003 of UsD 85.8 million, equivalent to around seK 640 million, which was replaced.
• In the fourth quarter the demand and selling price of pulp products fell sharply in USD and EUR.
selling prices fell significantly less in seK due to the weakened exchange rate.
ROTTNEROS IN FIGURES
2008 2007 2006 2005
Total
2005 Remaining operations
2004 Total
2004 Remaining operations
2003
net turnover, seK m 2,663 2,927 2,690 2,429 2,411 2,356 2,272 2,380
Profit/loss after net financial items, seK m -385 -384 -23 -103 -141 -121 -38 115
Investment in fixed assets, seK m 191 163 113 234 234 283 283 193
Average number of employees 667 718 754 804 800 835 807 857
Ratios, %
equity/assets ratio 40 45 57 58 58 65 65 73
Return on capital employed Neg neg neg neg neg neg neg 7
Return on equity Neg neg neg neg neg neg neg 5
SEK/share
Profit/loss after tax -1.84 -1.67 -0.05 -0.35 -0.50 -0.50 -0.16 0.47
Dividend 0.00* 0.00 0.10 0.10 0.10 0.20 0.20 0.30
* Proposed dividend
QUARTERLY DATA, GROUP (SEK M)
Including discontinued operations 2008 2007 2006
IV III II I IV III II I IV III II I
net turnover 534 601 780 748 721 687 779 740 713 662 615 700
operating profit/loss before depreciation 4 14 -19 -81 9 -44 51 60 69 47 36 -4
Depreciation -139 -27 -29 -29 -320 -38 -40 -38 -42 -36 -38 -39
operating profit/loss -135 -13 -48 -110 -311 -82 11 22 27 11 -2 -43
net financial items -34 -24 -9 -12 -10 – -6 -8 -6 -10 – –
Profit/loss after net financial item -169 -37 -57 -122 -321 -82 5 14 21 1 -2 -43
tax -9 13 17 33 71 22 -1 -9 3 -2 4 10
Profit/loss after tax -178 -24 -40 -89 -250 -60 4 5 24 -1 2 -33
Pulp production, thousand tonnes 119.5 136.3 162.6 184.3 190.0 177.9 186.1 176.1 181.1 167.8 175.4 174.6 Pulp deliveries, thousand tonnes 118.4 137.1 186.3 176.1 174.2 164.5 193.2 182.9 178.9 168.7 164.2 187.7
Pulp price, nBsK list price, UsD1) 746 885 900 878 844 803 777 752 725 704 655 615
1) source for nBsK list price is PIX
22
R o t t n e R o s I n B R I e FRottneros Annual Report 2008
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, i.e. paper pulp that is sold on the open market, in contrast to pulp that is produced at mills with integrated paper production.
• In 2006 Rottneros started producing food packaging made from pulp fibre under the SilviPak brand.
the trays are produced at a factory adjacent to the Miranda mill in spain and at the mill in Rottneros.
• Rottneros has an annual production capacity of around 600,000 tonnes of pulp, produced at three mills in sweden and one in spain.
• Rottneros is a leader in mechanical pulp for the open market and an important supplier of other pulp grades. CtMP is a process developed at Rockhammar Mill in 1974.
• Production at Utansjö Mill was discontinued according to plan in the second half of 2008 and around 140 employees were affected.
WOOD SUPPLY
• Having a flexible and sophisticated wood supply system is of strategic importance for Rottneros as the Group has no forests of its own.
• Rottneros’ objective is to secure multi-year contracts with the largest wood and chip suppliers to reduce depen- dence on the spot market.
• To spread the risk associated with the raw materials sup- ply, Rottneros works with several suppliers.
• Due to high cost levels, Rottneros has focused on minimis- ing the percentage of imported wood over the past few years.
• A change in the price of wood of SEK 10 per cubic metre affects the profit after net financial items by seK 20 million.
-2,000 -1,000 0 1,000 2,000 3,000 4,000
2004 2005 2006 2007 2008
-500 -250 0 250 500 750 1,000 N E T T U R N O V E R , SEK m P R O F I T / L O S S , SEK m
Net turnover, SEK m Profit/loss after net financial items, SEK m
Rottneros aims to have small, optimised stocks of pulpwood, which makes for better wood utilisation than if the wood is older.
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Rottneros Annual Report 2008
R o t t n e R o s I n B R I e FO R G A N I S AT I O N
HEAD OFFICE
PRODUCTION
Rottneros Mill Rockhammars Mill
Vallviks Mill Rottneros Miranda
Central Local Central
CUSTOMERS SALES RAW MATERIAL PROCUREMENT SUPPLIERS
T H E G R O U P ’ S P R O D U C T S , percentage of sales Sulphate pulp 56%
CTMP 25%
Groundwood pulp 18%
Wood 1%
Italy 17.8%
Spain 14.4%
Germany 12.9%
Sweden 9.3%
USA 7.6%
Austria 5.0%
Finland 4.9%
France 4.7%
UK 4.1%
Poland 3.8%
Norway 3.5%
China 3.0%
Rest of Europe 3.1%
Rest of world 5.8%
GEOGRAPHICAL DISTRIBUTION OF TURNOVER
Groundwood pulp 63%
CTMP 4%
Sulphate pulp 1%
ROTTNEROS’ GLOBAL MARKET SHARE FOR MARKET PULP 2008
GROUP PRODUCTION UNITS
Mill Pulp type Production capacity No. of employees
Rottneros Mill Groundwood pulp
CtMP 165,000 tonnes 145
Rockhammar Mill CtMP 75,000 tonnes 58
Vallvik Mill long-fibre sulphate 220,000 tonnes 180
Rottneros Miranda short-fibre sulphate
(eucalyptus) 150,000 tonnes 155
total 610,000 tonnes
Rottneros Packaging
(silviPak) Production of food trays
ROTTNEROS’ PULP TYPES AND APPLICATION AREAS
Pulp type Application areas
MECHANICAL PULP Groundwood pulp Printing and writing paper, LWC/ULWC, paperboard
CTMP Printing and writing paper, paperboard, tissue
Printing and writing paper, fine paper Paperboard, filters
CHEMICAL PULP Long-fibre sulphate
pulp Fine paper, printing and writing paper, LWC/
ULWC, paperboard, tissue, filters Filters, electrical applications, absorbent
products
Eucalyptus pulp Fine paper, tissue, printing and writing paper
44
C o M M e n t s B Y t H e P R e s I D e n tRottneros Annual Report 2008
Turbulent year for Rottneros and the industry
2008 has been a very turbulent year! The global finan- cial markets have been shaken and as a result, prices in raw materials trading have at times reached his- torically high levels and at times they have crashed.
The pulp industry as a whole has been swept along in the turbulence and so, of course, has Rottneros.
The year started with a strong pulp market and a positive price trend, mainly driven by a weakening USD. In the second quarter demand slowed in the market and the USD weakened further. Our profit- ability was weak and the Group’s refinancing activity turned into a protracted process. In the summer the price of wood rose again and electricity prices reached extremely high levels.
In the autumn the market took a sharp turn.
Demand for pulp was markedly reduced, reaching a dramatically low level in the fourth quarter, when prices also fell sharply. The rising USD rate in rela- tion to European currencies compensated to a certain extent for the fall in prices, but it was far from suffi- cient. Some relief came at the end of the year when the high pulpwood and electricity prices started to fall.
ELIMIN ATED SOURCE OF LOS S
The closure of Utansjö Mill was the single most sig- nificant event for Rottneros in 2008. This measure meant that around 150 people have had to leave the company and our production capacity was cut by 150,000 tonnes of mechanical pulp, equivalent to around SEK 600 million in turnover.
Closing Utansjö has eliminated the Group’s biggest source of loss. Over the past five years Utansjö has cost us close to SEK 800 million in total losses, at the same
time as around SEK 350 million has been invested in the mill. Utansjö’s main problem was a shortage of wood of the right quality in the mill’s vicinity, which forced the mill to import expensive wood from places like the Baltic region. The wood costs combined with sustained high electricity costs, made it impossible for us to continue to operate the mill.
The other major problem is the Spanish mill in Miranda. The mill has been at a standstill since the beginning of the year due to a market and cost-relat- ed shutdown, and at the time of writing, it is unclear when operations will start up again. Expensive wood is also the basic reason for the problems at Miranda.
The Iberian eucalyptus wood, which Miranda uses, is far too expensive in relation to the eucalyptus wood our South American competitors use. The cost advan- tage the South Americans have is being exploited in this weak market to set the price of short-fibre euca- lyptus pulp at levels that are so low that Miranda cannot cover its costs.
SUBSTA NTIA L WRITE- D OWN
Miranda’s situation has forced us to write-down the book value following the annual impairment test car- ried out in conjunction with closing the books. An impairment test involves testing the value of assets in relation to their ability to generate cash flow. This year the result was a major write-down at Miranda which negatively affected the Group’s 2008 results.
I can confirm that, of the year’s operating loss of
SEK -306 million, more than SEK 220 million relates
to the losses at Utansjö and Miranda. The remaining
loss corresponds to the 2008 costs for earlier, unsuc-
cessful pulp price hedging activity.
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Rottneros Annual Report 2008
C o M M e n t s B Y t H e P R e s I D e n tINCR E ASED EFFICIENCY
Despite the fact that 2008 has been a tough year for the Rottneros Group, there have been some bright spots. Efficiency at Rottneros Mill has improved fol- lowing the installation of a new control room that enables the whole mill to be controlled from one loca- tion. The situation with respect to the production and sale of the mill’s groundwood pulp has improved con- siderably after the screening equipment was moved from Utansjö to Rottneros. This has raised the level of purity of the pulp considerably. The closure of Utansjö also resulted in successful customer optimi- sation. Rottneros Mill has therefore been able to secure its position as one of the world’s leading sup- pliers of groundwood pulp, even if it is still heavily dependent on a small number of customers. The mill’s groundwood line has been operating at full capacity, while the CTMP line was forced to implement sev- eral weeks of market-related shutdowns in the last quarter.
Vallvik Mill, which celebrated its 100-year anni- versary in 2008, has become more competitive. The level of self-sufficiency in electricity improved sig- nificantly during the year following the installation of a new electricity-generating steam turbine in 2007.
The turbine is run on excess energy from pulp pro- duction and has also enabled the mill to generate income from sales of so-called green electricity.
Vallvik Mill has initiated a study that will lead to further reduction in the mill’s oil consumption and will make the mill a net seller of electricity. There were no market-related shutdowns at the mill in 2008.
R EDUCED ENERGY CONSUMP TION
Rockhammar Mill, which produces CTMP has been forced to implement market-related production shut- downs. Despite this, the mill reached a production level equivalent to just over 90% of its capacity.
Through systematic efforts over a number of years, the mill has reduced its energy consumption by around 20%, thereby improving its competitive- ness.
As of autumn 2008, SilviPak, our pulp fibre based food packaging, is being produced at Rottneros Mill and the newly opened factory adjacent to the mill in Miranda. This gives us a production capacity that will enable us to accept orders from major international producers of ready meals. Although the difficulties we encountered when developing the new production technology proved to be greater than expected, inter- est in the product from the market has exceeded our expectations.
SOUTH A FRICA D ECISION A PPROACHING If we look to the future, the planned joint establish- ment of a CTMP mill in South Africa with the South African company NCT (see page 17) will provide us with an advanced pulp mill in a market where the conditions are entirely different to those in Sweden.
The supply of eucalyptus wood, which is well-suited to CTMP production, is very good and electricity prices are set at a reasonable long-term level.
The decision to establish the mill has been delayed due to uncertainty throughout much of 2008 about the South African electricity supply. Now we are closer to finding a solution, partly because the domes- tic demand for electricity has declined and partly due to the potential for alternative energy production. We believe that a biopulp-based heat and power plant adjacent to the mill can generate electricity at a rea- sonable price and also make production more cost effective.
If the project is implemented it will provide con- siderable capital gains and a significant liquidity boost for the Group right from the start, because the CTMP plant from the discontinued Utansjö Mill will be sold to the consortium that will establish and operate the mill.
PA RTS OF THE M A R KE T A R E UN A FFECTED One consequence of the recession is that demand for printing paper has fallen due to a reduction in adver- tising. There has also been a market-related decline in the demand for packaging paper due to industrial production cuts. As a result, the global pulp market remains weak. It is easy to forget, however, that large segments of the markets that consume pulp, such as paper for hygiene and household products, have not been affected much by the recession.
When I look to the future it is clear to me that with the decisions we have made to close mills operating under the wrong conditions and with the wrong cost levels – mainly raw material-related, and instead trans- fer our resources to facilities with better prospects, we are paving the way for our future production success.
One important success factor here is our competent and loyal staff who have done a fantastic job in 2008.
We produce ecologically superior products which the market demands. Consumers want products based on cellulose fibre. The global pulp industry’s prob- lems are not structural but are related to the state of the economy.
There will continue to be a demand for strong wood fibre and, for the foreseeable future, this demand will be met primarily by forests and producers in Scandinavia and North America. On the other hand, the need for cellulose fibre for the production of paper with good absorbency or a smooth printing surface etc. will increasingly be met by the fast-growing vari- eties of wood from plantations in South America, Africa and parts of Asia. Through our plans to estab- lish a mill in South America, we expect to be able to meet these needs.
Stockholm, March 2009
Ole Terland, President and CEO
66
B U s I n e s s C o n C e P t, o B J e C t I V e s A n D s t R A t e G I e sRottneros Annual Report 2008
To keep costs down, Rottneros’ aim is to reduce wood imports from the Baltic region and other areas.
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Rottneros Annual Report 2008
BUSINESS CONCEPT
Rottneros is an independent and flexible supplier of cus- tomised, high-quality pulp. through continuous product development, high delivery reliability, technical support and service, Rottneros is able to adapt its product range to meet the needs and high expectations of its customers.
VISION
Rottneros shall be perceived as the market leader in meeting the needs and high expectations of pulp customers. this in turn shall result in stable profitability over a business cycle.
B U s I n e s s C o n C e P t, o B J e C t I V e s A n D s t R A t e G I e s
A pulp supplier in tune with customer needs
Rottneros’ overall objective is to give its sharehold- ers a competitive return on their investment over the course of a business cycle.
To achieve this objective, the Group needs to create value for the customers, be an attractive employer and act in a socially responsible manner.
Rottneros creates value by focusing on segments where the Group, through its production focus and applications, can gain a strong position in the mar- ket pulp market. Examples are mechanical 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 mechan- ical and chemical market pulp so that the Group is able to offer its customers a complete product port- folio.
Rottneros also creates value for its customers by offering new knowledge on pulp applications that can strengthen their position in their respective markets.
BUSINES S CONCEP T
Rottneros’ business concept is to be an independent and flexible supplier of high-quality, customised pulp. This business concept is based on success fac- tors identified by the Board of Directors and man- agement; namely, to be a pure pulp-producing company that focuses on customer requirements, niche areas and efficient production. Rottneros adapts its product range to meet the needs and high expectations of its customers through continuous product development, high delivery reliability, tech- nical support and service.
As an extension of the business concept, Rottne- ros has initiated production of advanced food pack- aging for chilled and frozen food. The packaging is
in the form of food trays made from pulp fibre based on the Group’s expertise in fibre technology.
The business concept constitutes the basis for the strategy applied by the Group which centres on specialisation, niche-thinking and customer orien- tation. Rottneros has invested considerable resourc- es in product development, production, logistics, marketing and IT in order to improve profitability over the course of a business cycle. The investments are supplemented by an ongoing management and skills development programme, which is building a foundation for a common set of values and an inte- grated approach among of the Group’s employees.
OB JECTIVES A ND STR ATEGIES
Group management has defined a number of gen- eral objectives for the company’s operations that are designed to ensure a competitive return on share- holders’ capital while reducing the volatility of the company’s share price. The objectives are based on the assumption that the economy will follow a nor- mal cyclical pattern, and that external factors which Rottneros has only a limited ability to influence will evolve in a rational manner. This has not been the case in recent years, and as a result, Rottneros’
shares have underperformed the index. The main problems have been the persistently high price of electricity and the sharp rise in the price of wood in 2007 and 2008.
• Rottneros will be a pure, customer-focused pulp producer and a world leader in mechanical market pulp.
• Rottneros aims to be a leading European supplier of fibre-based food packaging.
• Rottneros will endeavour to stabilise profits
over a business cycle.
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M A R K e t s A n D P R o D U C t sRottneros Annual Report 2008
Turbulence on the pulp market
In 2008 the pulp market was the most turbulent it has been for many years. the year began with very strong demand for all grades of pulp and rising prices. even in the third quarter, which is traditionally weaker than the first two, delivery levels continued to increase. However, prices started to fall at that time, and the situation in the fourth quarter was in sharp contrast to the development during the first nine months. Prices for all grades fell dramatically and deliveries declined significantly. Despite this situation, Rottneros managed to maintain its position as an important player in the market pulp market, particularly with respect to mechanical pulp. this, combined with the production of the advanced food packaging product, silviPak, is enabling Rottneros to continue to be an important market player in the segments where the company operates.
Rottneros acts as a producer and global supplier of market pulp within three grades of pulp: long-fibre chemical pulp, short-fibre chemical pulp and mechanical pulp. The market pulp market consists of a volume of around 43 million tonnes globally and 17 million tonnes in Europe. Market pulp is defined as pulp that is dried, packaged and shipped for sale in the market, as opposed to the considerably high- er volume of pulp produced at mills with integrated paper production.
THE EUROPE A N M A R KE T
In 2008 Rottneros sold 617,900 tonnes of pulp, of which 516,600 tonnes were sold in Europe, making Rottneros’ market share in Europe around 3%.
Europe is considered to be Rottneros’ domestic market and great emphasis is placed on ensuring that the sales organisation can meet the demands of this market. Rottneros works, for example, with custom- ised inventory management systems, so-called ven- dor managed inventory, VMI, and other solutions that have been successful and have further improved Rottneros position in relation to competitors in the market. This, combined with the fact that Rottne- ros’ customers are offered the pulp or the combina- tion of pulp that meets the needs of their end prod- ucts in a way that ensures optimal cost-effectiveness and resource-efficiency, has created a solid founda- tion for continued expansion.
Italy and Spain are the countries to which Rottneros exports the largest volume of pulp and they account for 18% and 14% respectively of Rottneros’ total net sales in 2008. Germany and Sweden are two other important markets, which in
2008 accounted for 13% and 9% respectively of the Group’s total sales.
G LOBA L M A R KE T
Global pulp production in 2008 amounted to around 230 million tonnes, of which around 43 million tonnes is market pulp. Of the total global market for market pulp, 46% is bleached short-fibre chemical pulp, 51% is bleached long-fibre pulp and the remainder is unbleached chemical pulp and mechan- ical pulps.
The added capacity on the pulp market in recent years was almost exclusively short-fibre pulp, and the expansion has taken place in the Southern Hemisphere, with Brazil in the lead. Chile, Indone- sia, China and Uruguay have also grown into impor- tant producer nations with a number of new mills opening in recent years.
In light of the significant weakening of the pulp market, combined with the crisis in the financial markets in the second half of 2008, essentially all expansion projects planned for the next few years have been postponed or abandoned. Furthermore, the high electricity and wood prices combined with what was essentially a complete standstill in pulp deliveries at the end of the year, have forced several pulp producers to announce closures and extensive production shutdowns have been implemented. In Sweden, Finland, Canada and the US, mills were closed in 2008 and additional closures are expected in 2009.
Rottneros closed the mill in Utansjö in 2008. As a result, the total quantity of pulp delivered by the Group was 14% lower in 2008 than in 2007.
GEOGRAPHICAL DISTRIBUTION OF TURNOVER Italy 17.8%
Spain 14.4%
Germany 12.9%
Sweden 9.3%
USA 7.6%
Austria 5.0%
Finland 4.9%
France 4.7%
UK 4.1%
Poland 3.8%
Norway 3.5%
China 3.0%
Rest of Europe 3.1%
Rest of world 5.8%
R O T T N E R O S ’ S H A R E O F T H E G L O B A L M A R K E T F O R M A R K E T P U L P 2 0 0 8
Groundwood pulp 63 % CTMP 4 %
Sulphate pulp 1 %
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Rottneros Annual Report 2008
M A R K e t s A n D P R o D U C t sROTTNEROS PULP TYPES AND GRADES
Type of pulp Wood Bleaching Type of bleaching Application areas
MECHANICAL PULP 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 Pine Unbleached/bleached TCF Paperboard, filters
CHEMICAL PULP Long-fibre
sulphate pulp Pine /
spruceBleached ECF Fine paper, printing and writing paper, LWC/ULWC, paperboard, tissue, filters
Unbleached Filters, electrical applications, absorbent products Eucalyptus
sulphate pulp Euca-
lyptus Bleached ECF Fine paper, tissue, printing and writing paper
The main reason for this is a reduction in sales of short-fibre pulp and mechanical pulp.
PRICE TR ENDS
Market pulp prices are set in USD and, in the case of the Swedish mills, a combination of the market pulp price trends and the US dollar rate determine what the price will be in Swedish kronor. During the first half of the year, prices increased sharply in USD, but as a result of the falling US dollar rate, the average price increase in SEK was only 3–6%.
During the third quarter, prices started to decline, but thanks to a significant strengthening of the USD rate, prices continued to improve in SEK.
Prices continued to fall in the fourth quarter, and in November and December prices dropped dramatically. Due to a sustained strong USD rate, the price decline in SEK was not as dramatic, but was 10–11% lower at the end of the year than at the beginning.
The main reason for the dramatic fall in prices is the very significant slowing of the global economy in the fourth quarter. Added to this is a combination of closures and considerable production cuts affect- ing paper manufacturing capacity and the fact that many paper and paperboard manufacturers have been trying to boost their liquidity by cutting their stocks and delaying orders.
OUTLOOK
The weak demand for pulp is expected to continue in 2009 due to a greatly increased supply of short- fibre chemical pulp during the year. There is a great risk that today’s low prices will be sustained for much of the year. The situation in the long-fibre chemical pulp market is somewhat brighter as no new capacity has been added.
THE G ROUP ’S PRODUCTS
Vallvik Mill produces long-fibre chemical pulp, Miranda produces short-fibre chemical pulp and Rottneros and Rockhammar produce mechanical pulp.
Since 2002 Rottneros has also developed an advanced form of food packaging which has been launched under the SilviPak brand. In 2008 SilviPak successfully established new, important customer accounts and is working systematically towards the goal of a 5% share of the European market in pack- aging of ready meals.
LONG - FI B RE CH E M ICA L PU LP
THE M A R KE T
Rottneros produces long-fibre chemical pulp in Vallvik and this accounts for 33% of Rottneros’ total pulp production. Global production of bleached long-fibre chemical pulp in 2008 amounted to 21 million tonnes, which is a reduction of 2.5% com- pared to 2007. In 2008 several mills were closed in North America as well as in Finland and Sweden.
The reasons for the closures have varied. Some were closed due to bankruptcy, while others were discon- tinued in an attempt by owners to balance the mar-
0 200 400 600 800 1,000
N B S K P R I C E S I N U S D A N D E U R , 1 9 9 0 – 2 0 0 8
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
■ NBSK price in USD NBSK price in EUR
T H E G R O U P ’ S P R O D U C T S , percentage of sales
Sulphate pulp 56%
CTMP 25%
Groundwood pulp 18%
Wood 1%
10
10
M A R K e t s A n D P R o D U C t sRottneros Annual Report 2008
ket. Some of the closed mills were reopened later on in the year by new owners.
Rottneros’ biggest market for long-fibre chemi- cal pulp is Germany where around 55,000 tonnes were delivered, which is a reduction of 17% on the previous year. This was followed by the US which decreased by 18% to just over 35,000 tonnes.
Of the total bleached chemical market pulp mar- ket, long-fibre pulp accounts for 51%. The biggest producers of market pulp include Arauco, Södra, Mercer, Canfor and Tembec.
In 2008 the price per tonne fell from USD 880 in January to USD 642 in December. The price peaked in June at USD 905 per tonne. As a result of the strengthened USD rate, the price in SEK fell only 11% from the beginning of the year to the end.
PRODUCTS A ND A PPLICATIONS
Rottneros produces sulphate pulp based on pine and spruce. Most of the long-fibre pulp produced is so- called ECF pulp (Elemental Chlorine Free), which is used primarily for printing and writing paper. The long-fibre pulp’s unique strength properties are best used to strengthen various types of printing paper with a high wood content.
Rottneros’ other sulphate pulp production con- sists of an unbleached pulp (UKP – Unbleached Kraft Pulp) and the Group has developed a pulp with a high level of purity. Vallvik’s UKP pulp was developed over a period of many years and the qual- ity today has made the mill the leading supplier of pulp for cable paper which is used by producers of transformers and cables.
Vallvik’s pulps are flash-dried and are therefore particularly well-suited for filters and other absorb- ent products.
OUTLOOK
In 2009 no additional supply of long-fibre pulp will enter the market. Instead it is highly likely that the supply will continue to decline due to weak profit- ability among many producers. The supply/demand balance should therefore gradually improve during the year with some potential for improved prices when this happens.
S HORT- FI B RE CH E M ICA L PU LP
THE M A R KE T
Rottneros produces short-fibre chemical pulp in Miranda, which accounts for 22% of Rottneros’ total pulp production. 2008 has been a turbulent year for Miranda. The competition in the eucalyptus market is tough because there has been considerable added capacity in the market in recent years, mainly from the Southern Hemisphere, where Brazil, Indonesia and recently Uruguay have been the leaders in terms of expanding production capacity. The supply of short-fibre chemical eucalyptus pulp increased fur- ther during the year, and global production rose by 9.6% amounting to 19 million tonnes in 2008.
All of the short-fibre chemical pulp produced by Rottneros was sold in Europe where Spain and France are the most important markets. The world’s leading producers of short-fibre chemical pulp are Aracruz, VCP, CMPC and Ence.
At the beginning of the year the price per tonne of short-fibre chemical pulp was USD 780. The price peaked in June 2008 at USD 840. In the second half of the year the price fell sharply and at the end of the year it was USD 585 per tonne.
PRODUCTS A ND A PPLICATIONS
Short-fibre chemical pulp is produced in Miranda from Eucalyptus Globulus which is ECF bleached and yields very strong short-fibre pulp. Eucalyptus pulp is used to ensure good formation in paper and a high degree of softness in tissue.
Miranda’s pulps are considered to be particu- larly strong compared to the pulp produced by its competitors. The pulps are therefore used prima- rily in the manufacture of products requiring strength as well as formation and brightness, such as high-quality paperboard and tissue.
OUTLOOK
In 2009 a relatively large quantity of new capacity will enter the short-fibre pulp market. VPC is open- ing a new factory in Brazil with a total capacity of around 1.3 million tonnes. In Europe, Ence and Altri are expanding their capacity in Spain and Portugal respectively.
DEVELOPMENT OF GLOBAL STOCKS AND NBSK PRICES
0 1,000 2,000 3,000 4,000 5,000
2006 2007 2008
Thousand tonnes USD
Global stocks, thousand tonnes NBSK price, USD/tonne 0 200 400 600 800 1,000 DELIVERIES OF CHEMICAL MARKET PULP
Percentage change 2007 2008
-8,000 -4,000 0 4,000 8,000 12,000 16,000 20,000
-8 -4 0 4 8 12 16 20
Tonnes %
North America Western
Europe Eastern Europe Latin
America Japan China Rest of world
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Rottneros Annual Report 2008
M A R K e t s A n D P R o D U C t sM ECH A N ICA L PU LP
THE M A R KE T
The Group manufactures mechanical pulp at the mills in Rottneros and Rockhammar. Until May 2008 mechanical pulp was also produced at the now discontinued mill in Utansjö. Global production of mechanical pulp in 2008 amounted to 2.6 million tonnes. This is 8% lower than in 2007.
The Canadian companies Tembec and West Fraser are the largest producers of mechanical pulp in the market pulp market.
Mechanical pulp prices followed the trend for chemical pulps with increased prices during the first half of the year before a dramatic decline mainly in the fourth quarter of 2008. The price peaked at USD 800 per tonne and the price at the end of the year was USD 520 per tonne, a fall of 35% compared to the beginning of the year. In Swedish kronor the price was SEK 4,800 per tonne at the beginning of the year and SEK 4,000 per tonne at the end of the year.
PRODUCTS A ND A PPLICATIONS
The mechanical pulps produced by Rottneros are CTMP and groundwood pulp. CTMP (Chemi- Thermo-Mechanical Pulp) is produced at the mills in both Rottneros and Rockhammar. In the manu- facture of CTMP the wood is mildly pre-treated with chemicals at a raised temperature. The pulp is produced in both bleached and unbleached grades.
Spruce, pine and aspen are the main woods used and they are combined to yield different grades of pulp.
Applications for CTMP vary depending on which wood was used. CTMP made from aspen is mainly used for printing and writing paper, while CTMP from pine and spruce is largely used by paperboard manufacturers. Other application areas for special CTMP grades are filter and tissue man- ufacturing.
Now that the Utansjö mill has been closed down, groundwood pulp is only produced at the mill in Rottneros. The mill produces a number of ground- wood grades that are specially adapted for use in manufacturing various types of printing paper, where the pulp’s unique properties are appreciated.
The wood used is spruce, and groundwood pulp is produced in both unbleached and bleached grades with varying degrees of brightness.
All of Rottneros’ pulps are TCF-bleached, i.e.
entirely without chlorine.
OUTLOOK
The mechanical pulp market faces major chal- lenges in 2009. The threats come, for example, from the sustained high electricity costs, but also the increased supply of short-fibre chemical pulp which competes with mechanical pulps based on hard- wood. The very tough market situation at the begin- ning of 2009 has forced mechanical pulp producers to significantly limit production due to a lack of orders or poor profitability.
S I LV I PA K
THE M A R KE T
SilviPak is the brand that Rottneros uses for its food packaging product. The European market for the category of food packaging manufactured by Rottneros is between seven and eight billion food trays per year. There are currently around ten large manufacturers of this type of food packaging on the market.
In 2008 Sweden and the UK were Rottneros’
main markets for SilviPak. The number of custom- ers is growing and the goal is to have a 5% share of the European market within four years.
PRODUCTS A ND A PPLICATIONS
Rottneros produces its food trays at the mill in Rot- tneros and in a factory adjacent to the Miranda mill.
The Miranda factory was inaugurated in 2008.
Unlike most competing packaging which is oil- based, SilviPak is made from pulp fibre which is a renewable raw material and which has strong envi- ronmental credentials. SilviPak weighs less than other packaging options and has other properties that make it particularly well-suited for frozen or chilled portion-size food. It can be heated in both traditional and microwave ovens and has insulating properties making it possible to handle immedi- ately after heating.
OUTLOOK
The market for packaging for chilled and frozen
ready meals is growing rapidly at a growth rate of
almost 10% per year. Rottneros believes the com-
pany has good potential to compete in this market
and expects a sharp increase in sales and in its share
of the market. The goal is to achieve sales of around
350 million trays per year within four years.
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G R o U P U n I t sRottneros Annual Report 2008
Focus on productivity
the Rottneros Group produces paper pulp at four pulp mills. Chemical pulp is produced at Vallvik and at the spanish mill in Miranda, while mechanical pulp is produced at the mills in Rottneros and Rockhammar. At Rottneros Mill and in a separate factory adjacent to the mill in Miranda, the silviPak brand food packaging is produced by the Rottneros Packaging subsidi- ary. the Group has wood supply companies in latvia and Portugal as well as marketing companies in Germany and Belgium. operations at Utansjö Mill were discontinued in the second quarter of 2008.
ROT TNEROS MILL
Rottneros Mill produces two grades of mechanical pulp, groundwood and CTMP pulp. Both proc- esses are highly eco-friendly with low wood con- sumption per produced tonne of pulp due to high raw material utilisation. Production takes place on two separate production lines.
Spruce roundwood is used to produce ground- wood pulp. Applications are mainly printing paper with a high wood content that requires good opac- ity, i.e. thin paper that is very opaque. CTMP pulp is mainly produced from spruce and aspen chips but also from birch chips. This pulp is used, among other things, for printing and writing paper, paper- board and tissue.
The mill has a production capacity of around 165,000 tonnes. In 2008 144,000 tonnes were pro- duced, which is a reduction of 6%. The reduction is mainly due to market related shutdowns in the fourth quarter.
The focus for 2008 was high productivity and energy savings. Productivity, i.e. the number of tonnes produced per employee, followed a positive trend for a number of years with an increase of around 50% since 2004. The mill’s production level rose by 20–25% at the same time as the work- force was reduced by 20–25%. Thus productivity rose by more than 10% in 2008 alone.
In 2008 a number of investments were made mainly aimed at improving productivity. The larg- est investment was in a new operations unit from which the whole mill is controlled. The operations unit makes it possible to work more effectively and operators are able to get a better overall view of the process at the same time as the process can be man- aged by fewer individuals.
An investment to improve quality was imple- mented during the autumn at the groundwood pulp production line and has significantly improved the purity of the pulp, which is very important for the manufacture of thin paper grades. The investment also means that an obstacle from a capacity perspec- tive has been removed from the mill.
At the end of 2006 an investment programme was initiated for the purpose of making better use low-grade energy, so-called waste heat. The invest-
ment enables the hot water from the factory to be used to heat the air in the pulp drying process. The savings so far are close to 2,000 cubic metres of oil, which means that the investment has already paid for itself. Despite a significant increase in produc- tion at Rottneros Mill over the past few years, the total oil consumption has been reduced. Electricity consumption per produced tonne has also been sig- nificantly reduced over the past few years, and as a result, the total electricity consumption has not risen despite increased production.
In 2009 the focus will be on continued produc- tivity development and energy efficiency at the same time as a number of development projects will get under way, e.g. in the areas of logistics, stock/plant and competence development.
UTA NS JÖ MILL
Production at Utansjö Mill, which produces mechanical groundwood and CTMP pulp, was dis- continued in June 2008. The main reason for this was high electricity and wood costs. The decision to close down the mill was made in August 2006.
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, such as Utansjöverket which carries out barking and chipping for Domsjö Fabriker in Örn- sköldsvik, PQ Sweden AB which produces water glass for the pulp and paper industry, the contractor Suntib and the biofuels company SÅTAB.
Efforts have also been under way to prepare for possibly moving the CTMP plant to South Africa and utilising used processing equipment within the Rottneros Group or selling it to external buyers.
Towards the end of 2008 the property at Utansjö Mill, including land, buildings and the business park, were sold to Domsjö Fabriker AB’s subsidiary Domsjö Utansjöverken AB. Domsjö Fabriker has moved a portion of its wood processing operation to Utansjö. The cost of the closure was lower than predicted.
RO CKH A MM A R MILL
Rockhammar Mill produces mechanical pulp of the
CTMP type. In 1974 the mill was the first in the
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Rottneros Annual Report 2008
G R o U P U n I t sVallvik Mill celebrated its 100-year anniversary in December 2008.
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G R o U P U n I t sRottneros Annual Report 2008
world to produce paper pulp using this processing technique. From 2006 to 2008 the mill has had a temporary permit to produce 66,000 tonnes of pulp per year, which is an increase of 10%. In 2006 and 2007 this permit was fully utilised, while production was lowered to just over 62,100 tonnes in 2008 as a result of market-related production shutdowns dur- ing the latter part of the year.
One of Rockhammar’s specialist products is CTMP based on pine used in the production of filters. This is one of the Rottneros Group’s niche areas.
In 2008 Rockhammar Mill filed an application with the environmental court for a permit to increase production to 90,000 tonnes per year. Negotiations regarding the new permit will take place in the first half of 2009.
A number of measures are needed to handle the planned increase in production. During the year the mill invested in new chip cleaning equipment.
Other substantial investments include reconstruc- tion of the fuel intake to the boiler and the related handling of breakage from wood separation, as well as renovation of the existing water turbine.
The purpose of the investments is to make effi- cient use of bark and breakage generated in process- ing the raw material, and thereby reduce the need for external wood fuel.
Renovation of the water turbine and replacement of the generator have increased the efficiency of electricity production and are expected to reduce the need for purchased electric energy by around 3%.
Rockhammars Bruk AB has had a certified energy management system in place since 2006.
This system involves working systematically to improve energy efficiency in the manufacturing processes at the mill. Every year energy issues are identified and evaluated and goals are set for the subsequent financial year with a focus on the con- sumption of electricity, oil and biofuels.
The main measures implemented to reduce elec- tricity consumption are switching to the use of so-called low-energy segments in the refiners, improving efficiency of biological treatment in the water purification plant and reconstruction of the pulp dryer. The result of these measures, which were partially concluded in 2008, is a reduction in the specific electricity consumption of around 20%.
To reduce the consumption of oil and biofuels, the bark dryer has been made more efficient and this has resulted in a reduction of the specific oil con- sumption of around 35%. It should be noted that the mill’s oil consumption is extremely low. The per- centage of biofuels used is around 97%.
In 2009 the efforts to improve energy efficiency will continue with the objective of further reducing energy consumption in the refiners, and the low-
efficiency hydraulic units will be replaced with ones that run directly on electricity.
VA LLVIK MILL
Vallvik Mill produces two grades of long-fibre sul- phate pulp: fully bleached sulphate pulp, ECF (Elemental Chlorine Free) and unbleached sulphate pulp, UKP (Unbleached Kraft Pulp). The mill has a permit to produce 220,000 tonnes. In 2008 Vallvik Mill celebrated its centennial as a pulp producer.
In 2008 the mill almost matched its 2007 pro- duction record of 200,500 tonnes (201,400). This is attributable to sustained and systematic preventive maintenance, improved system support for mainte- nance work and prioritising activities to increase production levels.
Our focus on reinforcement pulp and pulp for electrical applications, filters, tissue and greaseproof paper was increased during the year. Reinforcement is the main application for ECF pulp, i.e. this fibre is responsible for strength in a mixture with other types of fibre. Fresh northern spruce and pine is an impor- tant factor in the production of reinforcement pulp.
Further development of UKP pulp with a very low metal content for use in special electrical appli- cations – where Vallvik’s pulp is categorised as one of the best in terms of quality – continued during the year. In 2009 the company intends to further increase the percentage of pulp used for electrical applications and filters.
In October 2007 a new steam turbine that pro- duces electricity using back-pressure was put into operation at the mill. The turbine has a capacity of 28 MW and the investment cost about SEK 87 mil- lion. As a result of this investment, the electricity produced in 2008 amounted to 138 GWh, repre- senting a self-sufficiency rate of 84%. Both are records for Vallvik. The turbine is dimensioned for future higher production levels at the mill. The turbine project was concluded in 2008 and the total cost was under budget. During the year a number of studies were initiated aimed at further increasing electricity production. The studies are also aimed at lowering oil consumption. The goal is for the mill to eventually be a net seller of electricity as well as oil when production of pine oil exceeds the pur- chased volume of fuel oil.
During a maintenance shutdown in September a number of energy saving measures were imple- mented within the framework of the energy-inten- sive industries’ energy efficiency programme (PFE).
The measures are expected to reduce electricity consumption by around 0.6 GWh per year.
On the environmental side, Vallvik Mill is wait-
ing for a decision by the Swedish Supreme Court
concerning a leave to appeal a decision by the Envi-
ronmental Superior Court in May 2008 regarding
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Rottneros Annual Report 2008
G R o U P U n I t san investment in a biological treatment plant at the mill set to go into operation no later than the begin- ning of 2010.
In 2009 Vallvik Mill will continue to focus on energy-saving measures and to work in close coop- eration with its customers to develop both products and logistics solutions.
ROT TNEROS MIR A NDA
Rottneros’ pulp mill in Miranda in Spain produces sulphate pulp from eucalyptus wood. Production in 2008 amounted to 134,300 tonnes (145,800). The lower volume is mainly due to a maintenance shut- down that lasted much longer than the one the previous year as well as market-related shutdowns during the latter part of the year in response to the weak pulp market.
The mill’s total production capacity is around 149,000 tonnes. Although the mill is in a good con- dition, there is a need for some investments over the next few years. The mill produces pulp of a high quality due to the fact that the various processing stages involve mild fibre treatment and the wood used is of very high quality.
The Miranda mill has been affected by sharp increases in the cost of pulpwood, natural gas and chemicals. The Spanish wood prices rose by around 20% in 2008, while chemical prices rose by around 20% and natural gas by 28%.
In order to minimise costs, Rottneros Miranda is aiming to purchase wood from producers on the Iberian Peninsula and thereby avoid importing wood from South America.
In 2008 and 2009 investments in the form of a new evaporator and improvement of the soda recovery boilers have been under way for an amount of around SEK 120 million.
ROT TNEROS BA LTIC SIA A ND ROT TNEROS M A D EIR AS
Rottneros’ Swedish mills import a portion of their raw material mainly from Latvia through the sub- sidiary Rottneros Baltic SIA. Imports to the Spanish mill in Miranda are transacted through the sub- sidiary Rottneros Madeiras in Portugal.
Rottneros Baltic SIA is a strategic part of the Rottneros Group’s raw material supply system. The company also assists in wood procurement from the rest of the Baltic region, Russia and Belarus.
As a consequence of the closure of Utansjö Mill and the Group’s expressed policy to increase Swed- ish local raw material procurement, the volume of imported wood has fallen. As a result, Rottneros Baltic SIA has reduced its operations, moved to smaller and more suitable premises and reduced the number of employees from 25 to seven.
The wood that Rottneros does not need is sold to external customers. The wood in Latvia is pur- chased through terminals in Riga and Ventspils where it is measured and stored before being shipped to Sweden.
Deliveries from Rottneros Baltic SIA involve complex logistical operations in which delivery vol- umes are integrated with other deliveries in a con- stant flow to the recipients.
ROTTNEROS PULP MILLS
employees Pulp types Production Pulp deliveries
Average number Mechanical Chemical 2007, tonnes 2008, tonnes
Decrease 07/08, % 2004–2008, thousand tonnes
Rottneros Mill 145 Groundwood
CtMP
75,000 79,000 154,000
73,000 71,000 144,000
3 10 6.5
Rockhammars Mill 58 CtMP 65,900 62,100 6
Vallviks Mill 180 long-fibre
sulphate
201,400 200,500 0
Rottneros Miranda 155 eucalyptus
sulphate
145,800 134,300 8
131 147 146 154 149
57 58 64 67 62
190 196 201 190 193
146 149 139 147 126
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G R o U P U n I t sRottneros Annual Report 2008
ROT TNEROS PACK AGING – SILVIPA K Rottneros Packaging AB is a business area that pro- duces food packaging made from pulp fibre under the SilviPak brand. The venture was launched in the spring of 2006. SilviPak packaging is produced at Rottneros Mill, and from autumn 2008 at a new factory adjacent to the Group’s pulp mill in Miran- da, Spain.
The reason Rottneros decided to enter the pack- aging business is to reduce one-sided dependence on pulp market fluctuation and the US dollar rate, while utilising the Group’s knowledge of pulp tech- nology.
Becoming established as an entirely new pro- ducer of food packaging is a long-term effort because a switch to a new supplier is a comprehensive proc- ess for the major food producers and their custom- ers. At the beginning of February 2009 SilviPak reached an important milestone when it started deliveries to one of the world’s leading producers of food and ready meals.
SilviPak is primarily used for frozen and chilled portion-size food for small households and sold, for example, in supermarkets and by professional kitch- ens and restaurants. SilviPak has properties that enable the product to be heated in traditional or
microwave ovens. The trays also have insulation properties enabling them to be handled immedi- ately after heating.
SilviPak has strong environmental credentials because the product is manufactured from renew- able raw materials and weighs less than most of the packaging alternatives. These properties are a strong factor in SilviPak’s ability to meet the requirements of current environmental trends.
The European market for the category of pack- aging produced by Rottneros is between 7 and 8 billion trays per year, most of which are 100% oil- based. The growth rate is about 10% per year. There are currently about ten major manufacturers in the market.
The goal for the next five years is to achieve a market share of around 5%, which translates to sales of around 350 million trays per year. If this is achieved, sales are expected to be around SEK 300–400 million per year.
When the new factory in Miranda is fully expanded, it will have a capacity of around 200 mil- lion trays per year.
The investment in the new factory involves an
initial cost of around SEK 50 million.
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Rottneros Annual Report 2008
G R o U P U n I t sThe intention is for the CTMP plant at Utansjö Mill, which was closed down in May 2008, to be sold to a jointly-owned company and moved to Richards Bay in South Africa. The plant will form the basis for the new mill.
The President has been asked by the Board to complete negotiations and sign the necessary agree- ments. At the end of 2008 and beginning of 2009 the project preparations intensified. Financing for the project is essentially secured. The main structure of the agreement is such that Rottneros undertakes to construct a mill with a production capacity of 165,000 tonnes to produce CTMP pulp using euca- lyptus as the raw material. The investment will be project-financed by the jointly-owned company.
Demand for CTMP, which is one of Rottneros focus areas, is expected to have good growth poten- tial at the same time as only limited production capacity is being added globally.
COST- EFFECTIVE PRODUCTION
There are multiple benefits to having a CTMP mill in South Africa. The country has low energy prices in an international comparison and there is a good supply of eucalyptus. NCT guarantees the supply of wood at competitive prices. All in all, this means the mill will be one of the most cost-effective CTMP producers in the world. The electricity sup- ply in South Africa has been the focus throughout much of 2008, but a solution is close at hand; partly because the domestic demand for electricity has declined and partly due to the potential for alterna- tive energy production. Rottneros believes that a biopulp-based heat and power plant adjacent to the pulp mill in Richards Bay, in addition to generating
electricity, would also help make production more cost effective. Rottneros is looking into the possibil- ity of finding external parties who are interested in investing in a biopulp-based heat and power plant.
The new planned mill will be the first in the world with large-scale production of CTMP using eucalyptus wood. The full-scale test production activities that took place in Utansjö in autumn 2007 showed very good results in terms of both produc- tion and quality. The South African venture is a good opportunity for Rottneros to establish production in the Southern Hemisphere using eucalyptus as raw material and where the product’s properties will strengthen Rottneros’ focus on niche products. This is an area where Rottneros can exploit its expertise to have an opportunity to be a leading player.
E XPORTS TO SOUTH ASIA A ND EUROPE South African NCT is a co-operative forestry com- pany that sells pulp wood from forest plantations covering a total of 300,000 hectares. The company is owned by more than 2,000 members. Most of the wood is eucalyptus. NCT runs three chipping plants in Richards Bay and Durban. Most of the chips are exported to the Japanese pulp industry.
The planned venture will be operated by the jointly-owned company Pulp United (Pty) Ltd.
Which was formed by NCT to assess establishing a facility for the production of CTMP pulp in Rich- ards Bay. The pulp, which will mainly be exported to South-East Asia and Europe, will be sold through Rottneros’ marketing organisation.
If the project is implemented it will provide con- siderable capital gains and a significant liquidity boost for Rottneros AB.
CTMP mill in South Africa
In March 2007 Rottneros and nCt Forestry Co-operative ltd, a south African forestry com- pany, signed a letter of intent to explore the possibility of building a mill for the production of mechanical pulp of the CtMP type in Richards Bay, south Africa. the country offers many advantages for CtMP production. the price of electricity is favourable and the supply of eucalyptus wood and other raw materials at competitive prices is very good.
The availability of eucalyptus wood, which is the raw material that will be used in the planned CTMP mill, is very good in South Africa.
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R A W M A t e R I A l s P R o C U R e M e n tRottneros Annual Report 2008
Around 20% of the pulpwood Rottneros purchases is in the form of chips.
