Annual Report 2006/07 MEMORABLE WINTER EXPERIENCES

Annual Report 2006/07

MEMORABLE WINTER EXPERIENCES

SKISTAR.COM

2

OPERATIONS

SUMMARY OF THE YEAR 4

HISTORY 5 COMMENTS FROM THE CEO 6

THE SKISTAR SHARE 8

SHAREHOLDERS’ BENEFITS 12 THE TOURISM INDUSTRY 14 OPPORTUNITIES AND RISKS 18 THE GROUP’S OPERATIONS 22 VISIONS, GOALS AND STRATEGIES FOR SUCCESS 24 LEADERSHIP AND EMPLOYEES 26 SALES AND MARKETING 29 CORPORATE SOCIAL RESPONSIBILITY 32 BUSINESS AREA DESTINATIONS 34 SÄLEN 36 ÅRE 38 VEMDALEN 40

HEMSEDAL 42

TRYSIL 44 BUSINESS AREA PROPERTY 46

ANNUAL REPORT

ADMINISTRATION REPORT 49 DEFINITIONS 51

FIVE YEAR OVERVIEW 52

INCOME STATEMENTS 53

BALANCE SHEETS 54

CHANGES IN EQUITY 56

CASH FLOW STATEMENTS 57 NOTES 58 SIGNATURES 74

AUDIT REPORT 75

CORPORATE GOVERNANCE

CORPORATE GOVERNANCE REPORT 76 BOARD OF DIRECTORS’ REPORT

ON INTERNAL CONTROL 79

BOARD OF DIRECTORS 80

FINANCIAL INFORMATION 81

GROUP MANAGEMENT 82

ARTICLES OF ASSOCIATION 83

SkiStar’s vision is to create memorable winter experiences

as the leading operator of European alpine destinations.

4

Summary

OF TH E Y E AR

SUMMARY OF THE YEAR

2006/07 2005/06 +/- +/-, %

Net sales, MSEK 1,259 1,280 -21 -2

Profit before tax, MSEK 170 276 -106 -38

Profit after tax, MSEK 176 242 -66 -27

Cash flow, MSEK 231 332 -97 -29

Earnings per share, SEK 4.50 6.19 -1.69 -27

Dividend, SEK 4.50 4.50 - -

Market value 31 August, SEK 114.25 119.00 -4.75 -4

Direct yield 3.9 3.8 0.1 3

P/E ratio 25 19 6 32

Equity, MSEK 1,257 1,249 8 1

Equity ratio, % 39 44 -5 -11

Return on capital employed, % 8 14 -6 -43

Return on equity, % 14 20 -6 -30

Return on equity, % 30 34 -4 -12

Operating margin, % 17 23 -6 -26

Net margin, % 13 20 -7 -35

Average number of employees 1,082 1,045 41 4

Definitions can be found on page 51.

THE YEAR IN FIGURES

SIGNIFICANT EVENTS DURING THE FINANCIAL YEAR

Net sales amounted to MSEK 1,259 (1,280), profit before tax amounted to MSEK 170 (276) and profit after tax amounted to MSEK 176 (242).

Earnings per share amounted to SEK 4.50 (6.19).

Non-recurring effects positively impacted the previous year’s profit before tax by MSEK 69 due to the consolidation of Trysil into SkiStar on 1 December 2005, and the refund of VAT from 1997 and 1998 by the Swedish Tax Agency, following a deci- sion by the Swedish Administrative Court of Appeal.

Due to the unusually mild weather dur- ing December and early January, Sälen could only offer limited opening hours at the ski resort, which meant that operating profits in Sälen decreased by MSEK 57 during the period.

During the second quarter, Vemdalens Sportaffärer & Skiduthyrning AB was acquired. The acquisition contributed a total of MSEK 30 in increased sales and MSEK 9 in increased operating profits during the financial year.

The Alpine World Ski Championships were held in Åre between 3 and 18 February 2007. This was a well- organised and successful event which is expected to strengthen Åre’s brand for years to come, especially internationally.

On 1 January 2007, the Swedish VAT on skiing decreased from 12%

to 6%. The price of a ski pass was correspondingly lowered at Swedish destinations.

The target for return on equity was raised by 2 percentage points to 17 percent at the present interest rate.

With the aim of achieving increased activity and clarity, work has begun on transferring structural properties into an own organisation.

SIGNIFICANT EVENTS AFTER THE END OF THE FINANCIAL YEAR

Booking volumes for the winter sea- son 2007/08 are up 4% in volume compared with the corresponding period for the previous year, excluding the effects of the Alpine World Ski Championships in Åre.

Dividends are expected to remain

unchanged at SEK 4.50 (4.50) per

share.

1975/78

Brothers Mats and Erik Paulsson purchase the Lindvallen ski resort in Sälen.

1994

Lindvallen is listed on the Stockholm Stock Exchange O-List.

1997

Tandådalen &

Hundfjället AB is acquired.

1999

Åre-Vemdalen AB is acquired.

2000

Hemsedal Skisenter AS, Norway’s second largest ski resort, is acquired.

2001

The Group adopts the new name, SkiStar AB.

2005

Trysil, Norway’s largest ski resort, is acquired.

History

TH E Y E AR S GON E BY

THE 2006/07 FINANCIAL YEAR

The financial year started out well and, during the autumn of 2006, we were able to report the highest book- ing volumes in SkiStar’s history. This was followed by milder weather during December 2006 and the first part of January 2007, affecting Sälen most dras- tically, where we could offer only limited skiing. During this problematic period, we contacted all guests with reservations in Sälen and presented them with the offer of either making new reservations or cancelling their previous reservations.

About fifty percent of the guests chose to complete their holidays as planned.

For SkiStar, it was important to main- tain a high level of service towards our guests which, in the short term, meant that we incurred certain costs.

From a long-term perspective, we are convinced that this was a very important investment in our guests’

continued confidence in SkiStar. The good news this year has been the suc- cess of our Norwegian destinations, Hemsedal and Trysil, whose strong profit gains partially compensated for the weaker profit gains in Sälen. During the financial year, the Group’s net sales amounted to MSEK 1,259 (1,280), profit before tax was MSEK 170 (276), and profit after tax was MSEK 176 (242). The previous year’s results were positively impacted by MSEK 35 as Trysil was not consolidated into the

Group until 1 December 2005, conse- quently the Group was not encumbered with costs from the period September to November. The previous year’s results were also positively affected due to the Swedish Administrative Court of Appeal’s decision, which refunded VAT totalling MSEK 29 and MSEK 5 in interest attributable to previous years.

Operations within our Business Area Property have continued to experience positive development. During the year, this has resulted in an increase in oper- ating profit of MSEK 10 to MSEK 68 (58), primarily due to the sale of apart- ments in Sälen and Åre. During the financial year, we acquired Vemdalens Sportaffärer & Skiduthyrning AB, which operates sporting goods outlets and ski rentals in Vemdalsskalet and Björnrike. This implies that we are now able to offer the complete SkiStar concept, including skiing, ski schools, accommodation and ski rentals, at all five of our destinations.

The year’s big event was the Alpine World Ski Championships, held in Åre.

A total of 80,000 spectators were in Åre to watch the competitions and over three hundred million around the world watched the event on TV. This was not only a suc- cess from an organisational standpoint and for Åre’s brand internationally, but was also economically successful. As a joint partner in Åre 2007 AB, SkiStar received MSEK 10 of the company profits.

Earning per share amounted to SEK 4.50 (6.19). Dividends are pro- posed to remain unchanged at SEK 4.50 per share. We gladly welcomed 645 (7%) new shareholders during the year, which implies that the number of share- holders now totals more than 9,600.

INCREASED MARKET SHARE

Despite the mild weather and the dif- ficult conditions at the beginning of the winter, we persevered during the year.

In Sweden, according to SLAO (the Swedish Ski Lift Organisation), sales of ski passes fell by 11% to MSEK 880 and, in Norway, according to the ALF (the Norweigan Alpine Resorts Association), by 2% to MNOK 732. In Vemdalen, sales of ski passes increased by 2.1%, while in Åre there was little change and in Sälen sales fell by 17.6%.

This means that the combined Swedish destinations increased their market share of the Swedish ski market by 1 percentage point to 50%. In Norway, sales of ski passes markedly increased by 14.7% and 14.0% in local currency in Hemsedal and Trysil respectively. This means that SkiStar’s Norwegian destina- tions have increased their market share by 5 percentage points to 32%. SkiStar’s total market share in Scandinavia now amounts to 41%.

GROWTH

For many years, SkiStar has been invest-

DU R I NG 20 0 6/07, S KI STAR I NC R E A S E D IT S M AR K E T S H AR E BY ON E PE RC E NTAG E P OI NT I N S W E DE N AN D F IV E PE RC E NTAG E P OI NT S I N N ORWAY

Comments

FRO M TH E C EO

6 COMMENTS FROM THE CEO

ing in the development of skiing areas, accommodation and other services at its destinations. This development has con- tributed to SkiStar’s present strong mar- ket position. We operate the two largest alpine destinations in Norway and the three largest in Sweden. In recent years, our destinations’ major selling points have meant that even external investors have realised sizable investments in our destinations. For example, it can be noted that in Åre alone, there have been investments of over SEK 2 billion dur- ing the past five years, predominately in accommodation and other commercial properties. The investment climate con- tinues to be strong which, in combina- tion with our marketing efforts, bodes well for strong organisational growth at our destinations in the next few years.

There are major development plans for all of our destinations; for example, at Trysil there are plans for three new hotels with over 3,700 new beds in close proximity to the ski lifts. Today, SkiStar is both organisationally and structurally prepared to carry out new acquisitions. Where and when this will happen will be announced at the appro- priate date.

THE CLIMATE DEBATE

Nearly all climate change researchers agree that global warming is indeed hap- pening. However, the rate at which this is occurring and how it affects localised areas is uncertain. Global warming is happening slowly while, at the same time, we are successively developing our snow-making facilities at a quicker pace. With the fast pace of technological development, combined with aggressive investments in snow-making facilities, we estimate that, even in the long-term, we will be able to offer our guests a fan- tastic winter experience, in the snow.

PROPERTY DEVELOPMENT

During the year, we decided to transfer the Group’s structural properties, such as accommodation, hotels and develop- ment land, into their own organisation.

Clarity and activity within both busi- ness areas will increase by separating our alpine ski operations from our property development. The structural properties placed in the new subsidiary will undergo an annual market analysis which will be reported on the market.

We estimate that the restructuring of the Business Area Property will be com- pleted next summer.

PRIOR TO THE 2007/08 SEASON

Demand for skiing holidays at SkiStar’s destinations continues to be strong. The current booking situation at the end of September showed a 1% improve- ment in volume over the same point in time last year. The number of rental units procured via our sales channels has risen by 2.5% at our destinations since last season. If we exclude Weeks 5-7 (29 January – 18 February) in Åre, that is, the period during which the Alpine World Ski Championships took place, when practically all lodgings were reserved for the competitions, our increase in volume amounted to 4%.

We should, therefore, keep in mind that reservations last autumn were at an all time high. We also recorded greatly increased sales figures on the Internet.

During Weeks 35-42 (27 August – 20 October) of the autumn, online sales increased by over 26%. Pre-season esti- mates indicate that our destinations will provide a total of 5,000 new beds, of which 2,000 are estimated to be com- mercial during the entire season.

In preparation for the winter, we are carrying out the largest venture in Sälen in 10 years. In order to increase

lift capacity for Sweden’s most popular ski slope, Gustavbacken in Lindvallen, we are replacing the existing 4-seat chairlift with a modern 8-seat chairlift.

The 4-seat chairlift will subsequently be moved to Tandådalen, where we are improving the slope next to the lift and constructing a completely new slope.

We are continuing to expand our snow- making facilities at all destinations.

The new, more effective snow-making facilities produce the same amount of snow in a shorter time period while, at the same time, consuming less energy.

The high level of investment during the last couple of years will be decreased this year and returned to a more normal level. In order to guarantee that we are able to fill the increased volume of beds at our destinations, we are concentrating on improving our accessibility. Thanks to our well-established cooperation with transportation agencies and tour opera- tors, improvements in travel will be facilitated by, for example, new airline routes between Skåne and Sälen and between Gothenburg and Åre.

We’ll see you on the slopes this winter!

Mats Årjes, CEO Sälen, 2 November 2007

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>4296 ll pp 95

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8

TH E S KI STAR S H AR E PR IC E H A S I NC R E A S E D BY 1, 269 % S I NC E TH E CO M PAN Y WA S LI STE D ON TH E STOC K E XC H ANG E I N 19 94

HISTORY

The B-share is listed on the OMX Mid Cap Stockholm. The shares were listed on 8 July 1994. At the time of listing, the share price, adjusted for the share split, was SEK 9.

SHARE STRUCTURE

On 31 August 2007, share capital was SEK 19,583,995, distributed among 39,167,991 shares, of which 1,824,000 are A-shares carrying ten votes per share and 37,343,991 are B-shares carrying one vote per share. All shares have equal rights to distribution.

In July 2003, a convertible debenture loan amounting to MSEK 25 was issued to personnel. As of 31 August 2006, a total of MSEK 24.2 of the debenture loan had been converted to 608,699 B-shares and promissory notes cor- responding to another 5,187 B-shares were redeemed for conversion. The convertible loan expires on 1 July 2008 and outstanding debentures of MSEK 0.6 can be converted to an additional 14,850 B-shares. The conversion to shares of debentures unconverted on closing date would result in a dilution of the existing shares of 0.04%.

On 6 September 2007, after the close of the financial year, an Extraordinary General meeting of shareholders resolved to raise a new debenture loan amounting to a maximum of MSEK 30 through the issue of a maximum of 250,000 debentures and approved the transfer of these debentures to SkiStar personnel. Through conversion, the Company’s share capital will increase to a maximum of SEK 125,000, cor- responding to 250,000 shares of series B. Complete subscription and conver- sion of the debenture loan corresponds to a dilution of approximately 0.6% of

existing shares and 0.4% of the votes in the Company. The new debenture was significantly oversubscribed.

SHARE PRICE DEVELOPMENT AND NET SALES

The share price decreased by 4% to SEK 114.25 during the 2006/07 finan- cial year. OMX Stockholm total index (OMXS) rose by 23% during the same period. Since the Company was listed in 1994, the market price has increased from SEK 9 to SEK 114.25. During the same period, dividends were provided at SEK 17.68 per share. During the period 1 September – 31 August 2007, a total of 13,127,317 (9,646,186) shares in SkiStar were traded on OMX Stockholm at a value of MSEK 1,311 (912). The turnover rate for shares amounted to 34% (25), compared with 142% for OMX Stockholm as a whole. The lowest share price was SEK 100.25, noted on 14 March 2007 and the highest share price was SEK 142.00, noted on 22 November 2006. On 31 August 2007, SkiStar’s market capitalisation amounted to MSEK 4,475 (4,651).

BETA VALUE

The beta value of SkiStar’s B share was 0.37 on 31 August 2007. The beta value is based on the Company’s share price during the past 24 months and indicates the degree to which the share price has fluctuated compared to the stock exchange index. If a share has the same price fluctuation as the stock exchange index, then the share’s beta value is equal to 1.0 and vice versa. The SkiStar share’s beta value of 0.37 implies that the share is displaying less share price volatility than OMX Stockholm, on average.

SHAREHOLDER STRUCTURE

There were 9,608 (8,963) shareholders on 31 August 2007, an increase of 645 (7%) in the number of shareholders during the last year. At the end of the financial year, the ten largest share- holders accounted for 66% (64) of the capital and 76% (75) of the votes.

Foreign owners accounted for 11% (12) of the capital and institutional owners for 27% (27) of the capital. Significant changes among the largest owners dur- ing the financial year included the sale by Investment AB Öresund, Orkla ASA, HQ Fonder, Handelsbanken and SEB Fonder of a portion of their holdings, while Robur Fonder and the Northern Trust Company have increased their holdings; in addition, Lannebo Fonder, the Fourth Swedish National Pension Fund and JP Morgan Bank have become new shareholders.

DIVIDEND POLICY

SkiStar’s dividend policy is to annually distribute a minimum of 50% of its profit after tax. The policy is based upon SkiStar’s strong financial base combined with a strong cash flow, which allows a generous dividend policy at the same time as investments can be financed by the Company’s own means. The proposed dividend of SEK 4.50 (4.50) per share corresponds to 100% (73) of profit after tax, implying a yield of 3.9% (3.8) from the market value on 31 August. In total, the proposed dividend amounts to MSEK 176 (176). The date of 14 December 2007 is proposed as date of record for payment to the Swedish shareholders. Payments of dividends will be disbursed by VPC (the Swedish Central Securities Depository & Clearing Organisation) on 19 December 2007.

The Skistar

S H AR E

THE SKISTAR SHARE

SEK

0 2 4 6 8 10

Dividend per share Profit per share

06/07 05/06

04/05 03/04*

02/03

Size class Number of owners % Number of shares Capital, % Votes, %

1-100 1,818 19.38 91,978 0.23 0.17

101-200 2,211 23.57 430,061 1.10 0.77

201-1,000 3,857 41.12 2,334,637 5.96 4.20

1,001-5,000 1,209 12.89 2,708,766 6.92 4.88

5,001-10,000 115 1.23 832,931 2.13 1.50

10,001-20,000 69 0.74 1,025,578 2.62 1.84

20,001-50,000 41 0.44 1,370,324 3.50 2.47

50,001-100,000 24 0.26 1,715,971 4.38 3.09

100,001- 36 0.38 28,657,745 73.17 81.08

Total 9,380* 100.00% 39,167,991 100.00 100.00

* 228 foreign owners with a total holding of 374,551 shares are registered as shareholders according to Nordea Bank Norge Nominee.

Year/Changes

Increase in number of shares

Nominal amount SEK/share

Total number of shares

Change in share capital, SEK

Total share capital, SEK

1992 10 500,000 5,000,000

1994 New share issue 150,000 10 650,000 1,500,000 6,500,000

1994 Conversion 160,405 10 810,405 1,604,050 8,104,050

1995 Split 5:1 3,241,620 2 4,052,025 8,104,050

1997 New share issue 2,337,725 2 6,389,750 4,675,450 12,779,500

1998 New share issue 200,000 2 6,589,750 400,000 13,179,500

1998 Conversion 250,000 2 6,839,750 500,000 13,679,500

1999 Conversion 250,000 2 7,089,750 500,000 14,179,500

1999 New share issue 2,450,000 2 9,539,750 4,900,000 19,079,500

2000 New share issue 100,073 2 9,639,823 200,146 19,279,646

2004 Split 2:1 9,639,823 1 19,279,646 19,279,646

2004 Conversion 183,566 1 19,463,212 183,566 19,463,212

2005 Conversion 64,822 1 19,528,034 64,822 19,528,034

2005 Split 2:1 19,528,034 0,5 39,056,068 19,528,034

2006 Conversion 24,010 0,5 39,080,078 12,005 19,540,039

2007 Conversion 87,913 0,5 39,167,991 43,956,50 19,583,995,50

SKISTAR, B SHARES EARNINGS AND DIVIDEND PER SHARE, SEK

OWNERSHIP STRUCTURE, 31 August 2007

SHARE CAPITAL DEVELOPMENT

140 120 100 80 60

40

20

5

94 95 96 97 98 99 00 01 02 03 04 05 06 07

2,000 4,000 6,000 8,000 10,000

SIX General Index

Number of shares traded, thousands (including after subscription)

(c) OMX AB

* Excluding non-recurring effects in the form of tax revenue,

earnings per share 03/04 amounts to SEK 4.12.

10 10

345 km of downhill slopes

at the fi ve biggest Nordic destinations

Owner A-shares B-shares Capital, % Votes, %

Mats Paulsson including company and family 1,824,000 5,228,880 18.01% 42.22%

Erik Paulsson including company and family 6,717,910 17.15% 12.08%

Investment AB Öresund 4,177,200 10.66% 7.51%

Lima Jordägande Sockenmän 1,840,000 4.70% 3.31%

Per-Uno Sandberg 1,575,000 4.02% 2.83%

Orkla ASA 1,200,000 3.06% 2.16%

Lannebo Fonder 1,005,000 2.57% 1.81%

HQ Fonder 837,379 2.14% 1.51%

Robur Fonder 809,685 2.07% 1.46%

SEB Fonder 539,540 1.38% 0.97%

Northern Trust CO 473,237 1.21% 0.85%

Handelsbanken Fonder 415,382 1.06% 0.75%

Nordea Bank Norge Nominee 378,803 0.97% 0.68%

JP Morgan Bank 293,675 0.75% 0.53%

Mats Årjes 220,304 0.56% 0.40%

Jonas Mareniusson 217,588 0.56% 0.39%

Skandia Fonder 216,900 0.55% 0.39%

Riksbankens Jubileumsfond 175,000 0.45% 0.31%

Magnus Sjöholm 167,368 0.43% 0.30%

Other 10,855,140 27.71% 19.54%

Total 1,824,000 37,343,991 100.00% 100.00%

2006/07 2005/06 2004/05 2003/04* 2002/03*

Average number of shares 39,151,096 39,062,008 38,946,928 38,559,292 38,559,292

Number of shares after full conversion 39,188,029 39,188,222 39,188,222 38,975,458 38,617,276

Earnings, SEK 4.50 6.19 4.42 8.13 3.16

Earnings after full conversion 4.49 6.17 4.39 8.05 3.16

Cash flow, SEK 6.00 8.51 6.30 7.14 7.25

Equity, SEK 32.00 31.00 29.00 25.50 19.00

Equity after full conversion 32.00 32.00 29.00 25.50 19.50

Market price, SEK 114.25 119.00 75.00 56.00 41.25

Dividends, SEK 4.50 4.50 3.00 2.50 2.00

P/E ratio, times 25 19 17 7 13

Share price/cash flow, times 19.0 14.0 11.9 10.0 6.3

Share price/equity 356 372 259 220 217

Return, % 3.9 3.8 4.0 4.5 4.8

Category Number of shares Participations, %

Swedish private persons 24,231,141 62

Swedish institutional ownership 10,476,924 27

Foreign private persons 537,972 1

Foreign ownership 3,921,954 10

Total 39,167,991 100

Class of shares Number of shares Number of votes Capital, % Votes, %

A 10 votes 1,824,000 18,240,000 5 33

B 1 vote 37,343,991 37,343,991 95 67

Total 39,167,991 55,583,991 100 100

Comparisons have been adjusted due to the split of shares.

*Figures reported according to previous accounting principles SHARE STRUCTURE, 31 AUGUST 2007

OWNERSHIP CATEGORIES, 31 AUGUST 2007

LARGEST SHAREHOLDERS AS PER 31 AUGUST 2007

DATA PER SHARE

12

Many of SkiStar’s shareholders are also guests at SkiStar destinations. As guests, shareholders can also gain first-hand experience of the Company’s operations.

Shareholders with at least 200 shares in SkiStar can order a shareholder’s card, which entitles them to a whole series of benefits.

The shareholder’s card entitles share- holders and their families (wife/husband/

partner and dependent children) to dis- counts at all SkiStar destinations. These discounts amount to 15% on ski passes, ski rentals and ski schools arranged by SkiStar.

During the year, we have been work- ing on expanding shareholder benefits to also include offers from our busi- ness partners. For example, during the autumn, holders of shareholder’s cards were provided the opportunity to pur- chase winter tyres at a reduced price.

As of 31 August 2007, a total 4,086 (3,647) shareholders held cards, repre- senting 43% (41) of the total number of shareholders.

If you would like your own share- holder’s card or would like more infor- mation about shareholders’ benefits, please visit www.skistar.com.

A S A S H AR E H O LDE R WITH S KI STAR’ S

S H AR E H O LDE R’ S C AR D, YO U C AN TA K E A DVANTAG E OF A W H O LE S E R I E S OF B E N E F IT S

Shareholders´

B E N E F IT S

EXAMPLE

SHAREHOLDER’S BENEFITS

On 1 September 2006, Kristina bought 200 SkiStar shares for SEK 23,800.

During the winter school holidays, she and her husband, together with their two children, aged 10 and 12, visited Sälen for a week-long ski holiday. One year later, on 31 August 2007, Kristina had received the following returns on her SkiStar shares.

Share price development

1 Sep 2006 - 31 Aug 2007 - 4.25 SEK/share x 200 share = SEK - 850

Dividend 4.50 SEK/share x 200 share = SEK +900

15% discount on family ski passes

2 7-day adult ski passes at 1,495 each plus 2 7-day children´s ski passes at SEK 1,200 each

= SEK + 808.50

15% discount on

family ski hire 2 7-day complete sets of adult ski equipment, medium at SEK 850 each plus 2 7-day sets of children´s ski equipment, medium, at SEK 640 each

SEK +447

15% discount on

family ski school 4 group ski school courses at SEK 740 SEK + 444

Total return, SEK SEK 1,749,50

Total return, % 7.4%

14

THE GLOBAL TOURIST INDUSTRY

Tourism is one of the world’s largest industries. This industry is found in practically all countries, to a greater or lesser extent, and is growing very rap- idly. According to the World Tourism Organisation (UNWTO), a United Nations body which produces statistics concerning global tourism, this sector is the fourth largest export industry after fuel, chemicals, and automotive prod- ucts, with a turnover of approximately USD 883 billion during 2006.

According to UNWTO, global tourism has increased by approxi- mately 57% since 1995 in terms of tourist arrivals. During 2006 alone, the UNWTO reported a global increase of 4.9% in the volume of visits, to 842 million visits. Europe is the most visited region, reciving more than half of the world’s foreign visits. The most visited country is France, with nearly 80 million tourists annually. During 2006, the number of foreign visitors to Europe increased by 4.3% with Northern Europe being the sub-region with the most significant growth, 6.5%.

The region of the world increasing

most rapidly is Africa, which shows an increase of the number of visitors for 2006 of close to 10%. The Americas (North America, Central America, South America and the Caribbean Islands) is the region showing the lowest growth, 2% for the previous year.

The results from the first four months of 2007 indicate a continued increase and the year is expected to close at +4%, which lies completely in line with UNWTO’s long-term forecast. This implies an annual growth in volume of visits of 4.1% up to 2020.

THE SWEDISH TOURIST INDUSTRY

In Sweden, the tourist industry is an important sector, with approximately 2.8% of Sweden’s combined GNP, and, according to the Swedish Agency for Economic and Regional Growth (NUTEK), employment corresponding to 140,000 person-years. According to the same authority, the export value of the industry, i.e. consumption by foreign visitors in Sweden, increased during 2005 to SEK 62.3 billion, which is more than, for example, the export value of iron and steel. This figure includes

both private and business consumption.

During 2005, Swedish business travel- lers’ consumption in Sweden amounted to SEK 87.6 billion.

During 2006, Swedish private trav- eller’s trips including overnight stays decreased slightly to 37.4 million (40.0), as did Swedish private traveller’s trips including overnight stays abroad, which amounted to a total of 10.0 million (10.3). On the other hand, the number of foreign traveller’s overnight stays in Sweden increased by almost 9% to 10.9 million. However, this figure includes both private and business travellers.

THE ALPINE WORLD MARKET

People on all five continents engage in alpine skiing. Europe is the largest market and each year approximately 200 million skier days are consumed (one days’ downhill skiing with a ski pass is considered one skier day). North America is the second largest market, with approximately 75 million skier days per year. The largest, individual markets are the US and France, with approximately 50 million skier days per year. The Nordic region, consist- ing of Sweden, Norway and Finland,

SEK billions

20 40 60 80 100

2005 2004 2003 2002 2001 2000 1999 1997 1998

1996 1995

Source: NUTEK and Swedish Tourist Authority Swedish leisure travellers Foreign visitors

TH E TO U R I ST I N DU STRY I S AN I N DU STRY OF TH E F UTU R E , WITH I NC R E A S I NG DE M AN D AN D OF G ROWI NG I M P ORTANC E TO TH E N ATION A L ECON O M Y

The tourist industry

Millions

400 600 800 1 000

2006 2005 2004 2003 2002 2000 1995 Source: UNWTO

TOURIST VISIT GLOBALLY, MILLIONS TOURIST CONSUMPTION IN SWEDEN, GOING PRICES, SEK BILLIONS

TURISMINDUSTRIN

accounts for approximately 10 million skier days per year. The growth in the global market has historically been a couple of percentage points per annum.

However, market fluctuations are large.

Perhaps the fastest growing ski market today is found in Eastern Europe, both regarding the number of skiers and the development of new ski resorts.

Relatively unknown skiing destinations such as Bulgaria and Poland appeared in Swedish travel agent some years ago.

One of the countries where interest in skiing is currently increasing rapidly is Russia, where participation in winter sports is increasing by 20% annually.

The Russian resort of Sochi will host the 2014 Winter Olympics, which will prob- ably contribute to increased interest and investments over the next few years.

Resorts in all countries are prima- rily visited by domestic skiers. In the US and Canada, foreign skiers account for slightly less than 5% of visits. In countries such as Japan, South Africa, Chile and Argentina, the proportion of foreign guests is very low. The largest percentage of foreign visitors is found in the Alps, where approximately one-third of all downhill skiers come from other countries.

The industry-leading companies pri- marily work locally but, during recent years, there have been some cross-border collaborations and acquisitions. In Sweden, SkiStar has completed an acqui- sition in Norway. In France, the listed group Compagnie des Alpes (CDA) has acquired ski resorts in both Switzerland and Italy. The ownership of ski resorts is very fragmented; many are family- owned and many companies are small. In Austria, ownership is dominated entirely by privately-owned, smaller companies.

In Italy, the ownership profile includes a strong element of credit insti- tutions; in Switzerland and France, there are a few larger limited companies with broad ownership, of which a couple are publicly-owned and listed on the stock exchange. In Japan, ski resorts and lift systems are often included in larger, privately-owned conglomerates, often with associated hotel operations.

In addition to SkiStar, Sweden is also home to the Strömma Group, which has resorts in Hemavan-Tärnaby and Riksgränsen. The North American

market does not differ from the other markets and is also heavily fragmented.

However, restructuring has taken place during recent years, with a shift taking place towards fewer, increasingly larger companies. Lying behind this trend is the possibility of achieving economies of scale and the need to create a critical business volume. Economies of scale are found in the coordination of purchasing, operations and maintenance, as well as within marketing and sales. The critical business volume is built up primarily via the acquisition of competitors. This has to do both with building volume and with creating a cash flow sufficient to balance the often extensive investments in such areas as lifts, slopes and snow systems. Another driving force behind the industry’s restructuring trend is the companies’ desire to work in a greater number of different geographical loca- tions in an effort to decrease depend- ency on weather conditions in one or a limited number of locations. CDA, for example, has taken further steps by investing in “warm weather services,”

such as golfing resorts and amuse- ment and theme parks. Attempts are also being made, to varying degrees, to broaden the product offering to include, for example, ski rentals and ski schools, in order to attract a larger portion of the guests’ total consumption.

SEASON 2006/2007 Nordic region

Sales of ski passes decreased in all Nordic countries during the season, due mostly to the mild weather and the lack of natu- ral snow at the beginning of the season and windy weather during Easter.

According to SLAO (the Swedish Ski Lift Organisation), sales of ski passes in Sweden during 2006/7 decreased by 11%

to SEK 880 million, excluding VAT, as compared with the previous season. The average price increase was 2.0%. The number of skier days decreased from 7.1 million to 6.2 million.

In Norway, total sales of ski passes fell by 2.0% to NOK 732 million. Price increases in Norway were, on aver- age, 4%. The total number of skier days decreased from 5.5 million to 5.3 million. In Finland sales of ski passes amounted to EUR 39.5 million (41.5) and the number of skier days decreased

from 2.8 million to 2.6 million.

North America

The number of skier days in the USA fell by 6.5 % to 55 million (59). Warm weather and the lack of natural snow delayed the start of the season and shortened the season for all regions except the Rocky Mountains and cer- tain destinations were forced to close periodically during the season. In Canada, the number of skier days was unchanged and amounted to 19 million, thanks largely to good snow conditions at certain ski resorts on the west coast.

For the remaining parts of the country, the number of skier days decreased. In North America, more than half of the total number of skier days took place on the weekend, which is in line with previous years. Snowboarders accounted for approximately one-third of skiers, although numbers vary significantly from location to location. Compared with Europe, the proportion of snow- boarders in North America is very high.

The Alps

The number of skiers decreased dra- matically during the course of the season. Weather in the Alps was also warmer than normal. For example, the French Bureau of Meteorology recorded the warmest winter in France since 1950. Destinations situated at lower altitudes were hardest hit, while those at higher altitudes managed bet- ter. The larger ski resorts, with more advanced snow making facilities, man- aged considerably better than smaller resorts, especially those reliant upon natural snow.

During the 2006/07 season, the total number of skier days in France decreased by 12% to 49 million. In Austria, the number of skier days fell by 4% to 48 million. In Switzerland the number of skier days fell by over 14%

to 24 million. In Germany, where the number of guests is counted instead, the situation was even more negative. The number of guests fell by 37% to 3 mil- lion. Similarly to North America and the Nordic countries, the largest ski resorts in the Alps account for a majority of turnover. The 25 largest ski resorts are estimated to account for more than 60%

of the industry’s total revenue.

16

COMPETITION

SkiStar competes for people’s disposable income. This means that, in the broader perspective, SkiStar is competing with industries such as infrequently pur- chased goods and home interiors.

Within the travel industry, SkiStar competes primarily with sun and sea holidays and weekend trips to major cities. The range of holidays of this type has increased over the last decade. One explanation for this could be that, in contrast to the alpine skiing industry, the travel industry retains lower start-up costs, which implies an over-establish- ment and this accordingly puts pressure on prices and margins.

Within the alpine skiing industry, competitors consist of other alpine ski resorts in Scandinavia and the Alps.

However, throughout the years, statistics indicate that the proportion of custom- ers choosing to travel abroad to ski has remained principally unchanged. In addition, SkiStar has a strong and well known brand, which is increasingly important due to the increasing back- ground noise of the media. Thanks to its strong financial position and significant level of cash flow, SkiStar retains the pos- sibility of continually investing in every- thing from service training for employees to new, modern lifts and snow-making facilities, thereby ensuring that SkiStar’s alpine resorts always maintain their high quality compared with their competitors.

Furthermore, SkiStar’s ski resorts provide good access to densely populated areas due to their close proximity and reason- ably priced transport solutions in the form of rail, air and bus connections as well as rental cars.

International comparison of ski pass prices

The British company Snowhunter Ltd.

annually performs global comparisons of ski pass prices. These comparisons

indicate that SkiStar’s ski pass prices are competitive on the international mar- kets. Generally speaking, in comparison with resorts with similar choices for lift capacity and total number of kilometres of slopes, ski pass prices in Switzerland, Canada and the USA are considerably higher. In Italy, France and Germany, they are approximately the same or somewhat higher.

Comparative prices of winter holidays for a Swedish family with children

During October of 2005, Swedbank’s Institute for Private Economy conducted a price study regarding the costs for a win- ter holiday for a family with children. The comparison indicated that it was much cheaper for a family with children to take a one week skiing holiday in the Swedish mountains compared with a one week ski- ing holiday at Bad Gastein in the Alps or a sun and sea holiday in Gran Canaria.

TRENDS Consolidation

In recent years, the travel industry has undergone a substantial degree of con- solidation. Considering that margins for many travel companies are small, high turnover is important in order to retain sufficient resources for advertising and marketing. Competition for exposure to potential customers is considerable. The Internet is the only medium showing a rapid increase in regards to both mar- keting and sales.

More activities

One distinct trend for the travel industry is that guests wish to fit in an increased number of activities and a greater varia- tion of experiences during their holidays.

At SkiStar’s resorts, this is evident from an increase in the choice of activities, shopping, restaurants and greater invest- ment in such facilities as swimming pools and cinemas.

The family

More and more ski resorts are aiming at families as the target group. This is evident from the advent of broader and shallower slopes, greater access to accom- modation situated closer to the slopes, child-minding facilities, ski schools, youth activities during the evenings, cross-country tracks, more comfortable accommodation and the possibility for self-catered accommodation. At the same time, ski-tows are being replaced with modern chairlifts that are reliable, com- fortable and can handle greater capacity.

A larger number of target groups

Particularly in the USA, the skiing indus- try is working to expand the target groups in order to reach more Afro-Americans, Hispanics, ethnic minorities, etc.

Snow-making facilities

Investments in snow-making facilities are increasing with the aim of minimising dependency on the weather. With a similar goal in mind, alpine ski resorts are invest- ing in lifts and slopes at high altitudes, although investments in snow- making facilities are also increasing in the Alps.

Product development

The leading companies within the skiing industry are broadening their operations to include ski schools, ski hire and sales of ski wear and equipment.

Population trends

Factors such as more leisure time and an increase in disposable income are gener- ally favourable to the tourism industry.

In addition, a general interest in keep-fit activities and outdoor activities and rec- reation is on the increase, which is partic- ularly favourable for the skiing industry.

More and older skiers

In Sweden’s case, skiers in the age group 55+ will probably increase as the first large “skigeneration” learned to ski during the 1970’s. There are still many individuals in this group who continue to ski and plan to do so for many years to come. Assuming that an equal number of children and youths begin skiing as in previous years, the total ski market will continue to grow in the Nordic countries.

COMPARISON OF TOUR OPERATORS

SkiStar Ticket Resia

Sales, MSEK - 3,289 2,837

Net sales, MSEK 1,259 315 339

Profit, MSEK 176 14 7

Operating margin, % 17 6 3

Employees 1,082 366 301

3,963,744 skier days

on the Nordic region’s most popular slopes

0 50 100 150 200 250 300

Levi Ruka

Idre/Grövelsjön/

Fjätervålen Trysil Hemsedal

Vemdalen Åre Sälen

06/07 05/06 04/05 03/04 02/03 01/02 00/01 99/00 98/99 97/98 96/97 95/96

NOK/SEK is calculated at the exchange rate of 1.05 for the years up to and including 99/00, 1.1 for the years 00/01, 03/04 and 04/05, 1.19 for the years 01/02 and 02/03, 1.18 for 05/06 and 1.13 for 06/07. FIM/SEK is calculated at a rate of 1.48 for the years up to and including 99/00 and 1.50 for 00/01. For 01/02 and 02/03, Rukas and Levis’s sales are calculated at an exchange rate of EUR 9.20, 03/04 at EUR 9.10, 04/05 at EUR 9.45, 05/06 at EUR 9.25 and 06/07 at EUR 9.21.

MSEK

SKI PASS SALES FOR ALPINE DESTINATIONS, MSEK

18

OPERATIONAL RISKS Seasonal dependency

The major portion of SkiStar’s rev- enues is generated during the period December–April. SkiStar’s operations are well adapted to seasonal variations, not the least in terms of the work force. The majority of the winter bookings take place prior to the beginning of the sea- son. With an increased portion of sales paid in advance, the close of the busi- ness transaction takes place at an earlier point in time, which in turn, decreases operative risks.

Dependency on weather

The number of guests at SkiStar’s destinations is affected to a certain degree by weather and snow condi- tions. A late winter and weak access to natural snow reduce the demand for skiing. However, the operational risk is limited due to the fact that slightly more than 78% (78) of the lift capac- ity of SkiStar’s destinations is provided with snow from snow-making systems.

During recent years, the impact of the greenhouse effect has been vigor- ously debated. Most researchers are in agreement that global warming is tak- ing place; however, it is very difficult to predict the resulting regional and local effects, which means that certain regions may receive unchanged or even declining temperatures. A milder cli- mate may, in the long term, give rise to shorter winter seasons and the earlier arrival of spring. For example, should SkiStar’s destinations begin the season one week later than usual and end one week earlier, the results would only be marginally affected, as the majority of guests visit the destinations between Christmas week and the middle of April. The Group’s weather risks have also decreased due to the fact that the destinations are geographically situated in a variety of locations enjoying vary- ing weather conditions and climates.

SkiStar’s destinations are developing their snow-making facilities in order to ensure, in both the short and long term,

good skiing for guests during the entire winter season.

Business cycle

Changes in peoples’ disposable income impact private consumption, which in turn, has an impact on their potential for taking winter holidays. SkiStar’s previous sales development and earn- ings trends show that the Company has been able to handle swings in the busi- ness cycle quite well. A large portion of SkiStar’s guests are families who, to a large degree, return year after year and for whom the winter holiday is a high priority. The dependency on the Swedish economic climate is reduced by the fact that there are also operations in Norway and that an increasing number of the Group’s guests come from a variety of countries.

Competition

Sun and sea holidays and weekend city breaks are considered to be SkiStar’s main competitors, but other industries,

TH E A LPI N E S KI I NG I N DU STRY H A S H IG H START U P COST S , LI M ITI NG CO M PE TITION

Opportunities

AN D RI S KS

OPPORTUNITIES AND RISKS

such as infrequently bought goods and investments in the home, also compete for customers’ disposable income. Other competitors are comprised of other alpine ski resorts in Scandinavia and the Alps. The alpine ski industry has high start-up costs, which limits competi- tion. Extensive investments in service- focused staff, management, modern lifts and snow systems, IT, restaurants etc., allow SkiStar’s destinations to maintain a high level of quality in which guests’

winter experiences and comfort are also improved year after year. SkiStar’s destinations are highly accessible from population centres due to geographical vicinity and value-for-money transport solutions in the form of rail, air and bus connections, as well as rental cars. Other important competitive factors include a strong financial position, well-known and attractive brands and a strong cash flow.

Expansion

SkiStar’s strategy for growth primarily includes improved utilisation of the existing destinations and, secondarily, the acquisition or leasing of other ski resorts. All of the acquisitions which SkiStar has undertaken have developed well and have contributed to SkiStar’s successful development to a great extent.

During 1997, Tandådalen &

Hundfjället AB was acquired, followed by Åre Vemdalen AB in 1999, Hemsedal Skisenter AS in 2000 and Trysilfjellet Alpin AS in 2005. SkiStar’s developed and well proven concept for operating alpine destinations is a good foundation for continued, successful expansion.

Bed capacity and occupancy rate

The profitability of alpine destinations is dependent on the number of available beds and the occupancy rate. It is impor- tant that SkiStar retains control over a large bed capacity in order to optimise occupancy by acting on changes in demand and by setting the right price for rooms during all parts of the season.

SkiStar actively works to increase the number of beds at the destinations and to increase the percentage provided via SkiStar agency activities.

It is also important that older cabins and apartments are modernised in order to maintain demand. In addition to SkiStar, new investments in cabins and

apartments have primarily been under- taken by external stakeholders or partly- owned companies. Skiers´ strong inter- est of in SkiStar’s destinations results in investment capital being attracted, which leads to a long-term growth in tourist beds.

Personnel

Salary costs are the Company’s single largest expense item. SkiStar’s continued success is dependent on motivated and engaged personnel. In order to retain key personnel, SkiStar is working with leadership training and an incentive pro- gramme in which, among other things, personnel have been offered the oppor- tunity to purchase convertible deben- tures during both 2003 and 2007 for a total of MSEK 55. On 31 August 2007, SkiStar’s company management owned a total of 696,088 B-shares in the Company. In order to increase efficiency, awareness and engagement among per- sonnel, SkiStar works extensively with leadership issues. The SkiStar Academy provides manager training for enhanced leadership skills. The personnel’s serv- ice level in relation to the guests is an important part of the guests’ total expe- rience. A decrease in the possibility of recruiting qualified seasonal personnel during a strong economic cycle, when unemployment is low, therefore consti- tutes a risk.

Safety issues

SkiStar works actively on safety issues by identifying and rectifying accident risks and also by actively working on work environment issues. Risk analyses are continually executed at all destina- tions in order to ensure sufficient insur- ance cover and to minimise the various types of risk. A thorough crisis plan for SkiStar has also been produced to pre- pare the Company for possible accidents or unforeseen incidents.

FINANCIAL RISKS Currency risks

The fluctuation of local currencies against other currencies impacts on peoples’ travel habits and can, therefore, affect the number of guests at SkiStar’s alpine destinations. The Group is also affected by the relationship between the Swedish and Norwegian currencies.

SkiStar does not hedge its foreign opera- tions. For example, the purchase of lifts and grooming machines from abroad affects prices in terms of changes in exchange rates.

Investments and interest rates

The Alpine ski industry demands major capital investment in order to maintain and increase competitiveness. SkiStar has a strong cash flow that enables a high level of internally financed invest- ments. Should interest rates increase, the cash flow can be used to more quickly amortise loans and, thereby, decrease the financial burden on the Company. At present, external borrowing only takes place in local currencies, SEK and NOK.

The loan portfolio comprises only short term, fixed-interest borrowings.

OTHER RISKS Electricity costs

SkiStar’s operations consume large amounts of electricity. Consequently, electricity price variations impact on the Group’s total costs and results.

According to the established policy, the major portion of the Group’s electricity consumption is obtained on the basis of fixed prices. Approximately 35% of the electricity prices for the 2007/08 season are fixed. Local energy producers supply approximately 32% of the Group’s elec- tricity consumption at local prices which are less than market prices on the elec- tricity market Nord Pool. These local prices fluctuate significantly less than market prices and, consequently, the prices for these volumes are not hedged.

During the next financial year, it is cal- culated that about 1% will be supplied by the new wind powered operations.

This implies that only approximately 32% of the winter’s expected electricity consumption will be directly impacted by fluctuations in market prices.

Petrol prices

Many of SkiStar’s guests use private cars

to travel to their destinations. This mode

of travel is impacted by petrol prices and

taxation on company cars. The close

proximity of alpine destinations to pop-

ulation centres and other alternative

forms of travel such as rail reduce the

negative consequences of increased pet-

rol prices.

20

71,200 students

SkiStar’s ski schools – Sweden’s largest school?

Changes in laws and regulations

Changes in laws and regulations con- cerning SkiStar’s operations can, of course, impact the operations and results. Future changes that could have significant impact on operations have not, to date, been identified. During the present financial year, the Swedish government has decided that companies may make payroll tax deductions for employees aged between 19 and 25.

This implies an annual reduction in per- sonnel costs of approximately MSEK 5.

CURRENT DISPUTES

The Swedish Administrative Court of Appeal has determined that, in Sweden, SkiStar shall pay employer’s contributions for employees’ ski pass benefits, despite the fact that the employees require the ski passes to conduct their work. SkiStar has appealed this decision to the Swedish Supreme Administrative Court.

The City Court in Stockholm has determined that SkiStar’s wholly owned subsidiary, Sälens Högfjällshotell AB, is obliged to pay MSEK 7.5, including interest, to CA AB. The dispute relates to the refunding of a purchase sum concerning the sale of a company. The sale occurred in a company prior to the acquisition by Sälens Högfjällshotell AB. During a merger, the acquired com- pany later became Sälens Högfjällshotell AB. The judgement has been appealed to the Svea Court of Appeal. In the event that Sälens Högfjällshotell AB should finally be obliged to refund the purchase sum, Sälens Högfjällshotell AB has demanded the return of the shares in the sold company. At the point of transfer, the sold company had equity of approximately MSEK 5. In addition,

the vendors of the merged company have also been contacted. SkiStar has not made any provision for the potential costs of the ruling. In other respects, SkiStar is not currently involved in any dispute which is deemed to have any sig- nificant effect on the Company’s results and financial position.

SENSITIVITY ANALYSIS

The sensitivity analysis below describes the manner in which the Group’s results are impacted by changes in a number of the Group’s most important variables.

Assumptions regarding the impact of the occupancy rate on the operating result are based on all accommodation provided via SkiStar and refer only to the impact on the sale of ski passes.

Changes in other types of revenue are deemed, in the sensitivity analysis, to be neutralised by the increase or decrease of expenses. In calculating the sensitivity of electricity price changes, consideration has only been given to the portion of electricity consumption which is directly impacted by changes in the market price. All interest rates are variable and a change in the interest rate environment can, therefore, have a direct effect on interest expenses. As a significant portion of the Company’s operations is located in Norway, the SEK/NOK exchange rate can impact on results and has, therefore, been included in the sensitivity analysis.

FORECASTS

SkiStar has previously decided not to provide an earnings forecast. Instead, the interim reports provide information regarding the status of current bookings.

Change Impact on results

Occupancy +/-10% +/-35 MSEK

Ski pass prices +/-10% +/-70 MSEK

Interest rate +/-1% -/+14 MSEK

Salary costs +/-10% -/+29 MSEK

Market price on electricity +/- SEK 0.1 -/+2 MSEK

Exchange rate NOK/SEK +/-10% +/-3 MSEK

SENSITIVITY ANALYSIS

22

MAJOR POINTS DURING THE YEAR

Net sales amounted to MSEK 1,259 (1,280), profit before tax amounted to MSEK 170 (276) and profit after tax amounted to MSEK 176 (242).

Earnings per share amounted to SEK 4.50 (6.19).

Non-recurring effects positively impacted the previous year’s profit before tax by MSEK 69 due to the consolidation of Trysil into SkiStar on 1 December 2005, and the refund of VAT from 1997 and 1998 by the Swedish Tax Agency, following a deci- sion by the Swedish Administrative Court of Appeal.

Due to the unusually mild weather dur- ing December and early January, Sälen could only offer limited opening hours at the ski resort, which meant that operating profits in Sälen decreased by MSEK 57 during the period.

During the second quarter, Vemdalens Sportaffärer & Skiduthyrning AB was acquired. The acquisition contributed a total of MSEK 30 in increased sales and MSEK 9 in increased operating profits during the financial year.

The Alpine World Ski Championships

were held in Åre between 3 and 18 February 2007. This was a well- organised and successful event which is expected to strengthen Åre’s brand for years to come, especially internationally.

On 1 January 2007, the Swedish VAT on skiing decreased from 12%

to 6%. The price of a ski pass was correspondingly lowered at Swedish destinations.

The target for return on equity was raised by 2 percentage points to 17 percent at the present interest rate.

With the aim of achieving increased activity and clarity, work has begun on transferring structural properties into an own organisation.

LEGAL ORGANISATION

All operations in Sweden are under- taken by the Parent Company, SkiStar AB (publ), except for the leasing of Högfjällshotellet property in Sälen, which is affiliated with the subsidiary Sälens Högfjällshotell AB, and for cer- tain smaller operations affiliated with the subsidiary Tandådalens Fjällhotell Service AB. Prior to 31 August 2007, operations relating to ski rental and sporting goods outlets in Vemdalen

were run by the acquired subsidiary Vemdalens Sportaffärer & Skiduthyrning AB. From 1 September 2007, these operations will be undertaken by the Parent Company. The operations in Norway are conducted by the wholly- owned subsidiary, SkiStar Norge AS.

All of the subsidiaries within the Group are wholly-owned, with the exception of Hammarbybacken AB, which is 91%

owned, and the Norwegian subsidiary Hemsedal Booking AS, which is 65%

owned. Hemsedal SkiSenter AS has the option of acquiring the remaining shares in Hemsedal Booking AS in June 2008.

From 1 September 2007, Fjällinvest AB is included in the Group. Fjällinvest car- ries out property development in Sälen, Åre and Vemdalen.

The decision was made to transfer the Group’s structural properties into a wholly-owned subsidiary of the Parent Company, SkiStar AB. The structural properties are classified as properties owned with the intention of providing future business opportunities such as accommodation, hotels and develop- ment land for future housing, as well as partnership in other companies operat- ing properties development at SkiStar’s destinations. By transferring structural

OPERATIONS ARE DIVIDED INTO TWO BUSINESS AREAS – DESTINATIONS AND PROPERTY

The Group´s

O PE R ATI O N S

GROUP OPERATIONS

CEO / PRESIDENT ECONOMY /

FINANCE / IR / PURCHASING

HR / GUEST SERVICES

PROPERTY

MARKETING/ SALES

IT SKISTAR AB (PUBL)

556093-6949

SÄLENS HÖGFJÄLLSHOTELL AB

556200-6311 SKISTAR NORGE AS

NO977107520 TRYSILFJELLET ALPIN AS

NO948233169 TRYSILFJELLET GOLF AS

NO982736846

HEMSEDAL SKISENTER AS NO912615707

VESLESTØLEN AS

NO979480024 HEMSEDAL FJELLANDSBY AS

NO985289158

HEMSEDAL BOOKING AS NO976716310

65%

HAMMARBYBACKEN AB 556650-2570 VEMDALENS

SPORTAFFÄRER &

SKIDUTHYRNING AB 556068-9761

TANDÅDALENS FJÄLLHOTELL

SERVICE AB 556086-0990 91%

Legal Organisation Operative Organisation

Sälen Åre Vemdalen Hemsedal Trysil Property 2006/07 2005/06 2006/07 2005/06 2006/07 2005/06 2006/07 2005/06 2006/07 2005/06 2006/07 2005/06

Net sales 438 523* 294 306* 116 82* 192 173 219 197 - -

Other income 6 2 16*** 2 - - - - - 1 78 85

Operating income 444 525 310 308 116 82 192 173 219 198 78 85

Operating expenses -323 -338 -233 -222 -86 -59 -138 -133 -155 -126 -10 -27

Depreciation -65 -60 -34 -30 -12 -10 -30 -29 -43 -28 - -

Operating profit 56 127* 43 56* 18 13* 24 11 21 44* * 68 58

Operating margin, % 13 24 14 18 16 16 13 6 10 22 87 68

* The previous year’s net sales and operating profit were positively impacted for Sälen by MSEK 14, Åre by MSEK 13 and Vemdalen by MSEK 2 due to refunding of VAT for 1997 and 1998 based on a ruling by the Swedish Administrative Court of Appeal.

* * Trysil’s operating profit for the previous year was positively impacted by MSEK 35 due to the Company’s consolidation from 1 December 2005 and therefore, costs from September to November are not charged to profit.

* * * SkiStar’s profit share of MSEK 10.5 from Åre 2007 AB is accounted for in “Other income” 2006/07 for Åre.

OPERATING INCOME AND OPERATING PROFIT PER BUSINESS AREA, MSEK DISTRIBUTION OF OPERATING INCOME AND EXPENSES, MSEK

Operating income 2006/07 2005/06 +/- +/-, %

Ski passes 699 718 -19 -3%

Accommodation 190 195 -5 -3%

Ski rental 125 116 9 8%

Ski school 40 41 -1 -2%

Sporting goods outlets 46 27 19 70%

Property services 80 73 7 10%

Capital gains 79 84 -5 -6%

Other 100 117 -17 -15%

Total operating income 1,359 1,371 -12 -1%

Operating expenses

Goods -80 -70 -10 14%

Personnel -422 -400 -24 6%

Other -443 -435 -6 1%

Total operating expenses -945 -905 -40 4%

properties into their own organisation, alpine ski operations will be separated from property development, which is assessed to increase transparency and activity within both business areas.

The assets transferred to the new sub- sidiary will undergo an annual market evaluation that is estimated to be ready for communication to the market during the summer of 2008.

OPERATIONAL ORGANISATION

SkiStar’s operations are divided into two business areas and four staff areas.

The Business Area Destinations is com- prised of five operative areas: Sälen, Åre, Vemdalen, Hemsedal and Trysil. The sec- ond business area is Property.

The operative management group is comprised of: the CEO, the CFO and the five destination managers, one each from Åre, Vemdalen, Sälen, Hemsedal and Trysil. From 1 September 2007, the man-

agement group increased by two persons.

As Sälen is such an extensive organisa- tion, the decision was taken to divide the workload and use two Destination Managers, one for Lindvallen/Högfjället and one for Tandådalen/Hundfjället.

In order to increase the efficiency of SkiStar’s marketing communications, a new position of Marketing and Sales Manager has been established.

STAFF FUNCTIONS

In order to best take advantage of SkiStar’s combined resources and obtain the best possible effect, a number of functions have been gathered under four staff areas. These staff functions are Economy/

Finance/IR/Purchasing/CSR/Environment, IT, Human Resources/Guest Services and Marketing/Sales. SkiStar’s work within Human Resources and Guest Services is outlined on pages 27-28, for Marketing and Sales see pages 29-31, and for Environ- mental and CSR areas, see pages 32-33.

BUSINESS AREA PROPERTY

The Business Area Property has been operational since January 2005. This business area is responsible for, amongst other things, creating profits and free- ing up financial resources via the sale of older accommodation and utilising these resources to develop and build new, modern accommodation at SkiStar’s destinations. More information regard- ing Business Area Property is found on pages 46-47.

BUSINESS AREA DESTINATIONS

Business Area Destinations is respon- sible for the management of SkiStar’s alpine destinations and comprises the strategic product areas Alpine Skiing/

Lifts, Accommodation, Ski Rental and

Ski Schools, which are the foundation of

SkiStar’s concept. This business area is

presented on pages 34-45.