2 0 0 6

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Group ofﬁ ces Rottneros AB P.O. Box 600

SE-194 26 Upplands Väsby Visiting address: Kanalvägen 16 InfraCity (Stockholm) Tel. +46 8 590 010 00 Fax +46 8 590 010 01 e-mail info@rottneros.com http://www.rottneros.com

Vallviks Bruk AB SE-820 21 Vallvik Tel. +46 270 620 00 Fax +46 270 692 10 Utansjö Bruk AB SE-870 15 Utansjö Tel. +46 612 716 200 Fax +46 612 421 18 Rottneros Bruk AB SE-686 94 Rottneros Tel. +46 565 176 00 Fax +46 565 176 80

Rockhammars Bruk AB SE-718 81 Frövi Tel. +46 581 377 00 Fax +46 581 703 40 SIA Rottneros Baltic L ˇocuiela 1

LV-3601 Ventspils Latvia

Tel. +371 362 92 73 Fax +371 362 92 75

Rottneros Miranda, S.A.

Carretera de Logrono s/n P.O.B. 6

ES-09200 Miranda de Ebro (Burgos) Spain

Tel. +34 947 31 02 45 Fax +34 947 34 72 44

Rottneros Madeiras, LDA Avenida 25 de Abril n° 809 –1°dto.

PT-2200-299 Abrantes Portugal

Tel +351 241 36 51 21 Fax +351 241 36 52 21 Rottneros SA Avenue de Kraainem, 33 B-1950 Kraainem Belgium

Tel +32 2 766 16 90 Fax +32 2 766 16 99 Rottneros GmbH Contact Rottneros SA See address above

ROTTNEROS ANNUAL REPORT 2006

2006

Annual report

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C O N T E N T S 1 Highlights of 2006 2 Rottneros in brief

4 Comments by the President 6 The Rottneros Share

8 Business concept, objectives and strategies 9 Markets and products

14 Group units

18 Raw materials procurement 20 Personnel

21 Responsibility 22 Environment

26 Opportunities and risks

30 Contents – Financial reporting 31 Directors’ report and ﬁ nancial review 37 Income statement – Group 38 Balance sheet – Group

40 Changes in shareholders’ equity – Group 41 Cash-ﬂ ow statement – Group

42 Income statement – Parent company 43 Balance sheet – Parent company 44 Changes in shareholders’

equity – Parent company

45 Cash-ﬂ ow statement – Parent company 46 Supplementary information and Notes 58 Audit report

59 Corporate Governance 62 Board of Directors and auditors 64 Senior executives

66 Six-year review 67 Key ratio deﬁ nitions

68 Glossary, ﬁ nancial information, annual general meeting Addresses

Cover photo: Peter Hammar works with the screening unit at the UM machines at Rottneros Mill.

This page: Christian Svensson who works in the drying unit at Rottneros Mill standing next to the loading dock where the packaged pulp is loaded onto rail freight cars.

All amounts are expressed in Swedish kronor.

Million kronor is abbrieviated to SEKm and billion kronor to SEKbn. Million dollars is abbreviated to USDm. Figures in brackets refer to 2005 or the corresponding period in the previous year unless otherwise stated.

Data on markets and the competitive situation are Rottneros’ own assessments except where a speciﬁ c source is cited.

The earnings ﬁ gures for 2004 have been restated taking into account IFRS.

Text and production: Hallvarsson & Halvarsson. Graphical layout: Meze design.

Photos: Page 2, picture 3 A&Me Photo. Page 16, picture 2, page 17, page 21 and page 26, picture 2 and 3 Rottneros. Other photos: Magnus Skoglöf.

Preprint and printing: Mats Faktor/Bildrepro Stockholm, Alfa Print, Stockholm, March 2007.

This annual report is printed on environmentally friendly paper. The cover is 200g Arctic Volume and the paper inside is 115g Arctic Volume produced by Arctic Paper Håfreströms AB. The paper contains pulp from the Rottneros Group.

John-Erik Byström, shift supervisor at Rottneros Mill.

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Rottneros Annual Report 2006

1

R O T T N E R O S I N F I G U R E S

2006 2005

Total

2005 Remaining operations

2004 Total

2004 Remaining operations

2003 2002 2001

Net turnover, SEK m 2,690 2,429 2,411 2,356 2,272 2,380 2,494 2,741

Proﬁ t after net ﬁ nancial items, SEKm -23 -103 -141 -121 -38 115 86 235

Investment in ﬁ xed assets, SEKm 113 234 234 283 283 193 244 183

Average number of employees 754 804 800 835 807 857 860 878

Ratios, %

Equity/assets ratio 57 58 58 65 65 73 72 73

Return on capital employed Neg. Neg. Neg. Neg. Neg. 7 5 12

Return on shareholders’ equity Neg. Neg. Neg. Neg. Neg. 5 3 8

SEK/share

Proﬁ t after tax -0.05 -0.35 -0.50 -0.50 -0.16 0.47 0.29 0.76

Dividend 0.10* 0.10 0.10 0.20 0.20 0.30 0.30 0.35

*) Proposed dividend.

Q U A R T E R LY D A T A , G R O U P, ( S E K M )

Including discontinued operations 2006 2005 2004

IV III II I IV III II I IV III II I

Net turnover 713 662 615 700 607 641 596 585 535 583 623 615

Operating proﬁ t/loss

before depreciation 69 47 36 -4 17 -24 43 12 -31 18 110 12

Depreciation -42 -36 -38 -39 -34 -37 -34 -33 -31 -125 -33 -34

Operating proﬁ t/loss 27 11 -2 -43 -17 -61 9 -21 -62 -107 77 -22

Net ﬁ nancial items -6 -10 – – -4 -4 -2 -3 -3 – -2 -2

Proﬁ t/loss after net ﬁ nancial items 21 1 -2 -43 -21 -65 7 -24 -65 -107 75 -24

Tax 3 -2 4 10 17 20 -6 9 16 33 -22 3

Proﬁ t/loss after tax 24 -1 2 -33 -4 -45 1 -15 -49 -74 54 -22

Pulp production, thousand tonnes 181.1 167.8 175.4 174.6 176.9 163.2 157.1 151.1 163.0 155.0 171.4 167.4 Pulp deliveries, thousand tonnes 178.9 168.7 164.2 187.7 165.8 175.7 162.9 162.3 149.3 149.0 157.2 169.5

Sawn timber production, thousand m³ – – – – – – – 1.3 6.8 7.2 13.9 13.5

Sawn timber deliveries, thousand m³ – – – – – – – 10.3 9.5 13.4 12.5 11.3

Earnings after net ﬁ nancial items were negative at SEK -23m (-103).

A cost-cutting programme to reduce the Group’s costs by SEK 100m annually from 2008 was introduced in March. The programme reduced the 2006 costs by around SEK 40m and is expected to result in addi- tional savings in 2007 of around SEK 45m.

Rottneros has launched a new business area, Rottneros Packaging, to produce heatproof food packaging made from paper pulp under the SilviPak brand.

Installation of a new steam turbine to produce electricity at Vallvik Mill was started. The turbine, with a capacity of 28 megawatts, will raise Vallvik Mill’s level of self sufﬁ ciency in electricity from around 70 to almost 100%. This is an investment of SEK 89m.

At the end of August, Rottneros announced that, due to the high electricity prices, it would begin negotia- tions on the closure of Utansjö Mill with a view to moving the plant out of the country. The increase in the price of electricity, despite hedging activity, meant that the Group’s costs were around SEK 100m higher in 2006 than in 2005. Union negotiations on the closure were still in progress at the end of February 2007.

The Group beat its production record by 42,100 tonnes.

Highlights of 2006

H I G H L I G H T S O F 2 0 0 6

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2

R O T T N E R O S I N B R I E F

Rottneros, with its origins in the 1600s, is a non-integrated and 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 paper pulp.

Rottneros has an annual production capacity of around 700,000 tonnes of pulp produced at four mills in Sweden and one in Spain.

Rottneros is a world leader in mechanical pulp for the open market and an important supplier of other pulp grades. CTMP is a process that was developed at Rockhammar Mill in 1974.

Through continuous product development, high delivery reliability, technical support and service, Rottneros is able to meet the needs and high expectations of its customers.

-500 0 500 1,000 1,500 2,000 2,500 3,000 3,500

Net turnover, SEKm

2002 2003 2004 2005 2006 -150 0 150 300 450 600 750 900 1,050 N E T T U R N O V E R , SEKm P R O F I T / L O S S , SEKm

Profit/loss after net financial items, SEKm

Rottneros in brief

F I N A N C I A L H E D G I N G S T R A T E G Y

■ The Rottneros Group is heavily dependent on pulp prices, the USD exchange rate and electricity prices.

■ A change in the pulp price of USD 50 will affect the Group’s annual proﬁ t after net ﬁ nancial items by SEK 260m.

■ A change in the USD exchange rate of SEK 0.50 will affect the Group’s proﬁ t by SEK 160m.

■ A change in the price of electricity of SEK 0.10 will affect the Group’s proﬁ t by SEK 90m.

■ To even out the effect of these factors, the Group applies an active ﬁ nancial hedging strategy that has had a total positive effect on proﬁ ts of almost SEK 500m since its introduction in 2001.

Around 20% of the raw material used by Rottneros is in the form of wood chips. The aspen market pulp in these bales makes excellent book paper.

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3

R O T T N E R O S N I C H E S

Product niches Recommended pulp from range Woodfree / near woodfree bulky paper CTMP, groundwood pulp Near woodfree coated paper CTMP, groundwood pulp

Thin printing paper Groundwood pulp

LWC / ULWC Groundwood pulp

Label paper Groundwood pulp, CTMP

Wallpaper base Groundwood pulp, CTMP

Paper for transformers and cables Unbleached long-ﬁ bre

sulphate pulp

Filters Long-ﬁ bre sulphate pulp, CTMP

Tissue CTMP

Paperboard Groundwood pulp, CTMP

Latex-impregnated board Long-ﬁ bre sulphate pulp

Liquid packaging board CTMP

Recycled ﬁ bre paper CTMP, groundwood pulp

O R G A N I S AT I O N

HEAD OFFICE

PRODUCTION

Rottneros Mill Rockhammar Mill

Utansjö Mill Vallvik Mill Rottneros Miranda

Central Local Central

SUPPLIERS RAW MATERIAL PROCUREMENT SALES CUSTOMERS

G R O U P P R O D U C T S , percentage of sales

Sulphate pulp 53%

CTMP 28%

Groundwood pulp 18%

Wood 1%

Germany 16.4%

Spain 15.1%

Italy 12.8%

Sweden 9.9%

USA 8.8%

UK 5.8%

France 5.3%

Poland 4.4%

Norway 4.4%

Austria 1.4%

Rest of Europe 5.3%

Rest of world 10.4%

G E O G R A P H I C A L D I S T R U B U T I O N O F T U R N O V E R

Groundwood pulp 73 % CTMP 8 %

Sulphate pulp 1 %

R O T T N E R O S ’ G L O B A L M A R K E T S H A R E F O R M A R K E T P U L P 2 0 0 6

G R O U P P R O D U C T I O N U N I T S

Brief description Pulp types Production capacity Number of employees Rottneros Mill Located in Värmland. Produces mechanical pulp for paper.

Set new production record in 2006.

Groundwood pulp CTMP

150,000 tonnes 157

Rockhammar Mill Located in Västmanland. In 1974 was the ﬁ rst mill in the world to produce CTMP pulp. Set new production record in 2006.

CTMP 66,000 tonnes 67

Utansjö Mill Located in Ångermanland. Groundwood pulp

CTMP

159,000 tonnes 142

Vallvik Mill Located in Hälsingland. Produces sulphate pulp. Set new production records for several months in 2006.

Long-ﬁ bre sulphate 194,000 tonnes 189

Rottneros Miranda Located in Northern Spain. Uses eucalyptus as raw material. Short-ﬁ bre sulphate pulp

149,000 tonnes 160

R O T T N E R O S I N B R I E F

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4 Substantial productivity improvements in a strengthening market – electricity prices are the only concern

In 2006 the pulp market was well balanced with only limited added capacity. The new capacity added in 2005 has been absorbed and the price in US dollars was the best in ten years. The price increase in Swedish kronor and euro was more modest due to a weak US dollar. Although 2006 was a relatively good year for the pulp industry, it was far from a record year. Rottneros’ result – a loss of SEK -23m after net ﬁ nancial items – was unsatisfactory and was mainly due to high electricity prices that affected our mechanical pulp producing mills.

In terms of production and sales, 2006 was a good year for Rottneros. Our ﬁ ve mills have been running at almost full capacity, our production level was nearly 50,000 tonnes higher than in 2005, which is almost a 10% increase, the Group set new production records, and we were able to sell all the pulp we produced to long-term customers.

Although this resulted in an improvement of SEK 80m compared to 2005, it is far from satisfactory. The prob- lem is exorbitant electricity prices that are impacting us and hitting our mechanical pulp producing mills hard, i.e. the mills in Utansjö, Rottneros and to some extent, Rockhammar.

R E D U C E D E L E C T R I C I T Y C O N S U M P T I O N

In 2006 the electricity costs rose by almost SEK 100m despite hedging activity and the fact that, through intensive efﬁ ciency measures, we reduced our electricity consump- tion by almost 6% per tonne of pulp produced. We are con- tinuing this work by implementing a number of measures to reduce our current and future electricity price exposure.

In 2006 we made investments to reduce the amount of energy used in the production of mechanical pulp. The main energy investment is a new turbine in Vallvik, which will make the mill essentially self-sufﬁ cient in electricity

by 2008 and will increase the percentage of electricity pro- duced by the Group from 17 to 25%. We intend to install a small-scale hydroelectric power plant in Rockhammar and we are also constantly ﬁ ne-tuning our production processes to raise the level of energy efﬁ ciency.

Rottneros was one of a number of forest industry com- panies that began working early on with strategic risk mini- misation by applying hedging strategies for electricity, pulp prices and currency – speciﬁ cally to reduce the impact of price increases and exchange rate ﬂ uctuation.

Since we started working with ﬁ nancial hedging in 2001, mainly in respect of USD, pulp prices and energy, the hedges have had a positive impact of almost SEK 500m on results. In 2006 our result was around SEK 100m better than if we had not engaged in any hedging activity. At the beginning of 2007, 89% of our consumption was hedged.

It is important to bear in mind, however, that ﬁ nancial hedging does not solve the fundamental problem of high electricity prices, rather it reduces the impact and puts off the problem for a while. The solution lies in having an energy policy that will lead to long-term competitive elec- tricity prices, e.g. through special agreements for electric- ity-intensive basic industries, like the ones in place in several other European countries.

“Our fi ve mills have been running at almost full capacity, our production level was nearly 50,000 tonnes higher than in 2005 – close to a 10% increase, and the Group has set new

production records.”

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5

C O S T- C U T T I N G PR O G R A M M E

In order to offset the high electricity prices, in addition to reducing electricity consumption and ﬁ ne-tuning our production plants, we have implemented a cost-cutting programme that includes reducing our headcount by 50.

It has not been possible to fully implement the part of the cost-cutting programme relating to the mills in Rottneros and Utansjö due to uncertainty over electricity prices. The goal for the programme is to save around SEK 100m annu- ally starting from the beginning of 2008, and the rate of savings in 2006 indicates that it may be possible to exceed this level.

U TA N S J Ö

In August we announced plans to cease operations in Utan- sjö with a view to moving the plant outside the country as a result of the sustained high price of electricity in Sweden.

The plans were still in place at the end of February 2007 and union negotiations are continuing.

E F F E C T I V E C O O PE R AT I O N W I T H W O O D S U PPL I E R S

Wood and electricity are the two most important resources in pulp production. The supply of wood was good for most of 2006 and we have very effective relationships with our Russian, Finnish and Baltic wood suppliers. The wood mar- ket was temporarily disrupted when the suppliers experi- enced felling and shipping problems towards the end of the year due to extreme weather conditions. In Central Europe the competition from the bioenergy sector has caused a sig- niﬁ cant increase in wood prices, which will be problematic for Rottneros if the full effect of this is felt in Sweden.

P O S I T I V E M A R K E T

The pulp market was positive and well balanced in 2006 and global demand was strong. One reason for the well-balanced market was the fact that North American pulp produc- ers were affected by signiﬁ cant cost increases due, among other things, to high wood prices. This cost increase forced several pulp mills in Canada and the US to be temporarily or permanently closed down. Although the well-balanced supply and demand situation resulted in favourable price levels for most of the year, the beneﬁ ts for Rottneros were limited due to the weak US dollar.

Our marketing initiatives in 2006 mainly related to the niche strategy we introduced in connection with our 2000 development programme. As a result of this strategy, more and more of our products are sold under long-term con- tracts, and fewer and fewer are sold over the spot market, which means a higher average price for us.

The niche strategy has provided Rottneros with new customers and markets. At the same time, we have strength- ened our relationships with many existing customers thanks

to our long-term and systematic initiatives for a number of years with technical marketing and increased cooperation with customers within selected niches. One example is our VMI solution which was introduced in 2006 to help our cus- tomers manage their pulp stocks. In 2006 we took another step by increasing our knowledge of paper manufacturing processes. Another aspect of our marketing strategy is the expansion of our European sales organisation to increase our presence in the markets there.

N E W B U S I N E S S A R E A

For a number of years we have been looking for ways to reduce Rottneros’ one-sided dependence on the pulp mar- ket situation and the US dollar rate. This led us, after four years of development, to launch a new business area in March 2006 called Rottneros Packaging, which uses tech- nology developed in Asia to produce advanced food pack- aging solutions from pulp under the SilviPak brand. The products were well received on the market and the launch is progressing according to plan. A number of tests are under way involving large European customers. SilviPak will not, however, affect the Group’s proﬁ ts in 2007 to any signiﬁ cant extent.

S TA R T I N G P O S I T I O N I N 2 0 07

The problems we are grappling with relate primarily to two units – the mills in Utansjö and Rottneros, and the main issue is the sustained high price of electricity. The produc- tion of mechanical CTMP and groundwood pulp involves energy-intensive processes. The advantage with this type of pulp production is that the wood utilisation rate is twice that in chemical pulp production. This is an environmental and competitive advantage in a scenario where demand for wood is growing as a result of the increase in biofuel use.

From a technical perspective, all of our units are in very good condition, we are constantly setting new production records, we seldom have unplanned stoppages and we sell all the pulp we can produce. With an equity/assets ratio of 57%, our ﬁ nancial position is strong. Furthermore, we have highly competent and dedicated employees with unique expertise in pulp production.

Based on all of the above, the prospects for the Group’s future are good. The biggest problem is the sustained high price of electricity. When we ﬁ nd a long-term solution for this, the outlook will be even better.

Upplands Väsby, February 2007

Lars Blecko President and CEO

C O M M E N T S B Y T H E P R E S I D E N T Rottneros Annual Report 2006

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6 Signiﬁ cant share price movement in 2006

The Rottneros share has been listed on the Stockholm Stock Exchange since 1987. The exchange lists have been divided into three size-related segments since October 2006. With- in each segment, companies are classed according to indus- try. Rottneros is in the Small Cap segment and is classed as a company in the materials industry. Rottneros’ market capitalisation at year-end was just under SEK 1.2bn (1.3).

Also at year-end, Rottneros had 19,051 (22,803) sharehold- ers, and foreign shareholders held 23.4% (9.7) of the share capital.

S H A R E P R I C E T R E N D

In 2006 the price of the Rottneros share ﬂ uctuated consider- ably, ending at SEK 6.55 at the year-end, which is 4% lower than at the beginning of the year. The highest price paid for the share was SEK 8.30 in May and the lowest was SEK 5.60 in July. The market as a whole, measured by the Affärsvärlden General Index, rose by 24.5% (32.6), while the Affärsvärlden Forestry Index rose by 16.3% (5.6).

S H A R E T U R N OV E R

In 2006 a total of 207 (164) million shares were traded for a value of SEK 1.4bn (1.2). This represents a turnover rate of 115% (91) for the year. The overall turnover rate among companies in the Small Cap segment on the exchange in Stockholm was 91%. The average for all segments on the exchange in Stockholm was 145%. An average of 110 trades were executed every day with Rottneros shares. A block consists of 1,000 shares.

S H A R E C A P I TA L A N D B U Y- B AC K O F T R E A S U RY S TO C K

The share capital at year-end amounted to SEK 94.2m divided between 188,432,105 shares. All shares carry equal voting rights and equal rights to the company’s assets and proﬁ ts. Share capital information is shown in a table on page 7.

At the 2006 Annual General Meeting, no resolution was passed regarding extending the share buy-back pro- gramme. However, the Board was authorised to transfer shares in the company that had already been repurchased.

No such transfer took place during the year, however, and the company’s holding of treasury stock is the same as the previous year at 8.2 million shares, which is equivalent to 4.4% of the number of outstanding shares.

D I V I D E N D P O L I CY

The dividend paid to shareholders is based on Rottneros’

results, ﬁ nancial position and future growth potential. The goal is to pay a dividend of about 25% of the accumulated earnings after tax during one business cycle. This means that years with poor results must also be included in the overall picture when assessing the dividend for any individ- ual year. For the 2006 ﬁ nancial year, the Board of Directors proposes a dividend of SEK 0.10 (0.10) per share. This is equivalent to a direct yield of 1.5% (1.5) based on the clos- ing price for the year.

P R I C E T R E N D S F O R T H E R O T T N E R O S S H A R E 1 9 9 5 – 2 0 0 6 T H E R O T T N E R O S S H A R E

0 5 10 15 20 25

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000

Shares traded per month Affärsvärlden General Index Affärsvärlden Forestry Index

Rottneros

I 2006 I 2005

I 2004 I 2003

I 2002 I 2001

I 2000 I 1999

I 1998 I 1997

I 1996 I 1995

Thousand shares SEK

Source: SIX / Hallvarsson & Halvarsson

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7

S H A R E D A T A^{1 , 6 )}

2006 2005⁷⁾ 2004⁷⁾ 2003 2002 2001

Shares, opening²⁾ Amount 180,212 180,212 180,722 182,980 188,399 209,332

Repurchased treasury shares²⁾ Amount – – 510 2,258 5,419 20,933

Shares, closing²⁾ Amount 180,212 180,212 180,212 180,722 182,980 188,399

Average number of shares²⁾ Amount 180,212 180,212 180,392 181,422 187,709 204,099

Operating proﬁ t or loss/share SEK -0.04 -0.50 -0.64 0.67 0.31 1.00

Proﬁ t/loss after net ﬁ nancial items/share SEK -0.13 -0.57 -0.67 0.64 0.46 1.15

Proﬁ t/loss after tax/share SEK -0.05 -0.35 -0.50 0.47 0.29 0.76

Operating cash ﬂ ow/share³⁾ SEK 0.19 -2.28 -0.41 -0.23 -0.13 0.50

Equity/share SEK 7.78 8.45 9.28 9.50 9.33 9.40

Dividend⁴⁾ SEK 0.10 0.10 0.20 0.30 0.30 0.35

Dividend/equity per share % 1.3 1.2 2.2 3.2 3.2 3.7

Share price at end of period SEK 6.55 6.80 7.55 8.55 7.45 9.85

Share price/equity per share Multiple 0.8 0.8 0.8 0.9 0.8 1.0

P/E ratio/share Multiple Neg. Neg. Neg. 18.3 25.3 13.0

Direct yield⁵⁾ % 1.5 1.5 2.6 3.5 4.0 3.6

I N F O R M AT I O N TO S H A R E H O L D E R S

Rottneros provides information to shareholders and the public through several different channels. Information pub- lished in the form of annual reports, quarterly reports and press releases are posted at www.rottneros.com. Presenta- tions of quarterly reports for journalists and analysts can also be downloaded on the website.

The annual report is sent to all shareholders.

S H A R E S B Y S I Z E O F H O L D I N G A S O F 3 1 D E C . 2 0 0 6 Number of shares No. of shareholders

Percentage of share capital

1 – 500 7,375 0.9

501 – 1,000 4,212 2.0

1,001 – 5,000 5,140 7.3

5,001 – 10,000 1,232 5.4

10,001 – 15,000 294 2.1

15,001 – 20,000 244 2.5

20,001 – 554 79.8

Totalt 19,051 100.0

Source: VPC Analys

F I N A N C I A L A N A LY S T S W H O T R A C K T H E R O T T N E R O S S H A R E

ABN AMRO Linus Larsson

Enskilda Securities Richard Nilsson Handelsbanken Capital Markets Olof Grenmark

Swedbank Claes Rasmuson

Carnegie Cecilia Kellner

O W N E R S H I P S T R U C T U R E A S O F 3 1 D E C . 2 0 0 6

Shareholder Number of shares

Percentage of share capital

Nemus Holding AB 51,366,484 27.3

Clearstream Banking S.A 7,964,000 4.2

Client Omnibus AC Fund NO OD44 6,272,000 3.3

Tanglin 5,090,000 2.7

Cominvest 4,450,000 2.4

SIS Segaintersettle AG 3,314,900 1.8

Prior & Nilsson, Yield 3,123,850 1.7

Bayerische Hypo- & Vereinsbank 2,840,000 1.5 Fourth Swedish National Pension Fund 2,638,400 1.4

SSB CL Omnibus AC 2,524,037 1.3

Total 10 largest shareholders 89,583,671 47.5

Rottneros AB (treasury stock from buy-back) 8,219,641 4.4

Other shareholders 90,628,793 48.1

Total 188,432,105 100.0

Geographical distribution of ownership

Sweden 144,287,163 76.6

Other Nordic 4,248,652 2.3

Other Europe (excl. Nordic region) 29,231,141 15.5

USA 10,238,429 5.4

Rest of world 426,720 0.2

Total 188,432,105 100.0

Distribution of ownership between shareholder categories

Private individuals 58,743,092 31.2

Legal entities

(incl. funds and institutions) 129,689,013 68.8

Total 188,432,105 100.0

Source: VPC

T H E R O T T N E R O S S H A R E

1) There are no programmes that cause dilution.

2) Number of shares in thousands.

3) Cash ﬂ ow after normal investments but excluding strategic investments.

4) Proposed dividend.

5) Direct yield is calculated in relation to the trading price at year-end.

6) The years 2001 to 2003 have not been restated in connection with the transition to IFRS. An adjustment needs to be made in respect of IAS 39.

7) The years 2005 and 2004 include operations being discontinued.

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8 Independent ﬂ exible pulp supplier

Rottneros’ overall objective is to give its shareholders a com- petitive return on their investment over a business cycle.

Since the last boom, i.e. the 2000–2006 period, 50% of the accumulated earnings after tax have been distributed as dividends. In order for this to be possible, the Group must create value for customers, be an attractive employer and act responsibly towards society.

Rottneros creates value for customers by providing information about new pulp applications to strengthen the customers’ positions in their markets. This is reinforced by Rottneros’ niche strategy, which involves closer, long- term cooperation with customers in areas where Rottneros has specialist expertise with respect to both products and applications.

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

Rottneros’ business concept is to be an independent and fl exible supplier of high-quality, customised pulp. This con- cept is based on success factors identifi ed by the Board of Directors and senior management, namely, to be a pure pulp-producing company that focuses on customer require- ments, niches and effi cient production. Through continu- ous product development, high delivery assurance, technical support and service, Rottneros is able to adapt its product range to meet the high expectations of its customers.

The business concept provided the basis for the devel- opment programme that was started in 2000. The future direction of the Rottneros Group involves a focus on spe- cialisation, niches and customers. Rottneros has invested considerable resources in product development, produc- tion, logistics, marketing and IT in order to achieve greater proﬁ tability over business cycles. These investments have

been supplemented by an ongoing management and skills development programme, which is creating a foundation of common values and a result-oriented, holistic approach among all of the Group’s employees.

O B J E C T I V E S A N D S T R AT E G I E S

The executive management has set a number of overall objectives for the company’s operations that will lead to a competitive return on shareholders’ capital and will also result in a less volatile share price trend. The share price in 2001–2003 and the three ﬁ rst quarters of 2004 was much more stable than during the previous downturns and was tracking the general index. The objectives can only be reached if the pulp market follows a normal cyclical pattern with a boom every ﬁ ve years, which has not been the case since 2000. As a result, the share price was below index in 2005 and 2006. Added to this is the high price of electricity in 2006, which is the cause of the uncertainty surrounding the future of Utansjö Mill.

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 ﬁ bre- based food packaging.

In line with the Group’s niche strategy, at least half of the sales will be in proﬁ table and growing market niches and the rest will be among a limited number of long-term customers. The strategy was ﬁ rst applied in 2001.

Rottneros will endeavour to stabilise proﬁ ts over a busi- ness cycle and to avoid a negative result.

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

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

Rottneros is an independent and fl exible supplier of customised, 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.

V I S I O N :

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

profi tability throughout a business cycle.

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9

M A R K E T A N D P R O D U C T S

A leading player in market pulp

The market for Rottneros’ chemical and mechanical grades of pulp was strong in 2006. The Group delivers pulp globally and is a leading player in the market pulp market. One of Rottneros’ growth areas is the mechanical pulp, CTMP. The Group is one of the world’s leading producers in this segment.

Market pulp is produced, dried, packaged and shipped for sale on the market, in contrast with the considerably higher volumes of pulp produced at mills with integrated paper production. Rottneros’ strategy is to produce and market pulp within different niche areas. This strategy involves offering customers the pulp or the combination of pulp that meets the needs of the customers’ end products with optimal cost- and resource-efﬁ ciency.

The market for all grades of pulp developed well in 2006, with increased demand and rising prices. For the part of the total global bleached chemical market pulp market that reports statistics (19 countries), deliveries in 2006 amounted to 37.2 million tonnes (35.6), which is 4.5% or 1,639,000 tonnes more than in 2005. The strong market in 2006 is mainly attributable to limited added capacity, in contrast to 2004 and 2005 when considerable capacity came onto the market. More capacity will enter the market in 2007 than in 2006.

The strong pulp market caused a rise in prices. At the same time, costs increased for most producers, includ- ing Rottneros, and as a result, the considerable pressure on margins continued. Also, the decline in the USD rate meant that prices in local currencies (EUR and SEK) only increased slightly in 2006.

The biggest changes in capacity levels in 2006 were in Canada, where several mills were forced to close as a result of signiﬁ cant cost increases related, among other things, to

a limited supply and therefore higher prices for both tim- ber and chips. Exchange rate movement had a very nega- tive impact on competitiveness which caused the closure of several mills.

Pulp imports into China increased in 2006 after rel- atively weak growth in 2005. The increase in 2006 of Chinese imports was 4.8% compared to 1% in 2005. The pulp grade with the highest increase in imports was bleached short-ﬁ bre pulp, with an increase of 340,000 tonnes or 13%, while imports of bleached long-ﬁ bre pulp fell by 142,000 tonnes or 5%.

Demand in 2006 continued to increase after new paper production equipment was put into commission, and more expansion in production capacity is planned in 2007. No signiﬁ cant chemical pulp capacity came onto the market in China in 2006 and the shortage of domestic forest raw materials is expected to continue to limit expansion over the next few years.

Long-ﬁ bre chemical pulp

T H E M A R K E T

The market for long-ﬁ bre chemical pulp, which Rottneros produces in Vallvik, was strong in 2006. Since no new capacity was added during the year, the imbalance between demand and production that existed over the past few years has been redressed.

Varis Vezis who is Managing Director of SIA Rottneros Baltic checks the quality of the Latvian sawmill chips before they are loaded and shipped to Sweden. The company buys in large quantities of chips for the Swedish mills. It is important for the chips to be evenly sized to yield pulp of a consistent quality.

Bale labels contain important information for both fork-lift truck driver Magnus Walling at Rockhammar Mill and for customers. Using the Rottneros VMI system, the customer can read the bar code to obtain pulp grade data.

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10 Global production of bleached long-ﬁ bre chemical pulp in 2006 amounted to 20.7 million tonnes, which is equivalent to 56% of the total market for bleached chemical market pulp.

The main producers of long-ﬁ bre chemical market pulp are Arauco (Chile), Södra (Sweden), Mercer International (USA/Canada/Germany) and Canfor (Canada).

The price at the beginning of the year of USD 600 rose during the ﬁ rst quarter to around USD 630 at the end of March, USD 690 at the end of June, USD 710 at the end of September and USD 730 at the end of 2006. The average price for 2006 was USD 675.

PR O D U C T S A N D A PPL I C AT I O N S

Rottneros produces a chemical long-ﬁ bre sulphate pulp. It is produced from pine and spruce and is manufactured in two different grades. The largest category by far is ECF pulp (Elemental Chlorine Free), which is used primarily for printing and writing paper. Vallvik Mill also produces unbleached pulp (UKP), which is very clean, making it ideal for cables and transformers.

As a result of the development project in progress for a number of years, Vallvik’s unbleached pulp now has a level of purity that is suffi cient for very demanding paper qualities, mainly in the production of cable paper. In terms of quality, the mill is a leader in this segment. Vallvik’s pulp is fl ash dried making it particularly well suited for the fi lters and absorbent products that are included in Rottneros’ niche areas. It is also used for printing and writing paper.

T H E PR O D U C T I O N PR O C E S S

The production process is the same for both long-fi bre and short-fi bre chemical pulp. The wood is cooked with chemi- cals at a high temperature. About half of the wood is dis- solved into the cooking liquid during this process, mainly through the release of the lignin that binds wood fi bres together. The remaining half, which consists of cellulose fi bres, becomes paper pulp. The pulp is usually bleached so that it can be used for printing and writing paper or other

products requiring a high level of brightness. The half that does not become pulp, primarily the lignin, is recovered for energy production. This recovery process makes the forest- ry industry the largest user of biofuel and one of the largest producers of electricity generated from biofuel, known as

“green electricity.”

O U T LO O K

The Group is investing in continued development of Vall- vik’s bleached (ECF and unbleached (UKP) pulp to further strengthen the focus niches.

Short-ﬁ bre pulp

T H E M A R K E T

The market for short-ﬁ bre chemical sulphate pulp, which Rottneros produces in Miranda, Spain, was strong in 2006.

The volumes of market pulp from South America added in 2005 have been absorbed by the market. There was no new capacity until the end of the year and the market was in balance during the year. A total of 16.3 million tonnes of bleached short-ﬁ bre pulp was produced in 2006, which is equivalent to 44% of the total market for bleached chemi- cal market pulp.

The largest producers in the short-ﬁ bre chemical pulp market are Aracruz, VCP (Brazil), Arauco (Chile) and Ence (Spain).

The price of eucalyptus pulp (BEK) rose from USD 590 at the beginning of the year to USD 620 at the end of March, USD 640 at the end of June, USD 660 at the end of September and USD 670 at the end of 2006. The aver- age price for 2006 was around USD 640.

PR O D U C T S A N D A PPL I C AT I O N S

The raw material used in the production of short-ﬁ bre pulp is eucalyptus globulus, which provides a very strong short- ﬁ bre pulp. The pulp is ECF bleached and is used in the production of printing and writing paper for good forma- tion, and for softness in tissue.

G R O U P P R O D U C T S , percentage of sales

Sulphate pulp 53%

CTMP 28%

Groundwood pulp 18%

Wood 1%

Germany 16.4%

Spain 15.1%

Italy 12.8%

Sweden 9.9%

USA 8.8%

UK 5.8%

France 5.3%

Poland 4.4%

Norway 4.4%

Austria 1.4%

Rest of Europe 5.3%

Rest of world 10.4%

G E O G R A P H I C A L D I S T R U B U T I O N O F T U R N O V E R

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M A R K N A D O C H P R O D U K T E R Rottneros Årsredovisning 2005M A R K E T A N D P R O D U C T S Rottneros Annual Report 2006

11 The production process for short-ﬁ bre chemical pulp is the same as for long-ﬁ bre chemical pulp (see page 10).

O U T LO O K

The mill in Miranda produces eucalyptus pulp that is stronger than the pulp produced by most of its competi- tors. The sales department therefore focuses on selling Miranda’s pulp for the manufacture of products in which strength, formation and brightness are all required, such as high quality paperboard.

The supply of short-ﬁ bre chemical eucalyptus pulp will continue to increase in the years ahead. In 2006 around 1 million tonnes of additional capacity came onto the mar- ket, most of it from South America and additional capacity is anticipated in 2007 and 2008.

Mechanical pulp

T H E M A R K E T

2006 was a good year for mechanical pulp produced at the mills in Rottneros, Rockhammar and Utansjö. There were 3.0 million tonnes of pulp on the market, compared to 2.7 million tonnes in 2005, which is equivalent to an increase of 11%.

New capacity was added during the year, for example in Estonia and China. In China CTMP is the grade favoured, since a large proportion of the raw material is used in the production of the pulp.

Demand for mechanical pulp, and particularly CTMP produced from aspen, remained high in 2006. There are

several explanations for this, such as the technical proper- ties that help ensure high bulk and opacity in the paper produced from the pulp, and the fact that the pulp is cost- effective. The demand for groundwood pulp, which is Rottneros’ most global product, was also strong.

The biggest producers of mechanical pulp for the open market are the Canadian company Tembec and Millar Western. CTMP prices were favourable for Rottneros in 2006 and were in line with the short-ﬁ bre chemical pulp price trend.

T Y P E S A N D G R A D E S O F P U L P P R O D U C E D B Y R O T T N E R O S

Type of pulp Wood Bleaching Type of bleaching Application area

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, ﬁ ne paper

Pine

Unbleached/

bleached TCF Paperboard, ﬁ lters

CHEMICAL PULP Long-ﬁ bre sulphate pulp Pine/spruce Bleached ECF

Fine paper, printing and writing paper, LWC/ULWC, paperboard, tissue, ﬁ lters

Unbleached Filters, electrical applications, absorbent products

Eucalyptus pulp Eucalyptus Bleached ECF Fine paper, tissue, printing and writing paper

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 6

Groundwood pulp 73%

CTMP 8%

Sulphate pulp 1%

D E V E L O P M E N T O F G L O B A L S T O C K S A N D N B S K P R I C E S

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

2002 2003 2004 2005 2006

Thousand tonnes USD

Global stocks, thousand tonnes NBSK price USD/tonne 0 100 200 300 400 500 600 700 800

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Sven Holgersson in the grinding unit at Rottneros Mill where wood is fed into a grinder to be ground into pulp.

12

P R O D U C T I O N A N D A PP L I C AT I O N S

CTMP – A growth area

CTMP is the abbreviation for Chemi-Thermo-Mechanical Pulp and is a mechanical pulp where the wood is subjected to mild chemical pre-treatment at a high temperature. After treatment, the wood is deﬁ berised in a reﬁ ner. CTMP, a product area where Rottneros is a pioneer, is one of the Group’s growth areas.

The Rottneros Group has three CTMP lines, at Rock- hammar, Rottneros and Utansjö. However, as a result of the high electricity prices that are expected to continue over the

next few years, Rottneros is considering moving Utansjö Mill’s production operations out of Sweden.

The total production volume is 215,000 tonnes per year, which makes Rottneros one of the world’s largest CTMP producers. The raw materials used in the production of CTMP are aspen, spruce and pine, each yielding different grades of pulp. Spruce yields a stronger pulp than aspen, while aspen pulp is brighter. Many different grades devel- oped for speciﬁ c applications are produced from CTMP.

Spruce pulp may be either unbleached or bleached to vary-

ing degrees of brightness, while aspen pulp is only produced

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13

The global market for market pulp in 2006 amounted to around 42 million tonnes, which is the same as the fi gure in 2005. The market for bleached chemical pulp amounted to 37 million tonnes, of which 21 million tonnes or 56% was long-fi bre bleached chemical pulp and 16 million tonnes or 44% short-fi bre bleached chemical pulp.

The remaining 5 million tonnes consisted of unbleached chemical pulp and mechanical pulp.

Producer stocks of chemical pulp at the beginning of the year were at 3.38 million tonnes. By the end of the year, the ﬁ gure had fallen to 3.04 million tonnes.

The two most important markets for market pulp are Western Europe and North America, where a total of 24 million tonnes were delivered in 2006, which is equivalent to around 62%. Deliveries to all markets increased in 2006 and the single largest increase was to China, with an increase of 342,000 tonnes or 9.4%. The average increase on all markets was 3.4%. The difference in price between long-ﬁ bre and short-ﬁ bre chemical pulp in Europe in 2006 ranged from around USD 10 at the beginning of the year to around USD 60 at year-end.

with a high level of brightness. All of the pulp is TCF- bleached, i.e. with no chlorine compounds. Printing and writing paper is the main area of application. Liquid pack- aging board is produced from a special grade of pulp. As part of Rottneros’ niche strategy, special grades of CTMP are being developed for new areas of application, such as a bleached long-ﬁ bre CTMP grade for ﬁ lters.

In 2005 and 2006, Utansjö Mill focused on produc- ing aspen grades for printing paper. The Utansjö line has enabled the Group to supplement the CTMP range with a grade of aspen pulp used speciﬁ cally for coated ﬁ ne paper.

Groundwood pulp

Rottneros is the world’s largest producer of groundwood pulp for the open market with spruce as raw material.

Rottneros produces a number of groundwood pulp grades that are speciﬁ cally adapted for different types of print- ing paper.

Groundwood pulps may be either unbleached or bleached to varying degrees of brightness. The pulps are bleached with peroxide, i.e. TCF-bleached. Groundwood pulp is

mainly used for printing paper. Paperboard is another important application area.

The production of groundwood pulp is very energy-inten- sive, primarily due to the mechanical process of separat- ing the ﬁ bres using large grindstones or mills. Unlike in chemical pulp production, wood utilisation is very high at between 88 and 95%, which is why stone groundwood pulp – like CTMP – is frequently designated a high-yield pulp.

O U T LO O K

There is a clear trend in the market towards using more mechanical pulp in order to obtain functional products with high bulk. There are many indications that the use of mechanical pulp will increase.

Global capacity is increasing, mainly for CTMP, but also for groundwood pulp. The level of global production of groundwood pulp is signiﬁ cantly higher than the market for CTMP, taking into account both market pulp and inte- grated pulp. There will be new CTMP production capacity where electricity prices can be kept at competitive levels.

T H E P U L P M A R K E T

0 200 400 600 800 1,000

N B S K P R I C E I N U S D A N D E U R 1 9 9 1 – 2 0 0 7

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

■ NBSK price in USD NBSK price in EUR

North Western Eastern Latin Japan China Rest of

America Europe Europe America world

D E L I V E R I E S O F C H E M I C A L M A R K E T P U L P

Percentage change

2005 2006

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

-2 0 2 4 6 8 10 12 14 16 18

Tonnes %

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14 High capacity utilisation at all units

The Rottneros Group consists of ﬁ ve pulp mills in Sweden and Spain, wood procurement organisations in Latvia and Portugal, marketing companies in Germany and Belgium and the new business area, Rottneros Packaging. The producing units are Rottneros Mill, Rockhammar Mill, Vallvik Mill, Utansjö Mill and the pulp mill in Miranda in Northern Spain. The pulp mills are all marketed under the Rottneros brand using a uniform proﬁ le.

R OT T N E R O S M I L L

Rottneros Mill, located in Värmland, produces ground- wood and Chemi-Thermo Mechanical Pulp (CTMP). Both processes are mechanical and wood utilisation is high. The production capacity in 2006 was raised from 145,000 to 150,000 tonnes.

Capacity utilisation in 2006 averaged 94% (101) for groundwood pulp and 102% (98) for CTMP. There was only one prolonged, planned maintenance shutdown at the mill in the autumn.

In 2006 the focus on high productivity continued through measures to improve availability. This was achieved by, among other things, establishing ratios, operator super- vision routines, and preventive maintenance. Systematic improvements were also implemented in 2006, resulting in new monthly production records and a record for the year of 147,200 tonnes.

Organisational development continued in 2006 with the creation of a common production organisation for operation and maintenance, and support functions have been reﬁ ned for ﬁ nancial control, competence development, projects and purchasing. The target-oriented work processes were devel- oped during the year by providing all areas of management with annual targets to be followed up on a quarterly basis.

In the beginning of 2006 the mill received a new envi- ronmental permit allowing production of 200,000 tonnes per year and the installation of a solid-fuel boiler.

In 2006 efforts to reduce variable costs as part of the Group’s cost-cutting programme yielded good results. One major task involved determining how secondary heat could be used more effectively at the mill and thereby reduce oil consumption. By the second half of the year a reduction had already been achieved. Work on improving electricity efﬁ ciency also continued in 2006. The total energy con- sumption is therefore expected to be lower in 2007 despite the planned increase in production.

Other elements in the cost-cutting programme relat- ed to the consumption of bleaching chemicals, treatment chemicals and pulpwood and resulted in a cost reduction of SEK 14m on an annual basis.

R O C K H A M M A R M I L L

The pulp mill in Rockhammar in Bergslagen produces mechanical pulp of the CTMP type. In 1974 Rockhammar Mill was the ﬁ rst mill in the world to produce pulp using this mechanical processing technology. In December 2005 the mill received a temporary permit that remains in force until the end of 2008 to increase production from 60,000 tonnes to 66,000 tonnes. One of Rockhammar’s specialist products is CTMP based on pine for use in ﬁ lters, which is one of Rottneros’ niche areas.

Production in 2006 reached 99% of the total production capacity. A total of 65,500 tonnes was produced, which is 6,000 tonnes more than in 2005.

Following a small investment in the solid-fuel boiler and with the help of the mill’s dedicated staff, production capacity was increased by 10%. A number of measures that are part of the Group’s cost-cutting programme were imple- mented in 2006. For Rockhammar, the programme meas- ures have resulted in a reduction in costs of SEK 4m and a 25% increase in productivity.

In order to work more efﬁ ciently and systematically with environmental and energy issues, Rockhammar mill created a new management system in 2006 which covers quality, the environment and energy. One of the goals for 2006 was to reduce the total energy consumption, and as a result, oil consumption was cut by half and electricity consumption by 10%.

In order to meet customer expectations with respect to pulp purity, the existing screening unit was expanded and will be put into operation in the ﬁ rst half of 2007.

One of Rockhammar Mill’s niches is using a small and effective production apparatus for full-scale pilot runs to develop the quality and properties of pulp. The fact that there is only one production line at the mill with a well- established measurement system for the collection of proc- ess data facilitates the development of products and proc- esses. In 2006 stakeholders in the pulp industry rented the mill to carry out CTMP product development in coopera- tion with Rockhammar Mill.

G R O U P U N I T S

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15

U TA N S J Ö M I L L

The Utansjö Mill, north of Härnösand, produces ground- wood pulp and CTMP. Both grades of pulp are used pri- marily for coated and uncoated printing and writing paper.

Most of the pulp is bleached. The mill’s total capacity is 159,000 tonnes.

Capacity utilisation in 2006 averaged 91% (76) for groundwood pulp and 95% (65) for CTMP.

Fine-tuning of the new CTMP line was carried out dur- ing the year and the production levels continue to improve.

At the end of the year, a pilot project to increase acces- sibility in bale handling was started. All operations were placed under one operations manager in the autumn and other personnel resources are now part of an operational management staff.

In 2006 an initiative was implemented as part of the Group’s cost-cutting programme to reduce variable costs and increase productivity. The initiative mainly involved improving bleaching chemical and electricity efﬁ ciency and resulted, among other things, in a signiﬁ cant reduction in electricity consumption per tonne of pulp produced. The total savings amount to around SEK 14m on an annual basis. Work has also started on improving the use of sec- ondary heat.

Utansjö Mill is the unit in the Group that was hit the hard- est by the unacceptably high electricity prices in 2006. At the end of August the company announced that, due to the high electricity prices, it had entered into negotiations on the closure of Utansjö Mill with a view to moving the plant out of the country. Negotiations on the closure were still in progress at the end of February 2007.

VA L LV I K M I L L

Vallvik Mill, located just south of Söderhamn, produces two grades of pulp: fully bleached sulphate pulp, ECF (Elemental Chlorine Free) and unbleached sulphate pulp, UKP (Unbleached Kraft Pulp). The mill has a total produc- tion capacity of 194,000 tonnes of pulp per year and has a permit to produce 220,000 tonnes of pulp per year.

Efforts to fi nd new areas of application other than fi ne paper, which started about ten years ago, continued success- fully in 2006. Initially the mill concentrated on fi lters and impregnated board, but in recent years, paper for electrical insulation and greaseproof applications have been added.

In 2006 UKP with a very low metal content was further developed for use in special electrical applications. Several of the customers regard this as the leading product on the market from a quality perspective.

R O T T N E R O S P U L P M I L L S

Employees Capacity utilisation Pulp deliveries Production capacity by grade of pulp, tonnes

% Thousand tonnes Mechanical pulp Chemical pulp

Average

number Total by pulp grade 2002 – 2006 Groundwood CTMP Long-ﬁ bre

sulphate Short-ﬁ bre sulphate

Rottneros Mill

157 99 % Ground-

wood 94 % CTMP 102 %

75,000 75,000

Rockhammar Mill

67 99 %

66,000

Utansjö Mill

142 93 % Ground-

wood 91 % CTMP 95 %

79,000 80,000

Vallvik Mill

189 101 %

194,000

Rottneros Miranda

160 95 %

149,000

123 136 131 147 146

56 58 57 58 64

127 129 101 117 149

189 179 190 196 201

136 139 146 149 139

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16 In 2001 an investment programme was launched to work on internal processes, among other things, to further improve the external environment. The programme, which involves an investment of SEK 115m, has lowered the amount of water discharged. Work in 2006 focused primarily on com- pleting and ﬁ ne-tuning the major reconstruction process started in 2003.

In June 2006 Rottneros’ Board of Directors decided to invest SEK 89m in a new turbine that will make Vallvik Mill almost self-sufﬁ cient in electricity from the begin- ning of 2008. The new turbine, which has a capacity of 28 Mw, will be put into operation in autumn 2007. In addi- tion to the turbine, a number of measures will be imple- mented to maximise electricity production. The turbine installation will allow for future increases in production levels at the mill.

For Vallvik, the Group-wide cost-cutting programme launched in 2006 has been a success and will bring savings of over SEK 19m on an annual basis by 2007.

R OT T N E R O S M I R A N DA

The Rottneros Group’s only production unit outside Sweden is Rottneros Miranda, a pulp mill in Northern Spain. Here eucalyptus pulp is produced using the sulphate pulp process.

Production capacity amounts to around 149,000 tonnes. In 2006 the mill received ISO 14001 certiﬁ cation.

The Miranda mill’s primary markets are Spain, France and Italy and its largest individual customer is a global pro- ducer of tissue and hygiene products. In connection with the mill’s takeover in 1999, Rottneros instituted signiﬁ cant environmental and productivity improvements. The mill in Miranda produced 142,200 tonnes in 2006, which is equiva- lent to a capacity utilisation rate of 95% (100). Deliveries amounted to around 140,000 tonnes.

In 2006 new equipment was put into operation to optimise the cleaning of process water before it leaves the mill and a new economizer (heat exchanger) was installed in the soda recovery boiler.

S I A R OT T N E R O S B A LT I C A N D R OT T N E R O S M A D E I R A S

The Swedish mills import part of their raw material re- quirement, and most of this comes from Latvia through the SIA Rottneros Baltic subsidiary. The Spanish mill in Miranda imports some materials from the subsidiary Rottneros Madeiras in Portugal.

SIA Rottneros Baltic is a strategic part of the Rottneros Group’s raw material supply system, which is partly due to the fact that a large portion of the aspen wood that is becoming increasingly important to Rottneros is imported from Latvia. The company also assists with the procure- ment of wood from the rest of the Baltic region, Russia and Belarus. One of Rottneros’ strengths is having employees that understand the Russian language and business cul- ture.

The Latvian and Portuguese operations supplied the Swedish and Spanish mills with around 29% of their requirement in 2006. The wood that is not needed by Rottneros is sold to external customers.

In Latvia the purchased wood passes through a number of terminals where it is measured and stored prior to ship- ment to Sweden. To ensure that the raw material maintains the requisite quality, the company works with the Swedish wood measurement organisation, VMF.

Deliveries from SIA Rottneros Baltic are complex logis- tical operations and the delivery volumes are integrated with other deliveries in a constant ﬂ ow to the respective mills. In 2006 the company exported around 300,000 cubic metres of wood in 133 shiploads.

Jörgen Gustavsson is a fork-lift truck driver and dryer operator at Rockhammar Mill. At a mill like Rockhammar it is important for most employees to possess the skills to carry out several different tasks.

Tommy Hägg, grinder adjuster, Fredrik Larsson, vehicle mechanic and Johan Spetzig an appren- tice at the mechanical plant at Rottneros Mill.

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17 The reason for Rottneros’ decision to enter an entirely new sector is a desire in the longer term to reduce the one-sided dependence on pulp market fl uctuation and the US dol- lar rate. The decision to start manufacturing products for the food industry is based on the fact that this industry is less sensitive to economic fl uctuation than the pulp indus- try and the fact that it is traditionally in a different phase of the business cycle. This venture is possible thanks to Rottneros’ unique expertise and experience of working with pulp fi bre.

F R OZ E N A N D C H I L L E D P O R T I O N PAC K AG I N G

The main application area for Rottneros’ food packaging is portion-packaged frozen and chilled convenience foods that can be heated in a microwave or conventional oven. The product meets an increasing demand for an alternative to oil-based packaging. SilviPak has been developed in coop- eration with STFI Packforsk, a neutral research institute that focuses on packaging solutions.

A Taiwanese company is responsible for the mechani- cal technology, while Rottneros is responsible for provid- ing laminating and pulp ﬁ bre expertise. Rottneros has a worldwide licence to produce food packaging made from cellulose ﬁ bres using this method and machinery.

SilviPak has an excellent environmental proﬁ le compared to most competing products. The fact that the trays are produced from recyclable raw materials is also appreciated by consumers.

G R O W I N G M A R K E T

The market for the type of packaging produced by Rottneros amounts to around 6 billion items per year in Europe, most of which are 100% oil-based trays. The mar- ket is growing by almost 10% per year and today there are around ten major manufacturers in the market producing trays from plastic, aluminium and paperboard.

The goal is to achieve around a 5% share of the market within a ﬁ ve-year period, which means sales of around 350 million trays per year. The packaging business area would then account for an estimated 15% of the Group’s net turn- over, but will not have any impact on earnings in 2007.

Becoming established as a brand new food packaging producer is a long-term project since changing suppliers is a comprehensive process for large food producers and their customers.

The initial reception has been very positive. At this time, several production and market tests are under way in cooperation with leading producers of ready-cooked foods.

Development work is continuing in order to raise the envi- ronmental proﬁ le even more.

Rottneros Packaging – New business area for food packaging

Rottneros Packaging is a new business area within the Rottneros Group that was launched in spring 2006 to produce food packaging made from pulp ﬁ bre under the SilviPak brand. The new venture means that Rottneros is entering a new stage in the value chain by manufacturing a product that is delivered directly to end users, unlike grades of pulp that are used as input goods. Development work has been in progress for more than four years and the trays are produced at Rottneros Mill at this time.

Rottneros food packaging, SilviPak, is made from pulp ﬁ bre and used mainly for portion-packaged chilled and frozen foods. SilviPak has an excellent environmental proﬁ le compared to most competing products and very good insulation properties.