Rottneros — Annual Report 2011

Mar 16, 2012

Annual Report 2011

Rottneros in brief

Rottneros produces customised pulp for the market pulp market.

• Around 300 people are employed at Rottneros, which had a turnover of SEK 1.5 billion in 2011.
• The Group has annual production capacity of just under 400,000 tonnes of pulp at its two mills in Rottneros and Vallvik.
• Vallvik Mill produces two grades of long fibre sulphate pulp: fully bleached sulphate pulp (ECF – Elemental Chlorine Free) and unbleached sulphate pulp (UKP – Unbleached Kraft Pulp).
• Rottneros Mill manufactures CTMP and groundwood pulp, which are mechanical grades of pulp.

Net turnover, SEK m Result after net financial items, SEK m

Other products: pine oil, green electricity, timber, bark, SilviPak

USA 12% Asia 4%

Geographical distribution of turnover

Rottneros' market shares for market pulp in

190 193 216 190 192

	Employees	Pulp type			Production		Pulp deliveries
	Average no.	Mechanical	Chemical	2010, tonnes	2011, tonnes	Change	2007–2011, thousand tonnes
Rottneros Mill	119	Groundwood		73,600	59,100	-20%
		CTMP		64,900	65,400	1%
		Total		138,500	124,500	-10%	154 149 131 140 120
Vallvik Mill	159		Long fibre sulphate	184,500	199,600	8%

Net turnover and profit/loss

Western Europe in 2011

Germany 20% Italy 19%

The value chain

ADDING VALUE

Rottneros adds value by focusing on segments where the Group's production focus and applications have achieved, or can achieve, a strong position in the market pulp market. An integral part of adding value is the effective and rational use of the input goods required for pulp production, primarily timber, electricity and chemicals.

INPUT GOODS

Properly functioning logistics for the Group's timber supply are essential to ensure access to raw timber, restrict the stock of timber and minimise transport and its environmental impact. For this reason, the ambition of the Group is to purchase as large a proportion possible of its pulpwood within the proximity of its two mills. Rottneros endeavours to use fresh timber, which brings economic and environmental advantages. Raw timber accounts for approximately 38 per cent of the Group's costs. Electricity accounts for approximately eight per cent of the costs and should therefore be regarded as a strategically important input good.

PULP PRODUCTS

Rottneros produces two main kinds of paper pulp – mechanical and chemical pulp. The Group has a strong market position for the two mechanical grades – groundwood pulp and CTMP – and also for several different product areas within chemical pulp. Our broad range of products means that pulp can be chosen or specially designed on the basis of the specific needs of individual customers. Examples of special products include chemical pulp for the production of paper for electrical applications, and also a long fibre CTMP grade for filters.

THE MARKET

Rottneros is looking for long-term customer relations, which should help to stabilise profitability. The Group first approaches customers that do not have their own production facilities for any of the grades of pulp offered by the Group, and second customers that have their own production facilities for these grades, but that have a long-term need for supplementary volumes. This generates favourable conditions for long-term relationships. Rottneros also helps with the customers' development of end products by participating in development work and in that way offering customised pulp, which increases value added.

Rottneros in brief 2
Highlights of 2011 5
Comments by the President 6
Business concept, business model, objectives and strategies 8

The market 10
Financial position 12
Products and units 15
Bioenergy 19
Supply of raw materials 22
Rottneros' responsibility – General 24
Rottneros' responsibility – Personnel 27
Rottneros' responsibility – Environment¹ 28
Opportunities and risks 32
The Rottneros share 37
Corporate governance report 40
Appropriation of profits/signatures 49
Board of Directors, auditors and management team 50

Income statements – Group 53
Balance sheets – Group 54
Statement of changes in shareholders' equity – Group 55
Cash flow statements – Group 56
Income statements – Parent company 57
Balance sheets – Parent company 58
Statement of changes in shareholders' equity – Parent company 59
Cash flow statements – Parent company 60
Supplementary disclosure and notes 61
Auditor's report 81

Six-year review 83
Quarterly data and definitions of key ratios 84
Glossary 85
Annual general meeting 86
Addresses 88

Highlights of 2011

• Profit after net financial items for the whole of 2011 amounted to SEK 28 (138) million before items affecting comparability. The result amounted to SEK -120 million after writedowns and one-off costs of in total SEK -148 million, which were made in the third quarter.
• The chemical pulp market was comparatively strong, while the mechanical pulp market was weak. This means that deliveries from Vallvik Mill rose by one per cent while those from Rottneros Mill fell by 14 per cent.
• In January 2011, Rottneros concluded a new financing agreement for SEK 100 million that, compared with previous agreements, increased operational freedom while reducing costs. The agreed credit facility was extended at the end

of the year and amounted to SEK 150 million from 1 January 2012.

• Planning has continued to eventually start biofuel production. Rottneros has submitted applications for grants for biomethanol production. This is based on black liquor gasification for Vallvik Mill and wood gasification for Rottneros Mill. Both applications have been approved for consideration by the EU.
• A profit-improvement programme has been initiated at Rottneros Mill involving not only staff reductions and cuts in other production costs but also changes to our product range, production focus and customer structure. About twenty posts are affected by this programme.

ROTTNEROS IN FIGURES
----------------------	--

	2011	2010	2009	2008	2007	2006
Net turnover, SEK m	1,513	1,684	1,508	2,663	2,927	2,690
Profit/loss after net financial items, SEK m	-120	138	-69	-385	-384	-23
Investment in fixed assets, SEK m	157	125	10	191	163	113
Average no. of employees	298	308	387	667	718	754
Ratios (%)
Equity/assets ratio	75	82	78	40	45	57
Return on capital employed	Neg.	11.6	Neg.	Neg.	Neg.	Neg.
Return on equity	Neg.	10.8	Neg.	Neg.	Neg.	Neg.
Operating margin	-7.8	8.2	-11.0	-11.5	-12.3	-0.3
SEK/share
Equity per share¹	6.65	8.05	7.14	44.96	58.29	77.83
Profit/loss after tax¹	-0.95	0.82	-2.59	-18.35	-16.69	-0.45
Operating cash flow/share¹, ²	-0.74	0.51	2.74	-13.34	-5.59	1.93
Dividend¹, ³	0.10	0.20	–	–	–	1.00

¹ There was a reverse share split in April 2010, where ten existing shares were combined as one share. The comparison periods have been adjusted for this reserve split.

² Cash flow after normal investments but excluding strategic investments.

³ Dividend proposed for 2011.

Gluing bales of unbleached pulp at Vallvik Mill, which produces long fibre chemical sulphate pulp.

Our challenge is to tackle external factors

We are not satisfied with the results for 2011. Profit after net financial items, but before one-off items, fell from SEK 138 to 28 million. Although it is our task to deal with difficult external factors, it may be observed that this deterioration of our result is actually less than the negative impact attributable to lower selling prices in SEK and increased pulpwood prices. In other words, we have become more efficient than we were in 2010. The outlook for 2012 is uncertain, but there are positive components, such as falling timber and electricity prices and rising pulp prices.

Rottneros and the entire global forest industry can indeed hide behind macroeconomic and political developments and conclude that our immediate future was and is unpredictable. Total global demand for forest fibre is growing, resulting in the price of both timber and forestry land continuing to rise and raw materials consequently becoming more expensive. At the same time there has been a change in behaviour in the Western world, which has meant that printed paper, not least for advertising and publicity purposes, is rapidly losing market shares to electronic media. However, there has also been an increase in the number of people throughout the world who read printed products. Increased age and standards of living in all parts of the world is boosting demand for cellulosic hygiene products and packaging. This evolution is continuing and favours the forest industry, particularly when combined with the demand for renewable raw materials in an ever increasing number of value chains.

COUNTER-STRIKE PULP MARKET

The global chemical pulp market was in fact strong in 2011. However, unfortunately for our part, NBSK deliveries in Europe fell by five per cent. This is probably due to non-integrated printing paper equipment continuing to be closed down, but perhaps also the abundance of in comparative terms cheap hardwood pulp that is stimulating changes to pulp recipes. Global shipments of both hard- and softwood pulp rose by between three and four per cent, which is excellent.

Demand was strong during the first half of the year, with substantial price increases in US dollars at the same time as there was a considerable increase in global pulp stocks. That is to say, actual paper consumption did not rise as much as pulp supplies. During the second half of the year, pulp purchasers were able to get the price trend to turn downwards due to substantial producer stocks, but also because of the general business cycle which was clearly becoming weaker. As usual the price fell quickly and by too much. Then came extremely high shipments to China in December, marking the end of the price drop. 2012 thus started with falling pulp stocks and rising prices, particularly for hardwood pulp.

2011 was not a good year for pulp prices for Swedish manufacturers despite an all time high, with a price of USD 1,025 per tonne for long fibre pulp around Midsummer. The extremely strong Swedish krona, or perhaps rather the weak Euro and US dollar, meant that the average price was actually almost SEK 500 per tonne lower than in 2010. In addition to this,

pulpwood was approximately SEK 60 more expensive per cubic metre than it had been in 2010. Taken together, these factors represent a greater suppression of business than the actual deterioriation in Rottneros' result from SEK 138 to 28 million (after net financial items but before one-off items). In other words we actually did a lot better and were much more efficient in 2011 notwithstanding the result.

SEGMENTS DEVELOPING DIFFERENTLY

The Rottneros Group operates in three different segments from a market and pricing perspective: groundwood pulp, CTMP and NBSK or chemical long fibre pulp. There is a logic in support of each of these though the links are not always apparent. Rottneros is the only producer of bleached market groundwood pulp for the printing paper segment. This means that we set the prices. Of course the price may become a trade-off between our costs and what customers are able to pay before they are forced to discontinue their products because the market is no longer willing to pay a price that covers costs. This means that the price of groundwood pulp is now higher than the price of CTMP and sometimes higher than chemical pulp as well. We experience problems when volumes fall, forcing us to have further production shutdowns, which was clearly illustrated in 2011. The CTMP price is now geared to a significant extent towards the Chinese market. This is where the Scandinavian and Canadian manufacturers encounter the largest purchasers. The price of CTMP was a couple of hundred Swedish kronor lower per tonne than the price of chemical hardwood pulp during the five-year period preceding the global financial crisis. Price differences were virtually non-existent during the crisis. After the financial crisis, the price difference

was more than one thousand Swedish kronor, which made life difficult for all CTMP producers throughout the world.

Following the price drop in the autumn, this price difference is now returning to levels that are more 'normal' from a historical perspective. There was also a sharp increase in the difference between the price of chemical softwood and hardwood pulp in 2011, from around the USD 70 per tonne level to over USD 200 per tonne. At the beginning of 2012 this price difference appeared to be on its way back down, approaching USD 100 per tonne. There are thus large relative changes between the various market segments.

WHAT COULD WE HAVE DONE BETTER?

External factors during the second half of 2011 did not favour Rottneros, but we could obviously have had more success with certain things. We have worked on several projects to promote deeper cooperation with other companies, but the pieces of the jigsaw have not really fallen into place. However, it shows that we are still a player. We are continuing to give top priority to capitalising our sleeping capital in the CTMP equipment from our closed mill at Utansjö. Active work is underway on a number of different projects in countries both east and south of Sweden. The difficulty for new CTMP projects lies in poor global price trends for CTMP in recent years, despite strong growth in the chemical pulp markets. Although investment decisions have been delayed, we believe that this strong high-yield pulp product will enjoy a renaissance due to its unique properties combined with the fibre shortage in China, which is driving global fibre costs.

PURPOSE OF THE NEW SHARE ISSUE ACHIEVED

The financial transformation of Rottneros in 2009 brought with it a number of objectives. Probably the most important of these objectives were: the release from the restrictive bank loan terms caused by an excessive level of debt; the reintroduction of a share dividend after several years of austerity; and the financial capacity to satisfy the new environmental requirements imposed on Vallvik Mill by public authorities. We have now met these objectives and are ready for the next phase of our development.

ACTIVE WORK ON SUSTAINABILITY

As an integral part of our operation, we conduct active work relating to responsibility and sustainability issues throughout the entire value chain. Each stage of our production and distribution

systems has the objective of minimising adverse effects on the environment and everyone else affected by Rottneros' operation. We are striving for good communication with everyone affected by our operation, that is, customers, shareholders, employees and everyone around us.

Important issues from both a sustainability and financial perspective are the use of resources (for example how we use and secure raw timber and its setting), energy efficiency and also that we offer our employees a safe work environment.

OUTLOOK FOR 2012

The global macroeconomy is unusually uncertain. However, the pulp market really appears to be strong for 2012. No new capacity has been added for softwood pulp, and normal productivity improvements do not compensate the closures that have recently taken place or the numerous conversions to viscose production that are underway. The cost of pulpwood is clearly going to be lower, but conversely the strong Swedish krona is impairing competitiveness and net price income for manufacturers in Sweden such as ourselves.

We are continuing to keep an open mind when reviewing the various cooperation possibilities that are already available and the new opportunities that will arise in a year of increased activities, consolidations and regroupings.

Possible bioenergy projects are continuing to be analysed both at Rottneros and Vallvik Mill. So far we have done well in our endeavour to get support via the EU emission rights funds, where two out of the five remaining Swedish applications in the final process have been submitted by us. We are focussing on the possibility of producing vehicle fuel using forest cellulose. Rottneros will, as regards both projects, only take part in these investment projects if we secure the right partners and provided the anticipated profitability is good.

I would like to thank our employees for their good work in 2011 and for loyally supporting the development of Rottneros.

Ole Terland President and CEO of Rottneros

Focus on segments that afford us a strong market position

The overall objective of Rottneros is to provide its shareholders with a competitive return over the course of a business cycle. In order to achieve this objective, the Group needs to create added value for its customers as well as be an attractive employer and competitive producer. Rottneros adds value by focusing on segments where the Group can secure a strong position in the market pulp market through its production focus and applications.

Examples include mechanical market pulp, where Rottneros is a leading supplier, and chemical pulp for electrical applications, where the Group has developed unique expertise. Rottneros' strategy is to produce both mechanical and chemical market pulp so that it can offer its customers a broad portfolio of products.

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

BUSINESS CONCEPT

Rottneros' business concept is to be an independent and flexible supplier of customised and highquality pulp. Rottneros adapts its product range to meet the needs and high expectations of customers by continuously developing its products and providing a high level of security of supply, technical support and service.

VISION

Rottneros shall be perceived as a market leader that is able to meet the needs and high expectations of pulp customers. This in turn shall result in stable profitability over the course of a business cycle set against the background of conditions within the industry.

BUSINESS MODEL

Rottneros operates in the market pulp market and is a global supplier of bleached and unbleached long fibre chemical pulp as well as mechanical CTMP and groundwood pulp.

Pulp is produced at two Swedish pulp mills: Vallvik Mill produces long fibre chemical bleached sulphate pulp and long fibre chemical unbleached pulp while Rottneros Mill manufactures mechanical CTMP pulp and groundwood pulp. The mills are independent profit centres and have their own sales organisations.

ADDING VALUE

Rottneros adds value by focusing on segments where the Group's production focus and applications have achieved, or can achieve, a strong position in the market pulp market. Examples of this include pulp for electrical applications that have high purity requirements, filters where air permeability is crucial, food packaging where the most important factor is its stiffness, and pulp for thin printing paper with high requirements for opacity where Rottneros is an important supplier. An essential part of adding value is the effective and rational management of the input goods required for pulp production. Rottneros primarily uses three input goods:

• Timber, accounting for approximately thirtyeight per cent of our costs.
• Electricity, accounting for approximately eight per cent of our costs.
• Chemicals, accounting for approximately seven per cent of our costs.

Rottneros endeavours to develop long-term relationships and contracts with suppliers of these goods in order to achieve security and stability.

OBJECTIVES AND STRATEGIES OPERATIVE OBJECTIVES AND STRATEGIES

Rottneros has a number of overall objectives for its operational activities aimed at generating a competitive return for shareholders over the course of a business cycle through growth in value and dividend yield. In order to achieve this objective, the Group needs to create added value for its customers as well as be an attractive employer and competitive producer.

One of our objectives is growth. In order to create the preconditions for growth, Rottneros works according to two main strategies:

• Rottneros is looking for development opportunities to strengthen its existing pulp operation through strategic alliances in Sweden and abroad. The Group is also planning to increase capacity at Vallvik Mill even further.

• Rottneros is preparing for a possible entry into related activities where the Group's knowledge of pulp refining is used and represents a precondition and where there are also clear synergy effects. One step in this development is that the Group is running projects in cooperation with industrial and financial partners which are intended to lead to the production of high-refined biofuel at both mills.

Another objective is for Rottneros to gradually lay the foundation for a less volatile earnings trend over the course of a business cycle by focusing increasingly on more specialised grades of pulp.

FINANCIAL OBJECTIVES

Rottneros has defined a number of financial objectives. These are:

• profitability (measured as return on capital employed) that exceeds the profitability for comparable pulp producing companies;
• a debt/equity ratio of no more than 0.4 times shareholders' equity.

DIVIDENDS AND DIVIDEND POLICY

The level of dividends is to be adapted to Rottneros' performance level, debt/equity ratio, general financial status, future development opportunities and investment needs. Our capacity to pay dividends should be viewed over the entire business cycle rather than for an individual year. This means that dividends will be restrained in good years so that it is possible to pay dividends in years where results are weaker.

Rottneros' deliveries of market pulp amounted to 312,000 tonnes in 2011. Almost 80 per cent went to customers in Europe.

Close collaboration - a basis for expansion in profitable customer segments

Rottneros produces three main kinds of pulp for the market pulp market: bleached and unbleached long fibre chemical pulp; mechanical CTMP pulp using spruce, aspen, birch and pine as raw material; and groundwood pulp. Rottneros' pulp is sold globally, focussing mainly on Europe and the United States as well as some of the Asian markets. Global pulp production amounts to approximately 190 million tonnes, of which approximately 55 million tonnes relate to market pulp.

EUROPEAN MARKET

Approximately three-quarters of Rottneros' sales are made to Europe, which consequently constitutes the Group's largest market. This characterises the sales organisation, which has been set up primarily to meet the requirements of the demanding European market. Combined with the specialist competence at our mills, we offer close cooperation with customers in a number of prioritised segments so that these customers can get the pulp, or mix of pulps, that meets their final product requirements as effectively as possible in terms of cost and resources. This forms a basis for future expansion in a customer segment that is strategic for us and that will be profitable over time.

The European market amounted to approximately 15 million tonnes of pulp in 2011 and was thus the largest market area globally. This market has never fully recovered from the global financial crisis of 2008/2009 and is now reducing once again. It is primarily the printing paper market that is contracting, probably as a consequence of the increased use of the Internet for information and advertising purposes rather than the impact of the business cycle. A large number of closures were announced and/or partly executed in 2011 within the printing paper sector, which had more of an adverse effect on non-integrated paper mills (that is, those without their own pulp production facilities) than integrated mills. This has resulted in the market pulp market suffering slightly more severely than the paper market.

WORLD MARKET

A clear trend in 2010 was the reduction in supplies to China. This changed significantly in 2011, resulting in record supplies. The pricing of pulp has probably influenced these major changes to purchasing behaviour. The price of pulp in local currencies was higher in 2010 than in 2011 owing to the dollar weakening. In 2011, supplies of chemical long fibre pulp increased globally by almost four per cent, despite a reduction of approximately four per cent in Europe and the United States but primarily thanks to a 25 per cent increase in supplies to China. Comparable figures for short-fibre pulp supplies are all lower;

i.e. for once we see long fibre pulp regaining market shares slightly from short-fibre pulp. Developments in China and Asia are the opposite of those described above for Europe. The expansion in respect of paper is significant at the same time as it is mainly based on non-integrated mills, resulting in a very strong expansion of the market pulp market. The scarcity of timber and thus the cost of timber is high which, combined with the enormous investment costs for new pulp mills, means that it has become financially advantageous to import pulp and just build the paper machine.

Global paper pulp production amounted to around 190 million tonnes in 2011, of which around 55 million tonnes comprised market pulp. Fiftytwo per cent of the total global market for chemical market pulp is bleached short-fibre chemical pulp, 43 per cent is bleached long fibre pulp and the remainder is sulphate pulp and unbleached chemical pulp.

Supplies of chemical pulp among the world's manufacturers increased by around four per cent in 2011 after only having changed marginally (+0.6 per cent) in 2010. Global pulp stocks increased quite significantly in 2011, leading to the conclusion that production must have risen more than the supply statistics had indicated. This could probably largely be explained by the restart in Chile following the catastrophic earthquake in 2010.

Geographical distribution of turnover

Just under two thirds of Rottneros' production comprises long fibre chemical pulp, while one third comprises mechanical pulp. The proportion of long fibre in Rottneros' mechanical pulp is more than 80 per cent, which means that the Group's total production comprises 92 per cent pulp manufactured from softwood fibre.

There have not been any new pulp mills, either for strong pulp or opaque, thin printing paper, built anywhere in the world and nor were any such decisions made in 2011. However, existing mills have been improved and made more efficient, which has made it possible to increase capacity as required by the above increases in supplies. These efficiency measures have also made it possible to build up stock while compensating for the limited though not non-existent closures of mills in recent years. In 2012 a new softwood line will in fact replace an old and significantly smaller line in Siberia, but this increase in capacity does not balance out the effect of several production lines being converted for the production of pulp for the textile industry in 2012.

Rottneros' market shares for market pulp in Western Europe in 2011

A new large production line for chemical pulp and one for CTMP started up in China last year within short-fibre pulp manufacture. A new large chemical pulp mill will be set up in Brasil at the end of 2012, and a smaller one in Laos.

Deliveries of chemical market pulp

Development of global stocks and NBSK prices 0 1,000 2,000 3,000 4,000 5,000 6,000 0 200 400 600 800 1,000 1,200 Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Global stock, thousands tonnes NBSK price, USD per tonne

PRICE TRENDS

Market pulp prices are largely set in USD. When setting the price of pulp from Rottneros Mill and Vallviks Mill, the price received in SEK is consequently determined by a combination of the price for market pulp and the USD rate.

Source: Riksbanken and FOEX Indexes Ltd

2011 started with prices in Europe of approximately USD 950 per tonne for NBSK and approximately USD 600 per tonne for highly bleached CTMP. As a consequence of strong demand combined with an increasingly weak USD, it was possible to gradually increase the price for NBSK in the spring to achieve a record high of USD 1,025 per tonne around Midsummer. Despite this, the CTMP price could not be increased. The second half of the year was characterised by reduced demand that, combined with a marked increase in producer stocks of chemical pulp, resulted in significant price pressure. The price at the end of the year was approximately USD 830 per tonne for NBSK pulp and 530 USD per tonne for CTMP. Demand during the last two months of the year was very weak and many producers chose to limit production to keep stock levels within reasonable limits.

Sales, results, investments and financial position

Rottneros reported an operating profit of SEK 31 (138) million for 2011, excluding total write-downs and one-off costs of SEK -148 million.

SALES AND RESULTS

SUMMARISED INCOME STATEMENT
	2011	2010
Net turnover	1,513	1,684
Operating profit/loss, excl. one-off effects¹	31	138
Operating profit/loss	-117	138
Profit/loss after net financial items	-120	138
Profit/loss after tax	-144	125

¹ Excl. total write-downs and one-off costs of SEK -148 m

SALES

The Group generated a net turnover of SEK 1,513 (1,684) million in 2011. Compared with 2010, turnover increased by SEK 63 million as a consequence of the higher than average USD price for long fibre sulphate pulp. The average USD price for long fibre sulphate pulp NBSK increased by three per cent in 2011, from USD 930 to USD 960. A weaker Swedish krona in relation to USD adversely affected turnover and the result by SEK 134 million. Average prices for NBSK pulp converted into SEK fell by seven per cent, from SEK 6,705 to 6,229 per tonne.

A reduction in supplies in 2011 compared with 2010 adversely affected turnover and the result by SEK 100 million. The lower supplies are primarily referable to groundwood pulp from Rottneros Mill.

OPERATING PROFIT/LOSS

The Group posted an operating loss of SEK -117 (138) million in 2011. Operating profit amounted to SEK 31 million for 2011, adjusted for write-downs and one-off costs.

VARIABLE COSTS

Increased variable costs in 2011 compared with 2010 adversely affected the result by SEK 50 million. The average price of electricity on the Nord Pool electricity exchange amounted to SEK 0.43 per kWh in 2011, compared with SEK 0.54 per kWh for the same period of the previous year. Lower electricity prices in 2011 affected the result positively by SEK 32 million compared with 2010. However the result from electricity hedging realised reduced this positive effect by SEK 7 million.

The supply of timber functioned efficiently during the period. However, the cost of pulpwood rose throughout most of 2011. This cost increase, which was a consequence of higher timber prices, amounted to SEK 61 million in 2011 compared with 2010.

DEVIATION ANALYSIS
	2011	2010
NBSK PIX	960	930
SEK/USD	6.50	7.21
NBSK SEK	6,229	6,705
OPERATING PROFIT/LOSS	-117	138
Price		63
Currency		-134
Volume		-4
Variable costs		-50
Other		18
		-107
Write-downs and one-off costs		-148
TOTAL DIFFERENCE		-255

WRITE-DOWNS AND ONE-OFF COSTS

Total write-downs and one-off costs of SEK -148 million were reported for the third quarter of 2011. The fact that Rottneros has no access to or control over the liquidation proceedings for Rottneros Miranda SA together with the protracted crisis in the Spanish property market and uncertainty as to when the situation can be stabilised led to Rottneros writing down the entire net receivable relating to Rottneros Miranda SA in 2011, which had a book value of SEK 53 million. The total receivable in relation to Rottneros Miranda SA amounts to the equivalent of SEK 91 million. The receivable has a book value of SEK 0 million as of the write-down in 2009 and the write-down of SEK 53 million in the third quarter of 2011. Any future repayment of the entire or part of the claim will thus have a positive effect on Rottneros' result.

Work is continuing to find a new use for the CTMP line from Utansjö. Work on several interesting projects is underway, and one alternative is still to locate it in South Africa, which was the original plan. However, the likelihood of this project actually being realised at the present time is considered to be so low that the capitalised project costs, primarily from the period 2007 to 2009, were written off in the third quarter of 2011. These amount to SEK 19 million and have been charged to the full-year result for 2011.

Profitability at Rottneros Mill is unsatisfactory and an improvement programme has been initiated. These improvements relate not only to customer structure but also product orientation and measures to reduce costs. As part of the measures to reduce costs, the number of employees at the mill is being cut by approximately 20 per cent. These measures will be implemented during the spring of 2012. As a consequence of the profitability situation and the uncertain prospects for the groundwood pulp market, the mill's assets were written down by SEK 65 million during the third quarter of 2011. This write-down resulted in the annual rate of the depreciation according to plan reducing by approximately SEK 9 million from and including the fourth quarter of 2011.

As of the staff cuts at Rottneros Mill, provision was made for a restructuring reserve amounting to SEK 11 million; this was charged in its entirety to the result for the third quarter of 2011.

OTHER

The outcome of hedging activities realised in 2011 amounted to SEK 0 (43) million. SEK 7 (40) million of the hedging result is linked to currency hedging and SEK -7 (3) million is referable to electricity hedging.

PROFIT/LOSS AFTER NET FINANCIAL ITEMS

Group profit after net financial items amounted to SEK -120 (138) million and includes net financial items of SEK -3 (0) million. Net financial items include financial exchange losses of SEK -1 (5) million.

PROFIT/LOSS AFTER TAX

The Group's profit after tax amounted to SEK -144 (125) million. This year's tax expense amounted to SEK -24 (-13) million. No deferred tax revenue has been recorded for the tax effects of tax loss carryforwards of SEK 142 million.

Earnings per share after tax were SEK -0.95 (0.82). Profit after tax, adjusted for write-downs and one-off costs, amounted to SEK 4 million for 2011, corresponding to earnings per share after tax of SEK 0.02.

INVESTMENTS AND FINANCIAL POSITION

INVESTMENTS

The Group's investments in fixed assets amounted to SEK 157 (125) million in 2011.

In 2010, most of these investments were attributable to the evaporation plant and recovery boiler at Vallvik Mill. In 2011, these investments relate primarily to the biological water purification and bleaching plant at Vallvik Mill.

FINANCIAL POSITION

SUMMARISED BALANCE SHEET
	31 Dec 2011	31 Dec 2010
Fixed assets	841	867
Current assets	485	472
Cash and cash equivalents	21	155
TOTAL ASSETS	1,347	1,494
Shareholders' equity	1,014	1,228
Interest-bearing liabilities	47	39
Non-interest-bearing liabilities	286	227
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES	1,347	1,494

Fixed assets amounted to SEK 841 million on 31 December 2011, a three per cent reduction compared with 31 December 2010. Ninety per cent of the Group's fixed assets comprise tangible fixed assets. In 2011, tangible fixed assets were written down by SEK 56 million. Rottneros Biorefinery AB was founded in September 2011 and Rottneros AB owns 50 per cent of its participations. Rottneros Biorefinery AB is reported as an associated company of Rottneros AB and has a book value of SEK 0 million for both Rottneros AB and the consolidated accounts.

Current assets, excluding cash and cash equivalents, amounted to SEK 485 million on 31 December 2011 and comprise 57 per cent stock and 26 per cent accounts receivable. Current assets increased by three per cent compared with the end of the previous year.

The Group's cash and cash equivalents amounted to SEK 21 million at the end of 2011 compared with SEK 155 million at the end of 2010.

The Group had total interest-bearing liabilities of SEK 47 million on 31 December 2011 (SEK 39 million as at 31 December 2010). Interest-bearing liabilities comprise unutilised short-term bank credit together with financial leasing liabilities. Interestbearing net liabilities amounted to SEK 26 million, compared with an interest-bearing net receivable of SEK 116 million as at 31 December 2010.

Approved but unutilised credit facilities amounted in total to SEK 63 million on 31 December 2011 and total approved credit facilities amounted to SEK 100 million. Total approved credit facilities amounted to SEK 150 million from 1 January 2012.

The equity/assets ratio was 75% on 31 December 2011 compared to 82% on 31 December 2010. Equity per share amounted to SEK 6.65 (SEK 8.05 on 31 December 2010). The write-downs and one-off

costs that were charged to the result for 2011 have affected equity per share by SEK -0.97.

CASH FLOW

CASH FLOW FOR THE YEAR	-134	44
Cash flow from financing activities	-21	-50
Cash flow from investing activities	-148	-108
Cash flow from operating activities	35	202
	2011	2010
SUMMARISED CASH FLOW

Cash flow from operating activities before investments amounted to SEK 35 (202) million in 2011 and included cash flow of SEK -1 (44) million from financial hedging. Working capital increased in 2011, which adversely affected cash flow by SEK 49 million.

Cash flow from investing activities amounted to SEK -148 (-108) million. In addition to investments of SEK 157 (125) million, cash flow from investing activities was affected by the sale of fixed assets and changes in long-term receivables.

In 2011, loans for SEK 28 (51) million were repaid and SEK 30 (0) million paid as a dividend to shareholders. At the same time, short-term credit of SEK 37 (0) million was utilised at the end of 2011. In 2010 share warrants were issued, which had a positive effect on the cash flow from financing activities for the previous year of SEK 1 million.

Net cash flow for 2011 amounted to SEK -134 (44) million, corresponding to net cash flow per share of SEK -0.88 (0.29). Cash flow after investments per share amounted to SEK -0.74 (0.51).

PARENT COMPANY

SUMMARISED INCOME STATEMENT
	2011	2010
Net turnover	27	1,533
Operating income	-107	0
Income after net financial items	-90	180
Profit/loss after tax	-91	161

SALES

The parent company's turnover for 2011 amounted to SEK 27 (1,533) million. All pulp invoicing within the Group was centralised at the parent company up until 30 November 2010, which had served as a

distributor for all of the mills and had been receiving sales commission for this service at normal rates. The respective mills have been responsible for invoicing and distribution from 1 December 2010.

In 2011, the parent company's sales primarily comprised income from one customer during the first months of the year together with invoiced management fees.

PROFIT/LOSS AFTER NET FINANCIAL ITEMS

The parent company's profit/loss after net financial items amounted to SEK -90 (180) million for 2011. The result includes hedging activities realised for the entire Group, which affected the result by SEK 0 (43) million. The result for 2011 has incurred total write-downs of receivables of SEK -72 million. These write-downs relate to the receivable in respect of Rottneros Miranda SA and also capitalised project costs, which are described under write-downs and one-off costs on pages 12-13. The result after net financial items for 2011 was also affected by an amount of SEK 16 (154) million in respect of Group contributions paid and received.

OUTLOOK FOR 2012

As Rottneros' financial result is largely affected by volatility in the pulp and currency markets, the company will not be submitting an earnings forecast for 2012.

At Rottneros Mill, pulp is dried in the flash drier before being pressed and packed into bales.

Mechanical and chemical pulp at two pulp mills

The Rottneros Group mainly comprises two pulp mills: Vallvik Mill and Rottneros Mill. The Group also has a subsidiary for timber purchases in Latvia, SIA Rottneros Baltic, which supplies Vallvik with some of the pulpwood used by the mill. Rottneros Packaging produces food packaging to a limited extent.

Rottneros manufactures long fibre chemical pulp and two categories of mechanical pulp – groundwood pulp and CTMP. Chemical pulp is produced at Vallvik Mill and mechanical pulp at Rottneros Mill. All of the pulp produced by Rottneros is TCF bleached, which means that it is totally chlorinefree. A large proportion of the Group's pulp products are customised.

The Group's pulp mills have a combined annual production capacity of just under 400,000 tonnes. Production amounted to 324,100 tonnes in 2011 compared with 323,000 tonnes in 2010. Deliveries in 2011 amounted to 311,400 (330,300) tonnes, which represents a reduction of six per cent. The reason for the reduced delivery volume is primarily reduced supplies of groundwood pulp from Rottneros Mill.

The Group's products

ROTTNEROS MILL PRODUCTS

Rottneros Mill manufactures two categories of mechanical pulp: CTMP (Chemi-Thermo-Mechanical Pulp) and groundwood pulp. This pulp accounts for around a third of the Group's production. When CTMP is being produced, the wood is mildly pre-treated with chemicals at a raised temperature. Pulp is produced in both bleached and unbleached grades. Spruce is the dominant raw timber, but pine, birch and aspen are also used. Combining different kinds of tree in various ways achieves pulp grades with different properties, which also affects the field of application.

Rottneros' CTMP that is made from aspen and birch is mainly used for printing and writing paper, while CTMP made from pine and spruce is largely used by board manufacturers. Other

applications for special CTMP grades include the manufacture of filters and tissue paper.

The grades of groundwood pulp manufactured by Rottneros are specially adapted to produce different kinds of printing paper. The unique property of groundwood pulp is high opacity (degree of opaqueness), which is a particularly important property for thin printing paper. Spruce is used exclusively as the raw timber for this. Groundwood pulp is available in both unbleached and bleached grades with different levels of lightness.

THE MARKET

Global production of mechanical pulp for the market amounted to between three and four million tonnes in 2011. Global market capacity largely remains the same, as the production facilities that have recently been set up in China are primarily for domestic use. The world's largest manufacturer is Canadian Tembec. Other major manufacturers are the Canadian companies Millar Western and West Fraser, the Finnish company M-real and the Chinese company APP.

Rottneros' largest markets for mechanical pulp in 2011 were Italy, India and Sweden, which accounted for 44, 15, and 12 per cent of the deliveries respectively.

PRODUCTION

Rottneros Mill has two separate manufacturing lines for groundwood pulp and CTMP. Both processes are eco-friendly, and the high utilisation of raw materials entails a low level of wood consumption per tonne of pulp produced. However, both processes are intensive in respect of electrical power, which means that the mill is exposed to electricity prices. Rottneros Mill has an annual manufacturing capacity of approximately 170,000 tonnes, which makes the mill one of the world's largest producers of mechanical market pulp. The mill has just over 100 employees after the staff cuts made at the end of 2011. With this level of staffing, practical production capacity is around 150,000 tonnes.

124,500 tonnes were produced in 2011, representing a reduction of 14,000 tonnes or ten per cent compared with 2010. The reason for the decrease in production was a weak market for printing paper, which is the primary application for

Rottneros' groundwood pulp. The CTMP market was also weak.

A fire in the drier at the mill during the summer had an adverse effect on production, resulting in a production shutdown.

The mill initiated a review of the customer and product mix in 2009. This resulted in an increased focus on pulp for, among other things, the production of board, filter pulp, high bulk printing and writing paper and thin printing paper. This is a segment where customers can exploit the unique properties of mechanical pulp. In 2011, the printing paper market was weak not only for business cycle reasons, but also structural reasons as an increasingly large proportion of media consumption has moved to digital media. In order to compensate for this in the long term, the mill will increasingly focus on CTMP for packaging, i.e. board; this is considered to be a segment with longterm market growth. Another reason for this venture is that this pulp is manufactured from timber from spruce and pine trees, and there is good access to these in the proximity of Rottneros Mill. This was also reflected in the product trends for 2010 and 2011.

Rottneros Mill is continuing to take measures to increase productivity and reduce energy consumption per tonne of pulp produced. Energy consumption per tonne of pulp has fallen by approximately 20 per cent since 2004.

VALLVIK MILL PRODUCTS

Long fibre chemical sulphate pulp is produced at Vallvik Mill and accounts for just under two thirds of the Group's production. Most of Vallvik Mill's production is what is known as 'NBSK pulp' (Northern Bleached Softwood Kraft). NBSK is the term used for the most common type of long fibre pulp and is the pulp generally referred to in official price indications; for example, in the weekly PIX price reported in USD/tonnes for Europe, North America and China. The NBSK pulp produced by Vallvik Mill is called 'ECF pulp' (Elemental Chlorine Free) which indicates the type of bleaching used in the manufacturing process. This pulp is used to whiten or lighten paper and board products and above all for the manufacture of printing and writing paper, hygienic papers and white packaging. Long fibre pulp constitutes the element that adds strength to various grades of paper and its reinforcement properties are consequently important. This reaps the full potential of the slowgrowing, strong North Scandinavian spruce and pine fibre used by Rottneros. Vallvik Mill also produces UKP (Unbleached Kraft Pulp), which is an unbleached sulphate pulp of very high purity. The high quality of this UKP pulp, which has been developed over many years, has made Vallvik Mill a globally leading supplier of this pulp, which is used by transformer and cable manufacturers.

Vallvik's pulp is flash-dried. This gives it certain specific properties and makes it particularly appropriate for manufacturing, among other things, filters and other absorbent products.

On average there are approximately 15,000 cubic metres of pulpwood in the timber stock at Rottneros Mill, corresponding to two weeks' production.

17 PRODUCTS AND UNITS

THE MARKET

It has now been many years since any new pulp mills or new production lines for long-fibre chemical pulp have been set up anywhere in the world. Global capacity has been affected by a combination of factors. These include, among other things, normal small-scale improvements to existing installations and the Chilean pulp mills, which were badly affected by the earthquake in 2010, once again producing at full capacity in 2011. Furthermore, several small pulp mills closed down and a number were converted to produce 'dissolving pulp' for viscose manufacture.

In 2011, Rottneros' largest individual markets for long fibre chemical pulp were Germany followed by the US and Sweden.

Long-fibre pulp accounts for just over 40 per cent (almost 25 million tonnes) of the total market for bleached chemical market pulp, which is estimated to be around 55 million tonnes. The largest producers are Arauco (Chile), Domtar and Canfor (US/Canada), Botnia (Finland), Södra (Sweden) and Mercer (Canada /Germany).

PRODUCTION

The production of long fibre sulphate pulp, which is manufactured at Vallvik Mill, is less energy intensive than the manufacture of groundwood pulp and CTMP, which means that the mill is not as exposed to electricity prices as Rottneros Mill. A large proportion of the electricity used is produced at the mill, which means that the mill is virtually energy neutral. Vallvik Mill has an annual manufacturing capacity of approximately 240,000 tonnes and around 160 employees.

Vallvik's pulp is used, for example, when producing air filters for cars.

In 2011, 199,600 tonnes were produced, compared with 184,500 tonnes in 2010, representing an increase of eight per cent. Production was adversely affected by the cold winter at the start of the year and increased investing activities at the end the year.

In 2011, the final part of the investment programme was implemented of just over SEK 250 million in total. This started in 2009 with improvements to the closure of the water loops in the bleaching plant at a cost of SEK 90 million and the commissioning of a new biological purification plant. These investments resulted in capacity increasing from 200,000 to approximately 240,000 tonnes. The objective is to increase capacity even further. The mill has applied for a permit to produce 242,000 tonnes of pulp up until 2014 and is planning for a long term objective of almost 300,000 tonnes after 2015.

190 193 216 190 192

ROTTNEROS' PULP MILLS
	Employees	Pulp type			Production		Pulp deliveries
	Average no.	Mechanical	Chemical	2010, tonnes	2011, tonnes	Change	2007–2011, thousand tonnes
Rottneros Mill		119 Groundwood CTMP Total		73,600 64,900 138,500	59,100 65,400 124,500	-20% 1% -10%	154 149 131 140 120
Vallvik Mill	159		Long-fibre sulphate	184,500	199,600	8%

Like Rottneros Mill, Vallvik Mill has been affected by the weak printing and writing paper market. However, this has been compensated by a strong market for pulp for electrical applications, filters, packaging and tissue paper.

Europe is the main market for Vallvik Mill. A predominant part of our production is sold there, while the remainder, which primarily comprises niche products, is sold to the US. Having a large proportion of sales to the European market forms part of the Group's endeavour to increase margins by reducing freight charges. The proportion of sales to customers in Europe increased in 2011.

SIA ROTTNEROS BALTIC

Rottneros imports some of its raw timber primarily from Latvia through its subsidiary SIA Rottneros Baltic, which is a strategic component of the Rottneros Group's supply of raw materials. The company is also able to contribute to the acquisition of raw timber from the rest of the Baltic region, Russia and Belarus. These imports, which are mainly for Vallvik Mill, cover approximately 15 per cent of the mill's pulpwood requirements. SIA Rottneros Baltic has five employees.

ROTTNEROS PACKAGING – SILVIPAK

Rottneros Packaging AB is a subsidiary in the Rottneros Group producing food packaging manufactured from pulp fibre under the brand name SilviPak. The packaging is primarily used for frozen and chilled pre-portioned food for small households and is sold, for example, in supermarkets and by industrial kitchens and restaurants. Operations started in the spring of 2006. Packaging is produced at Rottneros Mill and three people are employed.

The pulp storage tower at Vallvik Mill lit up at night.

ROTTNEROS' PULP TYPES AND GRADES

	Pulp type	Wood	Bleaching	Type of bleaching	Areas of application
Mechanical pulp	Groundwood pulp	Spruce	Unbleached /bleached	TCF	Printing and writing paper, LWC/ULWC, board
	CTMP	Spruce/pine	Unbleached /bleached	TCF	Board, filter paper, printing and writing paper, tissue
		Aspen/birch	Bleached	TCF	Printing and writing paper, fine paper
Chemical pulp	Long-fibre sulphate pulp.	Pine/spruce	Bleached	ECF	Fine paper, printing and writing paper, LWC/ULWC, board, tissue, filters
			Unbleached		Filters, electrical applications, absorbent products

Plans to produce renewable vehicle fuel

For several years now Rottneros has been investigating opportunities to also use its industrial sites for various forms of bioenergy projects. Increased profitability, reduced dependency on the pulp market and an increased capacity to pay for raw materials produced by forests are the primary impetuses. Work in 2011 focused on plans to start producing vehicle fuel using forests as the raw material. These plans have now advanced in several ways.

These projects are too large for Rottneros to finance and implement on its own. The intention is therefore to find co-investors and then project finance the plants. Rottneros would have a minority share in the project companies.

The Group, together with two partners, has formed a company called Rottneros Biorefinery AB, with a view to developing a commercial biomethanol project adjacent to Rottneros Mill. Cooperation is ongoing at Vallvik Mill with another partner to develop the production of biomethanol for petrol engines or DME for diesel engines.

Both projects entail the construction of a biomethanol factory with a capacity of 150–250 million litres per year, corresponding to 800–1,300 GWh/year, at one of the mills. A description of the preconditions for this in Sweden and the technical preconditions at Rottneros' two mills is included in the annual report for 2010 (page 23–24).

TWO APPLICATIONS TO THE EU

Rottneros submitted two applications to the EU in 2011, each encompassing approximately SEK 750 million, for grants for the manufacture of biofuel for vehicles. Both projects are based on gasification and synthesis to biomethanol, using forest biomass as a raw material in the project for Rottneros Mill and black liquor from sulphate pulp production as a raw material for Vallvik Mill. Both projects each indicate investments in the order of 3-4 billion and call for financial and industrial partners.

The background is the discussion about ongoing climate change, a symptom of which is temperature rises which are considered to be caused primarily by increased emissions of carbon dioxide from the burning of non-renewable fossil raw materials. The discussion has among other things resulted in EU politicians setting ambitious targets for renewable fuel use within the energy sector. The 20-20-20 targets, which are to be achieved by no later than 2020, involve a:

• 20 per cent reduction in greenhouse gases compared with 1990
• 20 per cent reduction in energy consumption
• 20 per cent proportion of total consumption in the form of renewable energy, including ten per cent within the transport sector.

Sweden has been required to increase the use of renewable energy to 49 per cent. The Government has set national targets that are even higher, in that the proportion of renewable energy of the total use should be 50 per cent and at least ten per cent within the transport sector.

THE TRANSPORT SECTOR MUST CONTRIBUTE

The message about reduced energy consumption, reduced carbon dioxide emissions and increased use of renewable energy is relatively well-known. Less well known is that the transport sector must also contribute and that this has been formulated as a target of ten per cent of vehicle fuel being derived from renewable sources by 2020.

Politically one can promote such 'green' conversion by subsidising investments, offering tax-freedom for green products or by forcing fuel distributors to provide a set proportion of renewable fuel and thereby more or less compelling consumers to pay what it costs. Politically driven force is the alternative to energy tax exemption as long as fossilbased fuel is cheaper than renewable fuel, which is likely to be the case for many years.

This graph shows how WWF in its '100 Renewable Energy by 2050', which was published in February 2011, visualises the move away from fossil fuel, where most vehicle fuel will actually already be coming from bio-based raw materials by 2020.

FORESTS ARE AN ATTRACTIVE ALTERNATIVE

Forests offer the most attractive alternative to fossil fuels. The process indicating the highest benefit, both in terms of finances and energy efficiency, is based on the gasification of wood components. This can either be directly from wood or indirectly through black liquor gasification, and it is then cleaned and synthesised, or converted, to methanol. Low levels (up to ten or possibly 15 per cent) of methanol may well be mixed into normal petrol and distributed via existing petrol pumps to existing petrol engines without any need for conversion or adaptation. It is also easy to convert methanol into DME (dimethyl ether), which works in diesel engines following minor adaptations, although separate petrol station pumps would be required as DME is used under low pressure. Another important refinement of DME, besides it being based on a renewable raw material, is that both molecules are free from carbon-carbon bonds and are thus burned very cleanly and efficiently into particle-free gases.

LARGE MARKET

It would be impossible to state the exact extent of the biomethanol market, but in the long run it should in principle be equivalent to the vehicle fuel market, provided vehicles are gradually adapted so that they can be run on biomethanol and DME respectively. What is absolutely clear is that projects of the type and size of those planned by Rottneros, producing several 100,000 tonnes of biomethanol, should only cover about one thousandth of Europe's vehicle fuel needs and around one per cent of Sweden's needs. It should thus not be difficult to find opportunities to

sell what the Group plans to produce. Furthermore, biomethanol, offered at a reasonable price, could be used for many applications other than vehicle fuel, as fossil methanol is already a very important raw material within, for example, the chemical, pharmaceutical and paint industries.

Direct customers are the petrol distribution companies. Supplies would be made to their refineries or depots for mixing into fossil petrol and onward distribution to petrol stations. Alternatively, some of the distribution companies could convert the biomethanol into DME for use in converted diesel engines. One petrol company already has a small number of filling stations for DME as part of a pilot project.

PLENTY OF RAW MATERIALS

The availability and price of biofuel are decisive to Rottneros' plans for biomethanol manufacture. Other input goods are primarily air (to produce oxygen) and electric power. The major cost components are thus biofuel and capital.

Forest surveys show that large quantities of biofuel are available in Sweden.

Biopower plants located in densely populated regions compete with the district heating sector for biofuel. Both of Rottneros' mills are located in areas rich in forests, in central Värmland and Gästrikland/- Hälsingland respectively, which are also sparsely populated with proportionately long distances to major biofuel consumers.

This diagram (from Volvo Trucks) clearly shows how much further a lorry can be driven using fuel from one hectare of agricultural or forestry land if gasification is used to make methanol instead of other alternative ethanol variants/non-fossil variants.

Price trends for biofuel, like the cost of extracting the fuel from the forests, have been quite stable, despite a couple of cold winters with rampant electricity prices. Swedish biofuel is unlikely to be competitive for the export market, possibly with the exception of forests close to Southern Swedish export ports. Our assessment is consequently that there will be plenty of raw materials at reasonable prices relatively close to our planned installations in the future.

RENEWABLE ENERGY IN THE TRANSPORT SECTOR, 2020

Year	2010		2020
Type of fuel	Total (ktoe)*	Of which imported (ktoe/%)	Total (ktoe)*	Of which imported (ktoe/%)
Bioethanol	251	140/56%	465	292/63%
Bio-based diesel 89		0	251	0
Biogas	40	0	94	0
Renewable electricity**	3	0	9	–

* ktoe = kilo tonnes of oil equivalent

** for road transport

Source: Sweden's National Renewable Energy Action Plan in accordance with Directive 2009/28/EC

One of the two bioenergy projects being considered by the Rottneros Group is the construction of a biomethanol factory adjacent to Rottneros Mill.

Decline in timber prices at the end of the year

TIMBER SUPPLY

The Rottneros Group has a team to manage timber supply in Sweden as well as a timber procurement company in Latvia, SIA Rottneros Baltic. The organisations in both Sweden and Latvia are partly founded on a number of multi-annual agreements concluded with the largest suppliers of timber and chips in order to limit dependency on spot markets.

Rottneros' objective is to have a low stock of pulpwood to optimise use of fresh timber, which among other things provides a better use of timber and reduces the consumption of bleaching chemicals compared with older wood. Fresh wood thus has both economical and environmental advantages.

The Latvian company represents an important link in our timber supply and provides valuable flexibility, even though the Group is endeavouring to minimise the proportion of imports for reasons of cost. Imports primarily come in to Vallvik Mill which is located by the sea and has its own port.

Traceability certification to check the origin of pulpwood may become increasingly important in relation to pulp customers. The Group, including the Latvian subsidiary, is certified according to FSC and PEFC standards, which are the two international systems used in Sweden. This means that the Swedish mills have a joint traceability certification system.

TIMBER MARKET

The cost of pulpwood was high in 2011 as a whole. For the Rottneros Group this amounted to just over SEK 650 million compared with just under SEK 600 million in 2011, corresponding to approximately 38 per cent of the Group's costs compared with 37 per cent in 2010. Prices rose to historically high levels during the first half of the year and then gradually fell. High demand was the primary reason for the increase in price, while the extreme winters made logging and imports difficult owing to the ice conditions in the Baltic Sea.

The reduction in prices during the second half of the year was due to an increase in logging volumes at the same time as several pulp producers in Sweden were implementing market or maintenance-related production shutdowns. This meant that there was a spare capacity of timber in the market instead. Most pulp producers had filled their woodyards by the end of 2011, while some suppliers were storing pulpwood alongside roads in forestry districts.

On the part of the Rottneros Group, the stock situation at the end of the year was balanced at Rottneros Mill while there was more stock at Vallvik Mill than desired.

A reduction of the widely criticised Russian export duties was announced in 2010, from at their highest 15 down to two euros per cubic metre. There had been no reduction at the end of 2011, but a change is expected when Russia joins WTO. None of Rottneros' imports come from Russia, but a reduction in duties is likely to have an indirect effect on the Group in respect of the general level of prices for pulpwood in Finland, the Baltic States and Sweden.

One trend that has become stronger in 2011 is the increased demand for FCS-certified pulp. Access to FSC certified raw material is expected to increase in 2012.

The Rottneros Group purchased just over SEK 650 million of pulpwood and chips in 2011.

In 2012 the Group's requirement for pulpwood is expected to rise as a consequence of production increasing by approximately ten per cent at Vallvik Mill. It is considered that the price will be at a moderate level for the first half of 2012 owing to the large stocks held by both sellers and purchasers. Also the threat of recession may act as a damper on prices if the industry restricts production for market reasons.

POWER SUPPLY

Electricity prices, which were extremely high in 2010, developed in a significantly less dramatic way in 2011. The average price was SEK 0.43 per kWh compared with SEK 0.54 in 2010.

Prices, which peaked at the start of the year owing to the cold winter, gradually fell over the year so that at the turn of the year they were at a level of SEK 0.37 per kWH for the whole of 2012.

These electricity prices, which are significantly lower, are one effect of the well-filled reservoirs at electricity producers, the mild autumn and weak demand from industry. The price of electricity was low despite nuclear power plants only having been run at half capacity during the autumn.

As a consequence of the falling prices, Rottneros chose to hedge a comparatively low proportion of expected electricity consumption in 2012 through the NordPool electricity trade exchange. This level was 49 per cent on 15 February 2012 compared with 64 per cent for the same time in the previous year for 2011. The hedge levels for 2013 and 2014 are 42 and 28 per cent respectively, while the hedge level for 2015 is 14 per cent.

In 2011, Rottneros consumed 383 GWh electricity at a cost of just under SEK 150 million. This corresponds to around eight per cent of the Group's total costs. Rottneros is continually working to reduce energy consumption. This has resulted in the average consumption of thermal energy per tonne of pulp produced having reduced by four per cent since 2010. 114 GWh of total electricity consumption in 2011 was generated at the mills.

In order to improve the preconditions for a consistent and long-term electricity strategy, the Board laid down a new electricity trading policy in 2010. The objective is that the Group should pay a low, stable and predictable price for its electricity through the use of hedging contracts. The point of departure is that Rottneros' consumption of electric power is stable. A normal purchase volume is approximately 275 GWh/year, which entails a

price difference of SEK 0.10 per kWh, corresponding to just under SEK 30 million.

Price risk, which is considered to be the major risk, largely comprises the risk of the electricity price in the market rising. For those parts of expected consumption that Rottneros has not hedged, this means corresponding cost increases.

Conversely, there is a risk of the market price falling and Rottneros' costs for the volume that is already hedged remaining the same while there is a corresponding fall in respect of the cost of nonhedged volumes. Overall, this converse risk leads to a reduction in costs when prices fall, in which connection it will always be smaller, providing the hedging does not exceed electricity consumption.

By actively trading in electricity, Rottneros is attempting to anticipate these price risks in the case of both rising and falling market prices. This means that hedging contracts are both bought and sold following an assessment of the market situation.

CHEMICALS

There were some price increases in 2011 for many of the chemicals used at the Group. Instead of a spare capacity situation, the market balance evened out, whereupon prices also rose. Rottneros endeavours to secure a wide choice of suppliers in order to develop good market contacts and promote competition when conducting its procurements. Prior to 2012, global demand for certain chemicals, combined with limited supply, yielded further price increases for a number of chemicals.

The steam turbine for electricity production at Vallvik produces much of the mill's electricity requirement. The turbine also generates income in the form of green electricity certificates.

Overall

Covers the entire production chain

Rottneros' operation shall be run in a responsible way in relation to the world around us. For this reason, our ambition is to always minimise the environmental effects that may be caused by the company's production and distribution systems. Confidence in Rottneros' conduct strengthens our position in the market and promotes the involvement of employees. Since 2010, sustainability information shall be reported in accordance with Level C of the Global Reporting Initiative's (GRI's) Guidelines.

GRI

For the financial year 2011 Rottneros has chosen to continue to report in accordance with GRI's Application Level C, which means that the report is not externally assured. Rottneros' sustainability work is reported annually as an integral part of its Annual Report and is also presented on Rottneros' website.

CODE OF CONDUCT

The Group has a Code of Conduct describing how Rottneros and the company's employees act in relation to the surrounding world and to each other. The purpose is to define Rottneros' social responsibility, ethical commitment and position in respect of equality issues and also what approach Rottneros' employees should adopt on issues of importance in principle.

STAKEHOLDERS

Rottneros aims to have good communications with everyone affected by its operation. There are four main groups that Rottneros regards as the company's main stakeholders. These are:

the market, including suppliers; shareholders and the capital market; employees (including families and unions); and the surrounding world, focussing on the local community. These are the four main groups that Rottneros primarily communicates with to maintain an open and positive relationship. The regular contact that the management has with various stakeholder groups constitutes a good basis when a need for further communication arises for various reasons.

	GRI INDEX LEVEL C
		Location of			Location of
		information			information
		(p. in Annual Report)			(p. in Annual Report)
1.	STRATEGY AND ANALYSIS		4.	GOVERNANCE, COMMITMENTS AND ENGAGEMENT
1.1	Statement from President		6-7 4.1	Governance structure of the organisation	40-46
			4.2	Role of the Chair of the Board	42-43
2.	ORGANISATIONAL PROFILE		4.3	Number of independent members of the board	43
2.1	Name of the organisation		15 4.4	Mechanisms for shareholders and employees to provide
2.2	Primary brands and products	15-18		recommendations to the board or corporate management	41-43
2.3	Operational structure of the organisation, including subsidiaries	15-18, 77 4.14		List of stakeholder groups	24-25
2.4	Location of the headquarters		88 4.15	Basis for identification and selection of stakeholders	24
2.5	Countries where the organisation operates	2, 15-18
2.6	Nature of ownership and legal form	37-38 5.		PERFORMANCE INDICATORS
2.7	Markets served	10-11, 15-18 EC		Economic performance indicators
2.8	Scale of the reporting organisation		2, 5 EC1	Direct economic value generated and distributed	25
2.9	Significant changes during the reporting period	12-14 EC3		Coverage of the organisation's defined benefit plan obligations	64, 71-72
	2.10 Awards received in the reporting period	Irrelevant
			EN	Environmental indicators
3.	REPORT PARAMETERS		EN3	Direct energy consumption by primary energy source
3.1	Reporting period		24 EN5	Energy saved due to efficiency improvements	31
3.2	Date of most recent previous report		24 EN16	Total direct and indirect greenhouse gas emissions by weight	16, 23
3.3	Reporting cycle		24 EN18	Initiatives to reduce greenhouse gas emissions and reductions achieved	31
3.4	Contact point for questions regarding the report	88, web EN29		Significant environmental impacts of transport	30
3.5	Process for defining report content	24			31
3.6	Boundary of the report		24 LA	Labour practices and decent work
3.7	Limitations on the scope or boundary of the report		24 LA1	Total workforce by employment type and region	27, 71
3.8	Basis for reporting on subsidiaries	61-68 LA2		Total number and rate of employee turnover	27
	3.10 Explanation of the effect of any re-statements of information		24 LA4	Percentage of employees covered by collective bargaining agreements	25
	3.11 Significant changes from previous reporting period	24
	3.12 Table identifying the location of Standard Disclosures in the report	24

THE MARKET CUSTOMERS

Rottneros' aim is to provide customers with pulp products that strengthen their market position and profitability. The Group acts responsibly towards its customers by always striving to offer customised products with a superior level of quality. We add value for our customers by offering new knowledge that has the potential to strengthen their position in their markets.

Rottneros conducts a continuous and active dialogue with its customers, principally via its sales organisation. Regular meetings are held, in particular to discuss issues relating to products and quality. Information about Rottneros and the company's products is also provided in Pulp Focus, a customer magazine that we produce ourselves and send out to all of our customers. There are four issues per year.

SUPPLIERS

Rottneros also acts responsibly towards our suppliers and other partners. The company's representatives are never allowed to engage in misappropriation for personal gain or afford the company an undue competitive advantage through improper means. Rottneros must never enter into business relationships with companies that knowingly or systematically violate laws, regulations or international human rights conventions.

Rottneros' management process means that new suppliers are chosen according to certain set criteria. This primarily applies to suppliers of important input goods. Meetings are held with suppliers to discuss supply commitments in conjunction with the procurement of annual contracts for input goods. Each company then has an opportunity to update each other about the market situation, organisational changes and other issues related to the relationship. In addition to these meetings, Rottneros keeps in regular contact with its suppliers.

SHAREHOLDERS SHARE AND CAPITAL MARKET

Rottneros acts responsibly towards its shareholders by working to maximise value within the framework of what is permitted by laws, rules and standards. Our capital market activities are characterised by transparency and honesty. We openly report the actions, salary terms and benefits of senior management and the Board. We comply with the laws, regulations and ethical guidelines that apply to the capital markets. We

aim to reduce the Group's risk exposure and pay steady dividends to our shareholders.

Press releases, quarterly financial statements, meetings with analysts and attendance at Capital Market Days are the primary ways in which we contact existing and potential shareholders.

INTERNAL

EMPLOYEES

Rottneros acts responsibly towards employees by promoting good health, the environment and safety at the workplace. We offer good employment terms as well as opportunities for development. We protect the rights of our employees, act to eradicate all forms of discrimination and harassment, and promote diversity at the workplace.

THE UNIONS

All employees within Rottneros are covered by collective bargaining agreements. Collective bargaining agreement have been concluded with Pappers (Swedish Paper Workers' Union), Unionen, Ledarna (Swedish Organisation for Managers) and Sveriges Ingenjörer (Swedish Association of Graduate Engineers).

SURROUNDING WORLD SOCIETY

We act responsibly towards society. Rottneros' mills often have strong ties to the local communities, which usually have a traditional industrial culture, and they are often the largest employer in the area. This gives us both a financial and social responsibility. We cooperate with the municipal authorities where we operate, offering apprenticeships and organising mill visits and other initiatives.

ENVIRONMENT

We assume our environmental responsibility by ensuring that all production units within the Group comply with the environmental standards laid down in acts and ordinances. Our goal is to reduce emissions to levels that are technologically feasible, financially viable and ecologically justified. Environmental goals are regularly followed up in conjunction with our financial reporting, and we conduct an active dialogue with stakeholders on the environmental impact of our operations and products.

Stakeholder group	Type of activity	SEK m	Proportion of total cost
Customers	Sales of pulp and other income	1,663
Suppliers	Purchases of goods and services, incl. depreciation and write-downs, etc.	-1,571	87%
Employees	Pay, social security contributions and other personnel costs	-209	12%
Lender	Interest	-3	0%
State	Taxes	-24	1%
Shareholder	Net profit/loss	-144

PRIORITIES

Rottneros always endeavours to make the products better, both from a quality and efficiency perspective, by understanding the customers' processes and product strategy. Environmental, social and economic factors are key to this success. Based on this, the following priorities have been set for 2012:

• Reduced sulphur emissions at Vallvik Mill.
• Noise-reduction measures at Rottneros Mill.
• Continued endeavour to reduce the proportion of sales to Asia, resulting in reduced environmental consequences.

In the diffuser at Vallvik Mill, pulp is washed immediately after cooking before being bleached.

Personnel

Improvement programme at Rottneros Mill behind staff cuts

A decision was made in 2011 to cut about twenty jobs at Rottneros Mill. The purpose was to achieve increased competitiveness by reducing costs. These cuts, which were implemented gradually up to the summer of 2012, were part of an improvement programme that also encompasses changes to our product range and reductions of other production costs. These redundancies will to some extent be dealt with through early retirement arrangements. Others leaving the Group are offered external support in the process of finding new work.

Rottneros' organisation and staffing in respect of its white collar workers was adapted in 2009 and 2010 to the Group's current structure and size. This means that marketing, sales and technical customer services have been moved to the mills from the parent company, Rottneros AB, and the head office. This combined with other minor changes has resulted in the number of employees at the parent company reducing from 18 to 10 people since 2009.

All employees at Vallvik Mill have received training in using the new time reporting system introduced at the mill during the spring of 2011. During the autumn, Vallvik Mill took over the task of dealing with the Group's incoming invoices, which entailed training for a number of employees.

In 2011, Rottneros Mill was granted training aid from the EU. This training, which will be implemented in 2012, comprises among other things computer training for maintenance staff and overall environmental training for all employees. Our focus is on the environmental impact of the operation at Rottneros Mill.

Staff turnover within the Group amounted to eight per cent in 2011, while absence owing to sickness was 3.3 per cent. Both figures are comparatively low. High attendance and low staff turnover provide the basis for good continuity, both in the short and long term.

The average number of employees amounted to 298 (308) in 2011. This change, when compared with the previous year, was primarily due to the staff cuts at Rottneros Mill.

The average period of employment is around 23 years and the average age of employees is approximately 50. Sixteen per cent of employees are women.

In 2011, salaries and other remuneration paid to employees (excluding social security contributions) amounted to SEK 139.4 (138.9) million, representing around 9 (8) per cent of the Group's total turnover in 2011.

Term of employment and average age, 2011

Ola Wikström controls the entire production process from the operations centre at Rottneros Mill.

Environment

European environmental requirements are raised from a local/national to a central EU level

The environmental permit procedure for Rottneros' mills, as is the case with other companies, involves close contact with not only the county administrative boards but also other authorities, primarily through the Land and Environmental Court's consultation procedure. Increased EU integration within the environmental sector has transferred the decision making from Swedish authorities to EU bodies, which of course affects the content of Rottneros' and other companies' authority contacts.

Up until now, environmental legislation within the EU has been national, but increasing elements of pan-European directives have emerged over the years. The 'IPPC Directive' was added in 1996, which aimed to reduce various point source emissions within the EU. IPPC stands for 'Integrated Pollution Prevention and Control'. The IPPC Directive has been incorporated into Swedish legislation through the introduction of the Environmental Code, which entered into force in 1999.

TODAY: INTEGRATED POLLUTION PREVENTION AND CONTROL (IPPC)

The IPPC Directive contains rules on the procedure for consideration of permits for industrial installations. All installations covered by the Directive, primarily major energy and industrial installations, must have a permit from the public authority in the respective EU country to run its operation. Permits shall be based on the principle of Best Available Techniques (BAT). A summary of these can be found in the 'BREF documents', which is an abbreviation of BAT Reference documents.

The Directive is a 'minimum directive', which means that Member States can have more stringent rules in their national legislation. The Swedish authorities have often had higher requirements than those prescribed by the IPPC Directive. Also with pan-European directives such as IPPC, the national authorities have negotiated conditions with those individual companies based on the individual company's situation.

IN THE FUTURE: INDUSTRIAL EMISSIONS DIRECTIVE (IED)

The IPPC Directive has resulted in reduced emissions in Europe, but the EU has been able to conclude that the Directive has not been applied in an equally strict manner in all countries and the opportunities to overcome this shortcoming have been limited. The Industrial Emissions Directive was introduced at the end of 2010 to improve the prospects of getting Member States to comply with the rules. This Directive constitutes a consolidation of seven different directives that also cover, for example, large combustion plants in addition to industrial operations.

The continuous boiler and recovery boiler at Vallvik Mill.

Investigations are currently underway regarding how IED can be incorporated into Swedish law. A number of issues need to be addressed concerning the implementation of BAT for the pulp and paper industry.

The BREF documents are also about to be updated. The intention is for the BAT levels, which will be specified in IED, to apply to all industries in Europe. This means that the emission conditions for a Nordic pulp or paper mill located next to a large river will be the same as for a pulp or paper mill in a Southern European country where groundwater also forms part of the mill's water supply. These are complex technical issues that require the EU administration to consider the views presented by the trade associations for the industries. Another consequence of IED is that Swedish courts will have limited powers to take into account the specific preconditions of a mill. Swedish law currently prescribes that such considerations should be taken into account by the courts.

The trade association Skogsindustrierna (Swedish Forest Industries Federation) coordinates the Swedish companies' contribution to the formulation of the rules, and Rottneros is obviously involved in this. Skogsindustrierna cooperates in its turn with the Confederation of European Paper Industries (CEPI), which is the trade association for the European pulp and paper industry.

It is naturally unavoidable that general BAT rules for Europe are not applicable to each individual company with its special conditions. There is therefore potential to allow exceptions where these are necessary and reasonable for technical and economic reasons, weighed up in relation to their environmental impact. Exceptions should be reviewed in an open process, where the general public has access to information. Deviations from BAT must be reported to the EU. It is important for this possibility to be used by public authorities so that individual companies are not adversely affected by high costs that have no correlation to the related environmental improvements.

At Rottneros Mill, pulpwood is cut up into lengths of around one metre which is a suitable length for the grinder.

Environment Environmental work at the mills

VALLVIK MILL

Extensive environmental investments were made at the mill in 2011 following several years of investigations and planning.

During the autumn's maintenance stoppage, the final part of the work was conducted enabling completion of the bleaching plant, a measure that will reduce water utilisation at the bleaching plant to a third of its former level. Washing liquid with a high COD content can now be transported to the evaporation plant and then burnt in the soda boiler, which means that the energy content of this material can be used.

The new biotreatment plant was commissioned in December. This biotreatment plant, together with the equipment installed in 2010 to clean liquids (called a 'stripper') and the closure of the bleaching plant, will reduce COD emissions from the mill by 65 per cent, which is in line with a requirement from the Environmental Court.

Rebuilding work at the evaporation plant and stripper in 2010 resulted in an undesired increase in sulphur emissions. The mill therefore submitted an application in December 2010 for increased guide and limit values for process sulphur for 2011 and 2012. This application was rejected by a lower court but an appeal has been made against this decision.

Emissions of sulphur into the air exceeded the values demanded by the authorities in 2011. An ongoing project, including the installation of an incinerator, will result in the mill satisfying the applicable sulphur conditions. This installation will be completed during the first half of 2012.

Vallvik Mill has a permit for another disposal site. Conditions for security will be negotiated with the

Helena Söderlund at the laboratory for operational analysis at Vallvik conducts ongoing quality follow-ups.

supervisory authority when the permit for the disposal site is utilised.

Over the year electricity was generated corresponding to 570 kWh/tonnes of pulp produced, representing a self-sufficiency level of 68 per cent. The electricity purchased corresponded to 265 kWh/tonnes, which is marginally higher than that purchased in 2010.

The application for a permit for a temporary increase in production during the period 2012 to 2014 was presented to the Land and Environmental Court in Östersund last year.

ROTTNEROS MILL

Last year the mill succeeded in making its energy use more efficient, increasing the proportion of biofuel and reducing air and water emissions both in absolute terms and per tonne of pulp.

The effect of the solid fuel furnace has increased owing to the installation of a new fuel pocket. This resulted in reduced petroleum consumption, which in its turn reduces carbon dioxide emissions from the mill.

It was not previously possible to press the sludge from the biological treatment plant to a sufficiently high dry matter content. This has meant that pulp fibre has had to be mixed into the sludge to improve its drying properties. Last year a centrifuge was installed to increase the dry matter content of the biological and fibre-rich sludge generated at the water treatment plant.

Following this investment, the dry matter content has increased by so much that pulp fibre no longer has to be added. This means that the pulp fibre previously mixed in can now be used at the pulp mill to increase production, which provides cost savings.

The cost of dealing with the sludge has also reduced. This is owing to a reduction in the quantity of sludge, as pulp fibre is no longer being added. The sludge is dealt with by an external company that composts it and uses it as a moisture barrier at disposal sites.

A noise investigation has been conducted to survey the measures that must be taken to satisfy noise requirements for the mill. The proposed measures produced will be reviewed with the public authorities at the start of 2012.

BREAKDOWN OF THE ROTTNEROS GROUP'S TRANSPORTS FOR 2011 (TONNES KM),%

	Road	Rail	Sea	Share of total transports,%
Pulpwood,%	43	2	55	22
Chemicals,%	100	0	0	1
Pulp,%	14	21	65	77
Share of total transports,%	21	17	62	100

EMISSIONS TO WATER AND AIR FOR 2011

	Rottneros	Vallvik
Production, tonnes	124,500	199,600
S, tonnes per year	6	156
Permit	–	135
NOx, tonnes per year	23	289
Permit	–	300
Suspended solids, tonnes per day	0.7	0.7
Permit	1.2	2.0
COD, tonnes per day	9.0	20
Permit	10.5	38
BOD7, tonnes per day	–	6.0
Permit	–	–
AOX, kg per day	–	0.2
Permit	–	0.8
Phosphorus, kg per day	2.1	38
Permit	6.0	–

ENERGY CONSUMPTION FOR 2011

GWh	Rottneros	Vallvik	Total Group
Biofuels, incl. black liquor	49	1,446	1,495
Fossil fuels	40	29	69
Total energy consumption, excl. electricity	89	1,475	1,564
Share of biofuels,%	55	98	96
Electricity generated at mills	–	114	114
of which green electricity	–	112	112
Electricity purchased	216	53	269
Total electricity consumption	216	167	383
Share produced at mills,%	0	68	30

CARBON DIOXIDE EMISSIONS FOR 2011, TONNES PER YEAR

	Rottneros	Vallvik	Total
Fossil fuels¹	10,872	8,030	18,902
Biofuels	30,342	554,577	584,919
% biofuels	74%	99%	97%

¹ Only fossil fuels contribute to the greenhouse effect.

EMISSION RIGHTS FOR CARBON DIOXIDE, 2011
Mill	Allowance/ year 2008-2012	2010 emissions	2011 emissions
Rottneros	21,784	15,749	10,872
Vallvik	17,958	7,071	8,030
TOTAL	39,742	22,820	18,902

Approximately 40 per cent of the timber purchased for Rottneros Mill is in the form of chips.

Rottneros' risk strategy prevents both internal and external factors

In addition to the business and financially related opportunities and risks arising from the production process, Rottneros is also affected by many external factors that the company cannot itself influence. These external factors primarily affect the company's income from sales. There is a risk management process to manage the opportunities and risks affecting the company; this encompasses, among other things, the strategic orientation of the operation, preventive maintenance/investments and financial hedging activities.

Operationally, the company employs a number of measures and strategies, such as focusing on niches and various specific customer segments, in order to reduce the Group's dependence on the list price for market pulp and to mitigate fluctuations in profitability over the course of a business cycle. The company also has a strategy for managing financial risk which complements its operational risk management.

The factors that have the greatest impact on the Group's result are associated with the price of pulp in US dollars, exchange rates and the price of timber and electricity.

Financial risk is managed at a Group level based on guidelines defined in the Group's Financial Policy which is approved annually by the Board. The Board makes decisions on overall mandates and limits for restricting the Group's financial risktaking and also makes decisions on all long-term financing. The Board approves hedge levels based on proposals from senior management. The management team continually assesses whether factors such as the USD rate, pulp prices or electricity prices present attractive opportunities for strategic hedging. Financial hedging instruments are not used speculatively, but solely to even out results and secure transactions/costings.

OPERATIONAL OPPORTUNITIES AND RISKS

PULP PRICES AND THE BUSINESS CYCLE Paper pulp is a product that is traded globally, with major export and import flows. The world market price is expressed in USD. For this reason, the price of pulp in USD and the USD/SEK rate are the most important factors affecting the result for Rottneros. The Asian paper market has experienced rapid growth and now accounts for a significant share of global production and consumption. However, a shortage of raw materials available locally means that large quantities of paper pulp and recovered paper fibre are imported from Europe and America. Purchase volumes among Asian purchasers consequently have a major impact on the world market price. Although the world market price is set in

USD, purchasers' revenues are often in other currencies.

The price of pulp (NBSK) is set in USD, but production costs are largely incurred in local currencies. The average USD rate was ten per cent lower in 2011 compared with the average rate in 2010. There is a correlation between the NBSK price and USD. If USD is strong, the pulp price expressed in USD tends to be lower, while a low USD rate tends to result in a higher pulp price in USD.

Source: Riksbanken and FOEX Indexes Ltd

The NBSK price translated into SEK averaged SEK 6,229 per tonne in 2011, to be compared with SEK 6,705 per tonne the previous year. This means that the price translated into SEK reduced by seven per cent in relation to 2010.

Source: Riksbanken and FOEX Indexes Ltd

CUSTOMERS

The Group has several large customers with a good geographical spread and is not dependent on any one country. Most of the Group's sales are generated in Europe, where Italy, Germany and Sweden represent the largest markets. The Group has just over 100 customers in total, of which the ten largest represent approximately 50 per cent of turnover. Rottneros thus has a good diversification of commercial risk. However, the production of groundwood pulp at Rottneros Mill is dependent on one major customer, with several recipient paper mills. Credit insurance is used for all sales as far as possible.

MAINTENANCE SHUTDOWNS AND SEASONAL VARIATIONS

There is normally a holiday shutdown at Rottneros Mill for part of July and August, which may be combined with annual maintenance work. There is normally an annual maintenance shutdown at Vallvik Mill in October or November. All costs relating to maintenance shutdowns are recognised in the period during which the shutdown takes place. Otherwise, the Rottneros Group is not affected by seasonal variations to any appreciable extent.

CAPITAL INVESTMENTS

Each year the management assesses the investment requirements for all of the mills over the next few years. This includes ongoing annual investments, expansion investments for the purpose of eliminating bottlenecks and also investments aimed at improving quality. However, these investments are adapted to economic trends and cash flow. In general, Rottneros has a cautious investment strategy. Rottneros also has a relatively low level of equity in fixed assets compared with the rest of the industry, which results in low depreciation and cost of capital. Total tangible fixed assets for Rottneros had a book value of SEK 646 million at the end of 2011. Dividing this by the total annual capacity of 400,000 tonnes yields a book value of just over SEK 1,600 per tonne. The replacement cost of the equivalent capacity is around eight to nine times the book value.

FINANCIAL OPPORTUNITIES AND RISKS PULP PRICE RISK

'Pulp price risk' means the risk of changes in pulp prices adversely affecting the Group's income statement and balance sheet. Pulp price hedging may be utilised if it is assessed that prices will fall below the prices at which hedging contracts can be concluded. Pulp price hedging may also be utilised if price levels in the market are so low that any

further decline could threaten the company's survival. Pulp prices will not be hedged without exchange rates being hedged correspondingly, unless there are very good reasons to do otherwise.

CURRENCY RISK

'Currency risk' means the risk of currency rate changes having a negative impact on the Group's future cash flows, value of assets and liabilities and on the result. Rottneros is exposed to exchange rate risks in its business operations, primarily associated with the sale of pulp.

Transaction exposure

USD is the main underlying currency for pulp prices although Rottneros also issues invoices in different currencies. Around 15 per cent of invoicing is contracted in SEK, with EUR as the invoicing currency. The underlying exposure to USD is thus very high, while the direct inflow of USD (the real flow) corresponds to just over 40 per cent. However, there is a delay in the impact of exchange rate fluctuations on indirect exposure, as the normal duration of a contract is between one and three months. Currency hedging in 2011 resulted in a profit of SEK 7 (40) million.

Balance risk exposure

The fundamental principle is that assets and liabilities in currencies other than SEK should be hedged. The selling price for pulp is usually based on the current pulp price listed in USD translated into the invoicing currency. Most invoices are issued in USD, EUR and SEK. The exposure to balance risk that arises on outstanding accounts receivable in EUR and USD can be hedged, preferably by borrowing in currencies that correspond over time to the average accounts receivable for each currency. A netting procedure should be applied so that, for example, purchases of timber in currencies other than SEK, electricity contracts (which are normally concluded in EUR) or other purchases like chemicals or for investment expenses are included when assessing the need for hedging.

ELECTRICITY PRICE RISK

'Electricity price risk' means the risk of changes in electricity prices adversely affecting the Group's income statement and balance sheet. All of the physical electricity for the Swedish mills is purchased directly via the Nord Pool electricity exchange. Electricity prices are listed in EUR. At the end of December 2011, the amount of electricity hedged corresponded to the proportion of forecast consumption shown in the table. This table shows the average prices in EUR/MWh, together with the average price in SEK/kWh (based on EUR forward exchange rates as of 31 December 2011).

ELECTRICITY HEDGING AS AT 31 DECEMBER 2011
Year	Proportion hedged	EUR/MWh	SEK/kWh
2012	49%	48.7	0.45
2013	42%	45.4	0.41
2014	28%	46.5	0.43
2015	14%	49.0	0.45

Total EUR hedging of EUR 12 million was concluded at an average rate of SEK 9.18/EUR for electricity costs in 2012-2015.

The average price level for electricity on the Nord Pool exchange amounted to SEK 0.43 per kWh for the whole of 2011.

MARKET VALUATION OF FINANCIAL INSTRUMENTS

The market value of all financial instruments on 31 December 2011 is shown in the table on page 36. These values have also been recognised in the accounts in accordance with IFRS and IAS 39.

INTEREST RATE RISK

Sensitivity to changes in the interest rate is relevant for financial assets and financial liabilities with a floating interest rate. The Group's borrowing is shown in note 15 on pages 75-76. Total interestbearing liabilities amounted to SEK 47 million on 31 December 2011 (SEK 39 million on 31 December 2010). Interest-bearing net receivables amounted to SEK 26 million compared with interest-bearing net receivables of SEK 116 million on 31 December 2010. Rottneros' sensitivity to changes in the interest situation is consequently low.

LIQUIDITY RISK AND REFINANCING RISK

Liquidity risk is managed by the Group retaining sufficient liquid assets and short-term investments in liquid markets and by using agreed credit facilities to secure access to financing. The aim is to ensure that the Group's strategic liquidity reserves amount to at least ten per cent of the Group's 12-month rolling turnover and that it is available within 30 days. The Group continuously makes liquidity forecasts.

In January 2011, Rottneros terminated the credit taken out with a bank syndicate, and a new secured financing agreement was concluded with Danske Bank. This agreement, which entered into force on 31 January 2011, entitles Rottneros to raise credit

in SEK, USD and EUR and does not contain any special covenants, for example relating to key financial ratios, investments or dividends. The credit could be utilised in 2011 up to an amount corresponding to SEK 100 million. This credit was extended to an amount corresponding to SEK 150 million from and including 1 January 2012. Rottneros repaid the entire outstanding credit, which amounted to SEK 28 million on 31 December 2010, in conjunction with the new agreement entering into force on 31 January 2011. SEK 37 million of the credit at Danske Bank had been utilised on 31 December 2011.

The table on page 35 shows an analysis of the Group's financial liabilities which will be settled net, broken down according to the remaining term as of the reporting date up to the due date under the agreement. The amounts stated in the table are the contractual, undiscounted cash flows. Amounts maturing within twelve months are the same as the book amounts, as the discount effect is insignificant.

Rottneros' credit agreement is considered to be sufficient for normal operating and investment cash flow over the next few years. With this, both the liquidity and refinancing risks are considered to be low.

MANAGEMENT OF CAPITAL RISK

The objective of the Group in terms of capital structure is to secure the ability of the Group to continue its operations, to ensure that it is able to continue generating returns for its shareholders while creating benefits for other stakeholders and to maintain an optimal capital structure to keep capital costs down.

In order to maintain or adjust its capital structure, the Group may decide to change the dividend paid to shareholders, repay capital to its shareholders, issue new shares or reduce its debts by selling assets. As other companies in the industry, the Group assesses its capital on the basis of its debt/equity ratio. This key ratio is defined as interest-bearing net receivables/net liabilities divided by shareholders' equity.

Rottneros' business operation is cyclical in nature and it is normal for there to be significant fluctuations in its results and cash flow. The debt/equity ratio should thus not be so high that these fluctuations threaten the company's survival. Nor is it good to have a high proportion of shareholders' equity in terms of return on capital. The objective is to have a debt/equity ratio that does not exceed 0.4

over time. A dividend of SEK 0.20 per share was paid for 2010 and a dividend of SEK 0.10 per share has been proposed for 2011. The debt/equity ratio was 0.0 on 31 December 2011.

DEBT/EQUITY RATIO
	2011	2010
Long-term interest-bearing liabilities	5	10
Current interest-bearing liabilities	42	29
Cash and cash equivalents	-21	-155
Interest-bearing net receivables/net liabilities	26	-116
Total shareholders' equity	1,014	1,228
Debt/equity ratio	0.03	-0.09

CREDIT RISK

Credit risk is managed at a Group level. Credit risk materialises through cash and cash equivalents, derivative instruments and deposits at banks and financial institutions, and through credit exposures to customers. With few exceptions, business risk relating to accounts receivable is insured through credit insurance with a ten per cent excess. When granting credit insurance, the insurance company takes into account factors such as the concentration of credit risks. This ensures good risk diversification. The maximum credit risk on outstanding accounts receivable was SEK 45 million at the end of 2011 (10 per cent excess + any uninsured receivables). Seventy-one per cent of total outstanding accounts receivable was insured on 31 December 2011. Historically, the Group has only incurred small credit losses.

INSURANCE

Rottneros insures all of its facilities against property damage and business interruption and has relevant liability insurance.

OTHER OPPORTUNITIES AND RISKS POLITICAL RISKS

Rottneros' exposure to political risks is limited.

ENVIRONMENT

As a producer of paper pulp, Rottneros' operation has a significant impact on the environment in terms of emissions to both water and air. In addition, some waste products must be managed. Extensive environmental legislation governs Rottneros' operational area and the operation requires permits that need to be renewed periodically. There is a risk of the prescribed permit emission levels being exceeded, which may not only lead to production restrictions or the need to make investments, but also criminal liability or the revocation of permits.

There is also a risk of environmental legislation being amended, which may affect Rottneros' operation. No such changes are known at the current time. See also the environment section on pages 30–31.

THE GROUP'S FINANCIAL LIABILITIES
As at 31 December 2011	<1 yr	2 yrs	3-5 yrs	>5 yrs
Utilised credit	37	–	–	–
Derivative instruments – inflow	71	91	95	–
Derivative instruments – outflow	86	95	100	–
Accounts payable and other liabilities	135	5	–	–
Interest	0	–	–	–
As at 31 December 2010	<1 yr	2 yrs	3-5 yrs	>5 yrs
Bank loans	25	–	–	–
Derivative instruments – inflow	95	–	–	–
Derivative instruments – outflow	102	–	–	–
Accounts payable and other liabilities	112	5	5	0
Interest	0	–	–	–

The timber used at Vallvik Mill is in the form of chips. Around 70 per cent of the chips are produced from pulpwood at the mill and the remainder are purchased as chips from sawmills.

36 OPPORTUNITIES AND RISKS

SENSITIVITY ANALYSIS 2011
	Effect on annual result after net financial items (SEK m)
Type of risk	Change	2011	2010 Sensitivity
Pulp price	USD 50/tonne	85	100 High
USD	SEK 0.50/USD	100	100 High
Electricity prices	SEK 0.10/kWh	30	30 High
Timber prices	SEK 10/m3	15	15 Medium
Interest rate risk	1% point	0	0 Low
Refinancing			None
Credit risk			Excess 10%

EFFECTS OF HEDGING ON EARNINGS IN 2011
2011	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Full year
Currency hedging	7	5	-1	-4	7
Pulp price hedging	–	–	–	–	–
Electricity price hedging	6	1	-5	-9	-7
Total	13	6	-6	-13	0

EFFECTS OF HEDGING ON EARNINGS IN 2010
2010	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Full year
Currency hedging	3	0	13	24	40
Pulp price hedging	–	–	–	–	–
Electricity price hedging	–	–	–	3	3
Total	3	0	13	27	43

MARKET VALUE (SEK M) DECEMBER 2011

Hedging	Hedged volume	Hedging level	Market value	Reference: spot rate 31 December 2011
Currency USD, futures sold	USD 35m	SEK 6.82/USD	-4	SEK 6.93/USD
Currency EUR, futures sold	EUR 5m	SEK 9.08/EUR	1	SEK 8.95/EUR
Currency EUR, futures purchased	EUR 12m	SEK 9.18/EUR	-1	SEK 8.95/EUR
Electricity	416,520 MWh	SEK 0.433/kWh	-26	SEK 0.30/kWh
Total market value			-30

MARKET VALUE (SEK M) DECEMBER 2010

Hedging	Hedged volume	Hedging level	Market value	Reference: spot rate 31 December 2010
Currency USD, futures sold	USD 14m	SEK 7.26/USD	8	SEK 6.80/USD
Electricity	80,875 MWh	SEK 0.397/kWh	17	SEK 0.771/kWh
Total market value			25

Weak price trends in 2011

The Rottneros share has been listed on NASDAQ OMX, Stockholm, since November 1987. Rottneros is included in the Small Cap segment and is classed as a company in the Materials sector. Rottneros had a market value of approximately SEK 316 (670) million at the end of 2011. There were 17,222 (18,033) shareholders at the end of 2011. Foreign shareholders held 22.89 (21.77) per cent of Rottneros' capital. In 2011, Rottneros' share price fell from SEK 4.37 at the start of the year to SEK 2.11 at the end of the year, a reduction of 52 per cent.

The stock exchange as a whole, measured as OMX Affärsvärlden's General Index, fell by 17 (+23.1) per cent in 2011. The share peaked at SEK 5.45 on 7 February, while the lowest price of SEK 1.80 was listed on 25 November.

THE SHARE'S TURNOVER

A total of 89 (118) million shares were traded in 2011 at a value of SEK 353 million (SEK 784 million). This represents a turnover velocity for share stock of 61 (80) per cent last year. Total turnover velocity among companies in the Small Cap segment on the stock exchange in Stockholm was 79 per cent, while the average for the Stockholm Stock Exchange as a whole was 72 per cent. An average of 88 (137) trades in Rottneros were executed every day.

SHARE CAPITAL AND HOLDINGS OF TREASURY SHARES

The share capital at the end of the year was SEK 153.4 (153.4) million divided between 153,393,890 (153,393,890) shares. All shares carry equal voting rights and equal rights to the company's capital and profit. Trends in the number of shares are illustrated in a table on the following page.

At the AGM in 2011, the Board was given the mandate of transferring shares previously acquired under the company's buy-back programme. However, no such transfer took place during the year and the company's holding of treasury shares remained the same as the previous year (821,965

shares), corresponding to 0.54 per cent of the number of shares outstanding.

DIVIDEND

The Board proposes a dividend of SEK 0.10 (0.20) per share for the financial year 2011, corresponding to a dividend yield of 4.7 per cent on the market value at the end of the year.

TRADE IN CALL OPTIONS

Subscribers for the new shares in the new share issue, which was implemented by Rottneros at the end of 2009, were allotted for no consideration approximately 0.27 call options for each newly allotted share. A holder of a call option was entitled to buy an ordinary share in Rottneros from Swedbank at a redemption price of SEK 8.20 per ordinary share or such adjusted price as may be required in certain circumstances according to the conditions. Swedbank, in its capacity as the issuing agent, has allotted the subscribers of the new issue approximately 244 million call options as listed with Nordic MTF on NGM (Nordic Growth Market). Trading in the call options started on Friday 15 January 2010.

Rottneros' lending banks which, by previous conversion of interest-bearing liabilities obtained shares in Rottneros, have undertaken to sell to Swedbank up to approximately 24 million shares in total to enable Swedbank to fulfil its obligations associated with the call options issued. The final application period ended on 7 December 2011.

INFORMATION FOR SHAREHOLDERS

Rottneros provides information for shareholders and the public through several channels. Information published in the form of annual reports, quarterly reports and press releases are regularly posted on www.rottneros.com. Presentation material from presentations of quarterly reports for journalists and analysts can also be downloaded from the website. The main channel for the Annual Report is the website, for which reason this report is not sent to shareholders unless specifically requested.

DISTRIBUTION OF SHARES AS OF 30 DEC 2011

NUMBER OF SHARES	NUMBER OF SHAREHOLDERS	PERCENTAGE OF CAPITAL
1-500	8,702	0.90%
501-1,000	2,851	1.30%
1,001-5,000	3,722	5.70%
5,001-10,000	990	4.80%
10,001-15,000	301	2.50%
15,001-20,000	161	1.90%
20,001-	495	83.00%
TOTAL	17,222	100.00%

OWNERSHIP STRUCTURE AS OF 30 DEC 2011

	NUMBER OF	PERCEN TAGE OF
SHAREHOLDER	SHARES	CAPITAL
Nemus Holding AB	30,857,435	20.12%
SHB: Skagen Vekst Verdipapirfondet	12,204,585	7.96%
Danske Bank A/S	6,451,273	4.21%
Dnb Nor Bank Asa Sweden	6,451,273	4.21%
HSH Nordbank AG	5,599,860	3.65%
Robur Försäkring	4,758,714	3.10%
Aliz Invest AB	4,280,000	2.79%
Nordea Bank AB (Publ)	3,500,274	2.28%
BBVA Ireland P.l.c	2,323,139	1.51%
NTC GIC Govt of Singapore Inv Corp	2,169,279	1.41%
Total for 10 largest	78,595,832	51.24%
Rottneros AB (treasury shares from
buy-back)	821,965	0.54%
Other	73,976,093	48.23%
TOTAL	153,393,890	100.00%

ANALYSTS TRACKING THE ROTTNEROS SHARE

• Enskilda Securities:
• Linus Larsson/Johan Edvardsson
• Swedbank: Claes Rasmuson/Ola Södermark
• Credit Suisse: Lars Kjellberg

SHARE DATA¹
		2011	2010	2009	2008	2007	2006
Shares, opening2	Number	152,572	1,525,719	180,212	180,212	180,212	180,212
Shares issued2	Number	–	0	1,345,507	–	–	–
Reverse share split2	Number	–	-1,373,147	–	–	–	–
Repurchased treasury shares2	Number	–	–	–	–	–	–
Shares, closing2	Number	152,572	152,572	1,525,719	180,212	180,212	180,212
Average number of shares2,5	Number	152,572	152,572	26,884	18,021	18,021	18,021
Operating profit/loss per share5	SEK	-0.77	0.90	-6.18	-16.95	-19.99	-0.43
Profit/loss after net financial items per share5	SEK	-0.79	0.90	-2.58	-21.33	-21.30	-1.29
Profit/loss after tax per share5	SEK	-0.95	0.82	-2.59	-18.35	-16.69	-0.45
Operating cash flow per share3,5	SEK	-0.74	0.51	2.74	-13.34	-5.59	1.93
Equity per share5	SEK	65	8.05	7.14	44.96	58.29	77.83
Dividend5,6	SEK	0.10	0.20	–	–	–	1.00
Dividend/equity per share6	%	1.5	2.5	–	–	–	1.3
Share price at the end of the period5	SEK	2.11	4.37	6.90	10.50	23.10	65.50
Share price/equity per share	ratio	0.3	0.5	1.0	0.2	0.4	0.8
P/E ratio per share	ratio	Neg.	5.3	Neg.	Neg.	Neg.	Neg.
Dividend yield4,6	%	4.7	4.6	–	–	–	1,5

1 None of the key ratios are affected by any dilution effect

2 The number of shares is in thousands, excluding

Rottneros' treasury shares 3 Cash flow after normal investments, but excluding 5 There was a reverse share split in April 2010 where ten existing shares were combined as one share The comparison periods have been adjusted for this reserve split

strategic investments

4 The calculation of dividend yield is based on the share price at year-end

6 Dividend proposed for 2011

Olle Åkesson controls the main refiner on the CTMP line at Rottneros Mill.

Corporate governance in Rottneros

Rottneros is a Swedish public limited company based in Sunne, Sweden and is listed in the Small Cap segment on NASDAQ OMX, Stockholm ('the Stock Exchange'). Rottneros has been covered by the 'Swedish Code of Corporate Governance' ('the Code') since 1 July 2008 and the requirement for a corporate governance report contained in the Annual Accounts Act has also been included since 1 March 2009. Rottneros' corporate governance is based on the Swedish Companies Act, the Annual Accounts Act and the rules of the Stock Exchange and the Code. This corporate governance report refers to both Rottneros AB, which is the parent company, and the Group.

PRINCIPLES FOR CORPORATE GOVERNANCE

Rottneros applies the rules prescribed by law or other enactment, and also the Code. Rottneros applies the Code without deviations.

STRUCTURE FOR CORPORATE GOVERNANCE

The shareholders at the annual general meetings/general meetings make the appointments by election and lay down the guidelines which will form the basis for the corporate governance of Rottneros. The following organisation chart summerizes how corporate governance is organised at Rottneros.

CONTROL INSTRUMENTS

The external control instruments that form the frameworks for corporate governance at Rottneros include the Swedish Companies Act, the Annual Accounts Act, the rules of the Stock Exchange, the Code and other relevant legislation. Foreign subsidiaries apply the laws and ordinances in force in the country in question, but also ensure that the Group's guidelines for governance and control are observed.

The Board is ultimately responsible for the organisation and administration of the company's affairs. The authorities and bodies appointed by the authorities exercise supervision through receiving reports from the company and through regular checks conducted by the authorities.

The internal control instruments include the Articles of Association as adopted by the AGM, the Rules of Procedure for the Board and the Terms of Reference for the President, the Board's committees and the Company's financial reporting. In addition, there are, for example, financial and quantitative targets, budgets, reports, policies, valuations and codes of conduct.

The policies resolved by the Board include the Code of Conduct, the Financial Policy, the Communication Policy and the Environmental Policy. The President decides on the Customer Credit Policy, Crisis Management Policy, IT Security Policy and Work Environment Policy, which are communicated to the Board. There are also five other important steering documents decided by the President or the person appointed by the President.

ANNUAL GENERAL MEETING

Rottneros' shareholders exercise their right to make decisions on the company's affairs at the AGM or, where applicable, an extraordinary general meeting. This is Rottneros' highest decision-making body. The AGM makes decisions on the Articles of Association, appoints the Board and the Chair of the Board, elects the auditors, adopts the income statement and balance sheet, makes decisions on the appropriation of profits and discharge from liability and makes decisions on nomination procedures, guidelines for the remuneration of senior executives, etc

Rottneros' Articles of Association contain no special provisions about the appointment and dismissal of members of the Board or about amendments of the Articles of Association.

Each shareholder has the right to participate in the AGM, either in person or through a representative holding a power of attorney. Each shareholder has the right to raise issues to be addressed at the AGM.

Notices of meetings and other information prior to AGMs/general meetings are available on Rottneros' website www.rottneros.com. Minutes, the President's statements, etc. from the latest meetings are also available from the website.

SHAREHOLDERS

Rottneros' ordinary shares have been listed on NASDAQ OMX Stockholm since 1987. According to the share register kept by Euroclear Sweden, Rottneros had 17,222 shareholders on 31 December 2011. The share capital amounted to SEK 153,393,890, divided between 153,393,890 ordinary shares, each carrying equal voting rights and equal rights to the company's profit and capital. The Articles of Association contain no restrictions on the number of votes each shareholder can cast at a general meeting.

Nemus Holding AB had a participating interest amounting to just over 20 per cent of the total number of shares and votes on 31 December 2011. Otherwise, none of the shareholders had a direct or indirect shareholding representing at least one tenth of votes attached to all shares in Rottneros.

Rottneros' holding of treasury shares amounts to 821,965, corresponding to around 0.54 per cent of the total number of shares. Pages 37-38 of the company's Annual Report for 2011 provide more information about the share, shareholders, etc. Information is also available on the company's website.

2011 ANNUAL GENERAL MEETING

Rottneros' 2011 AGM was held on 19 April 2011 in Sunne, Sweden. Fifteen of the company's shareholders attended the meeting, representing 28 per cent of the Company's votes and capital (excluding Rottneros' buyback shares). All members of the Board were present, as was the President. The company's auditor also attended the meeting.

Among other things the AGM passed the following resolutions:

• To, in accordance with the Board's proposal, distribute a dividend of SEK 0.20 per share to shareholders.
• To thus reject the shareholder Stefan Svanberg's proposal regarding the allocation of the profit.
• That the Board should comprise four ordinary members. Board members Roger Asserståhl, Kjell Ormegard, Bengt Unander-Scharin and Ingrid Westin Wallinder were reelected.
• Kjell Ormegard was appointed Chair of the Board.
• That a fee of SEK 500,000 should be paid to the Chair of the Board and SEK 250,000 to each of the other Board members who are not employed by the company. That members of Board committees should be paid a fee of SEK 25,000, except for the assignment as Chair of the Audit Committee, who should receive remuneration of SEK 75,000 and the chairs of the other committees, who should receive remuneration of SEK 50,000. Each employee representative will be paid a fee of SEK 25,000 for the time required to read materials prior to Board meetings. Auditors' fees are paid based on invoices approved by the President.

• Following a separate agreement with the company, a Board member may invoice the fees for the Board, together with statutory social security contributions and value added tax, through a company owned by the Board member, subject to the precondition that such payment is cost neutral to the company.

• To reelect the registered public accounting firm Öhrlings PricewaterhouseCoopers AB for the period up until the end of the 2012 AGM.

• That in accordance with the Board's proposal, guidelines be approved for remuneration for the President and other senior executives. This means, for example, that remuneration shall comprise fixed salary, a possible variable remuneration component, other benefits and pension contributions. The total remuneration package must be in line with market rates and competitive in the market in which the executives work. The variable component of remuneration, which is cash, is based on outcomes in relation to defined and measurable targets and is capped in relation to fixed salary. All matters relating to the remuneration of the executive management are dealt with by the Compensation Committee, except in respect of the President, whose remuneration is decided by the Board of Directors.
• To authorise the Board to make decisions on transferring shares (shares previously acquired under the company's buy-back programme) in the company on one or more occasions during the period up until the next AGM.
• To reject the shareholder Stefan Svanberg's proposal regarding authorisation for acquisition of treasury shares.

NOMINATING COMMITTEE

Rottneros' AGM makes decisions on the principles for the appointment of the Nominating Committee. The 2011 AGM resolved that the Nominating Committee shall comprise the Chair of the Board and two additional members. The Chair of the Board may not chair the Committee. One of these two members, in addition to the Chair of the Board, must be a representative of the company's major shareholder and the other shall be a representative of one of the company's other four major shareholders. Neither of these two members may be a Board member at the same time. The Nominating Committee appoints a chair from within its ranks. It is the responsibility of the Chair of the Board to ensure that members are appointed as stated above. The principles also include a procedure for replacing members who leave the Nominating Committee before the end of their mandate or when a member represents a shareholder that is no longer of the five major shareholders in terms of votes.

The names of members of the Nominating Committee shall be presented at least six months prior to the 2012 AGM. The composition of the Nominating Committee at any given time will be published on Rottneros' website. A press release with information about the composition of the Nominating Committee was published on 20 October 2011 and is available on Rottneros' website. Olle Grundberg from Nemus Holding AB has been appointed Chair of the Nominating Committee. Other members appointed are Jan Alkmark from Danske Bank A/S, Denmark (Swedish Branch) and Kjell Ormegard, who chairs the Board of Rottneros AB. Altogether, the Nominating Committee represents just over 24 per cent of the votes attached to all shares in Rottneros.

The Nominating Committee shall submit proposals for decisions to the 2012 AGM as regards election of the Chair for meetings, number of Board members and deputy Board members, election of Board members and deputy Board members, election of Chair of the Board, fees for the Board, fees for the auditors, proposals concerning the election of auditors (when applicable) and criteria for the appointment of a new nominating committee.

AUDITORS

Rottneros' auditors are elected at the AGM. At the 2011 AGM, Öhrlings PricewaterhouseCoopers AB (PwC) was elected as the company's auditor for the period up until the 2012 AGM, with authorised public accountant Bo Lagerström as auditor in charge. Bo Lagerström is the new auditor in charge. Rottneros' Articles of Association do not include any term for the auditor. With effect from 1 November 2010, it is prescribed by the Swedish Companies Act that the auditor's term is one year, unless otherwise stated in the Articles of Association. This means that the auditor for Rottneros will be elected annually at the AGM.

AUDIT WORK

The auditors examine the parent company's and the Group's annual accounts and accounting records and the administration of the company by the Board and the President. The company's auditor attends at least one Board meeting each year. The auditors attended all but one of the meetings of the Audit Committee and the 2011 AGM. The auditor attends the AGM to present the audit report.

In addition to the audit assignment, PwC has provided Rottneros with VAT and tax consulting services and assisted with various accountingrelated investigations. PwC has to examine its independent status in connection with each consulting assignment. Information on the fees paid to the public accounting firm in 2011 is presented in Note 7 of the 2011 Annual Report.

BOARD OF DIRECTORS COMPOSITION OF THE BOARD AND FEES

According to the Articles of Association, the Board of Rottneros shall comprise a minimum of three and a maximum of ten members, with up to six

deputies, elected by the AGM. In addition, the employees shall elect two representatives with two deputies. The Board of Rottneros comprises four members without deputies elected at the AGM, and two members and two deputies appointed by the employees. The President is not a member of the Board but is called in to all Board meetings, except when the agenda includes an evaluation of the work of the Board and the President. Other officials of the company are called in when necessary to present matters. The company's CFO serves as the Board secretary. The table below shows the composition of the Board in 2011 in addition to remuneration paid to Board members for the full years 2011 and 2010 respectively.

					ATTENDANCE 2011
AMOUNT IN SEK THOUSAND		TOTAL FEES, 2011	TOTAL FEES, 2010	BOARD MEETINGS	COMMITTEE MEETINGS
Kjell Ormegard1	(Chair)	592	608	100%	100%
Roger Asserståhl		300	303	100%	100%
Rune Ingvarsson2		–	28	–	–
Bengt Unander-Scharin1		266	167	86%	100%
Ingrid Westin Wallinder3		341	340	100%	100%
Bengt-Åke Andersson	(employee representative)	25	25	93%	–
Mikael Lilja	(employee representative)	25	25	71%	–
Tord Strömberg	(employee representative/deputy)	25	25	86%	–
Thomas Wasberg	(employee representative/deputy)	25	25	57%	–

1 Kjell Ormegard (Chair of the Board) and Bengt Unander-Scharin (Board Member) have invoiced their respective fees, together with social security contributions and value-added tax, via their own companies. This procedure is cost-neutral for Rottneros.

² Resigned from the Board in January 2010

³ Rottneros purchased legal services on market terms in 2011 for KSEK 122 from Ramberg Advokater, which employs Board member Ingrid Westin Wallinder. The corresponding purchase for 2010 amounted to KSEK 291 from Advokatfirman Lindahl, where Ingrid Westin Wallinder was employed at that time.

EVALUATION OF THE BOARD'S WORK

The Chair is responsible for evaluating the work of the Board and for ensuring that the Nominating Committee is provided with these evaluations. An evaluation of the Board's work for 2011 was conducted at the end of the year and presented at the board meeting in December 2011.

INDEPENDENCE

According to the Code, a majority of the members elected at the AGM must be independent in relation to the company and executive management; also, at least two of these members must be independent in relation to the company's major shareholders. Rule 4.4 of the Code includes criteria to help assess level of independence.

Rottneros' Board of Directors is considered to have met the requirements of the Code regarding independence, since the Board members elected at

the AGM are considered independent of both the company and executive management and of the company's major shareholders.

BOARD WORK AND RESPONSIBILITIES

The Board oversees the work of the President and is responsible for ensuring that the organisation, management and guidelines for managing the company's funds are appropriate. The Board of Directors is also responsible for ensuring that the company is organised in such a way that its internal control is appropriate and effective. The Board of Directors is also responsible for developing and following up the company's strategies through planning, establishing targets and taking decisions on the acquisition and disposal of operations, major investments, appointments of and remuneration for the management team as well as day-to-day followups during the year. The Board approves the budget and annual accounts.

Rules of Procedure for the Board

The Board works according to specific Rules of Procedure prescribing the distribution of responsibilities between the Board and the President, between the Board's various committees and within the Board itself as well as instructions for financial reporting. The Board's Rules of Procedure contain special Terms of Reference for the President.

A Board meeting following election is held immediately after the AGM or immediately after extraordinary general meetings where a new Board has been elected. Rottneros held a Board meeting following election on 19 April 2011 where among other things members of the Board committees were appointed and the above-mentioned Rules of Procedure were adopted.

In addition to meetings following election, the Board convenes five scheduled meetings each year and additional meetings when the Chair sees fit or within 14 days following a request for a meeting from a member of the Board. Fourteen Board meetings were held in 2011. The work of the Board follows a schedule established in advance, which includes specific fixed items that require decisions during the financial year:

• In January/February, the Board works on the year-end report, the Board's recommendations with respect to dividends and any necessary additions to the budget and business plan. The Board also evaluates its work arrangements and procedures for making decisions and considers improvements to these.
• The official annual report is dealt with at the end of February. The company's auditors report any observations made when conducting their audit. Remuneration issues are also dealt with.
• The results for the first and second quarters are dealt with in April and July.
• The results for the third quarter are dealt with in October. The investment plans for the coming financial year are also dealt with in October together with a review of the Group strategies.
• In December, the Board works on preparations for the annual accounts, and the business plan for the coming year is approved

In addition to the items above, the Board's work in 2011 focused on the following:

• Disposal of/project preparations for the Utansjö equipment.
• Reviewing and updating policies
• Preparations for a possible bioenergy project.

The Board also receives a monthly report on the company's performance and liquidity trends. Other business is dealt with as determined by the nature of each individual matter.

Financial Policy issues

The Board has the ultimate responsibility for the Group's financial activities. The Board is responsible for approving the Group's Financial Policy, which shall be updated annually. The Board makes decisions on comprehensive mandates and limits for restricting financial risk-taking by the Group in accordance with the Financial Policy, and also makes decisions about long-term financing. The Board approves the hedging levels based on proposals from the executive management. The Board also approves new financial counterparties and limits for the respective counterparty. The Board has delegated the operational responsibility in line with the allocation of responsibility indicated by Financial Policy laid down.

THE BOARD'S CONTROL OF FINANCIAL REPORTING

The Board monitors the quality of financial reporting by providing instructions for its execution and through the Terms of Reference for the President. One of the tasks of the President is to work with the CFO to review and ensure the quality of all external financial reporting, including year-end releases, interim reports, annual reports, press releases with economic content and presentation materials produced for meetings with the media, shareholders and financial institutions.

The Board's Audit Committee works to ensure that financial reporting is accurate and maintains a high quality, and also that it is given final approval by the Board and communicated. The Board receives monthly financial reports, and the financial position of the company and the Group is addressed at each Board meeting. The Board also reviews interim reports and the Annual Report.

In order to ensure that the Board receives the information it needs, the company's auditors report to the Board every year on observations made during the audit and express an opinion on the company's internal control, in addition to reporting to the Audit Committee. The company's auditors report to the Board at least once a year on whether the company has succeeded in ensuring that bookkeeping, administration and financial control are effective, after which the Board discusses this with the auditors without the presence of the President or other members of management.

THE BOARD'S COMMITTEES

The Board has full knowledge of and responsibility for all matters on which it must take decisions. However, work was conducted by two of the committees appointed by the Board during the year: the Audit Committee and the Compensation Committee.

AUDIT COMMITTEE

This Committee comprises three representatives of the Board. Its tasks include preparatory work for decisions to be made by the Board to assure the quality of the company's financial reporting, monitor the efficiency of the company's internal controls and risk management, assist the Nominating Committee when procuring audit services and arrange for the election and payment of the auditors, reviewing the scope and focus of audit assignments, addressing audit issues, evaluating audit work, establishing guidelines for purchasing other services from the company's auditors, following up and assessing the application of current accounting principles and adopting new accounting principles, and other accounting requirements as stipulated in legislation, generally accepted accounting principles, applicable Stock Exchange rules, etc.

The company's auditor in charge and representatives of the accounting firm are co-opted for most of the meetings. Senior executives are also co-opted for meetings when appropriate. The Committee comprised Kjell Ormegard, who is Chair of the Board, and Board members Ingrid Westin Wallinder and Roger Asserståhl. Ingrid Westin Wallinder chairs the Committee.

The Audit Committee held five meetings in 2011. Minutes are forwarded to the Board on an ongoing basis. The auditors attended all but one of the meetings of the Audit Committee.

COMPENSATION COMMITTEE

This Committee shall comprise at least two representatives of the Board. The main tasks of the Committee are to: prepare the Board's decisions on issues concerning principles for remuneration, remuneration and other terms of employment for the executive management; monitor and evaluate programmes for variable remuneration, both ongoing and those that have ended during the year, for the executive management; monitor and evaluate the application of the guidelines for remuneration for senior executives that the AGM is legally obliged to establish, as well as current remuneration structures and levels at the company. The President's remuneration package and the principles for remunerating the executive management are determined by the Board. Remuneration for other senior executives is determined by the Compensation Committee within frameworks established by the Board and AGM.

The Compensation Committee comprised all of the Board's four members elected at the AGM. Kjell Ormegard chairs the Committee.

The Committee held two meetings in 2011 and the Board receives minutes from the Compensation Committee.

PRESIDENT/CEO

The President's responsibility as stipulated by the Swedish Companies Act and other legislation is to manage the company's day-to-day business according to the Board's guidelines and instructions and to implement the measures necessary to ensure that the company's bookkeeping is managed in a satisfactory manner. The President also ensures that the Board receives the information it needs on an ongoing basis to monitor the company's and the Groups' financial situation, position and development in a satisfactory way and to otherwise fulfil its reporting obligations with respect to the company's finances.

The company's President manages the business within the frameworks established by the Board in the special Terms of Reference for the President. These Terms of Reference include the President's responsibility for day-to-day business and matters that always require Board decisions or that must be reported to the Board, as well as the President's responsibility for presenting financial reports to the Board.

The President works with the Chair to produce the materials required for information and decisions at Board meetings, and also presents matters for discussion and justifies recommendations.

The Board evaluates the work of the President on an ongoing basis.

GROUP MANAGEMENT

The President leads the work of Group management and makes decisions in consultation with other members of the management team. This team comprises the President and five additional individuals: two heads of subsidiaries and three heads of Group staff. Information about the President and Group management is shown on page 52 of the 2011 Annual Report. The management

team has regular business reviews led by the President, often in conjunction with visits to the various units belonging to the Group.

GUIDELINES FOR REMUNERATION OF SENIOR EXECUTIVES

The AGM decides on guidelines to determine remuneration for the President and other senior executives. The Board's proposed guidelines are stated below. At present, 'other senior executives' refers to the five people who, together with the President, make up Group management. These individuals are presented on the company's website and page 52 of the 2011 Annual Report.

The remuneration paid to the President and other senior executives comprises fixed salary, possible variable component of pay, other benefits and pension contributions. The total remuneration package must be in line with market rates and competitive in the labour market in which the executives work. Fixed salary and variable remuneration are related to the responsibilities and powers held by each executive. The variable component of pay, which is cash, is based on outcomes in relation to defined and measurable targets and is capped in relation to fixed salary. The variable component of pay for the President is capped at 50 per cent of fixed salary, excluding the special bonus connected to the Utansjö facility referred to below, and the variable component of pay for other senior executives is capped at 30 per cent of fixed salary. The programme for the variable components of pay shall be designed so that the Board can impose conditions, restrict or decline to make payments of variable component of pay in exceptional financial circumstances if such measure is considered to be reasonable and compatible with the duties of the company in relation to shareholders, employees and other interested parties.

The period of notice is between six months and one year should notice be given by the executive, and between one and two years should notice be given by the company. The President is entitled to severance pay and a salary during the period of notice of in total up to an amount corresponding to the fixed salary for two years.

Pension benefits are either defined benefit or defined contribution plans or a combination thereof providing the decision maker the right to receive pension from not earlier than the age of 62.

Remuneration considerations to the executive management shall be prepared by the Compensation Committee. Remuneration principles and other employment conditions for the executive management as well as remuneration to the President shall be decided by the Board of Directors.

If the company in a particular case assigns an individual Board member tasks over and above his or her regular Board and committee duties, the Board shall determine the level of remuneration, which must be reasonable and in line with market rates.

The Board will conduct an annual evaluation of whether or not to propose a long-term incentive programme at the AGM.

The Board shall be empowered to deviate from these guidelines if there are special reasons to do so in an individual case.

It is intended that a special capped, performancebased bonus linked to the Utansjö facility be paid to the President, capped at twelve monthly salaries at the 2008 salary level and, following a decision by the Compensation Committee, to other senior executives involved in this project.

Pay and remuneration for the President and other senior executives in 2011 can be found in Note 6 of the Annual Report for Rottneros.

Variable remuneration

The variable remuneration for the company's senior executives (i.e. President and other people in Rottneros' Group management) is compatible with the guidelines for the remuneration of senior executives determined at the AGM, which were reported above.

Variable remuneration is dependent on the achievement of targets that are determined annually. These targets are broken down into specified quantitative objectives, mainly directed at financial objectives, results and cash flow of the Group, but also – in relation to Heads of Units – the respective business unit , and also qualitative personal objectives, which mean that variable remuneration is related to the individual's efforts and performance.

Variable remuneration for the President is capped at 50 per cent of fixed salary and the special performance-based bonus linked to the Utansjö project is capped at twelve monthly salaries at the 2008 salary level. Variable remuneration for other senior executives is capped at 30 per cent of fixed salary.

As a benchmark, variable remuneration is not qualifying income for pension purposes. The Board can impose conditions, restrict or decline to make payments of variable remuneration in exceptional financial circumstances if the Board considers such measure to be reasonable and compatible with the duties of the company in relation to shareholders, employees and other interested parties.

Incentive programme

The 2010 AGM of Rottneros resolved to issue no more than 30 million subscription warrants to be used for an incentive programme for eight senior executives. In total, 12 million of these subscription warrants were transferred to those entitled to subscribe. The price per warrant amounted to SEK 0.10, and ten subscription warrants are required to subscribe for one new ordinary share. The issue price amounts to SEK 9.75 per share and shares can be subscribed for during the period 17 May 2011 to 16 May 2013. Rottneros has

cancelled subscription warrants that were not transferred. The dilution effect will amount 0.8 per cent in the event that all warrants are exercised. As of 31 December 2011, no subscription warrants have been utilised to subscribe for new shares.

FURTHER INFORMATION IS AVAILABLE FROM WWW.ROTTNEROS.COM.

• Articles of Association
• Information from past AGMs from and including 2005 (notices, minutes, resolutions, the President's statements)
• Information about the Nominating Committee
• Information on corporate governance from 2004 to 2007 (included in the Annual Report for the respective year)
• Corporate governance reports from 2008-2010 (included in the Annual Report for the respective year)

ROTTNEROS' SYSTEM FOR INTERNAL CONTROL AND RISK MANAGEMENT IN CONJUNCTION WITH THE FINANCIAL REPORTING

The Board is responsible for the company's internal control in accordance with the Swedish Companies Act and the Code. According to the Swedish Companies Act, the Corporate Governance Report shall include information about the most important elements of the company's system for internal control and risk management regarding financial reporting.

Rottneros' internal control structure is predominantly based on the COSO model, according to which reviews and assessments are made in the following areas: control environment, risk assessment, control activities, information, communication and monitoring.

CONTROL ENVIRONMENT

The Board has drawn up a number of steering documents with respect to the company's internal control and governance, including the Rules of Procedure for the Board and Terms of Reference for the President and the Board's committees, reporting instructions and a Financial Policy. All of these documents are intended to ensure a clearly defined distribution of roles and responsibilities. Financial information is reported through a Group-wide reporting system.

The President and Group management, who report to the Board of Directors in accordance with established routines, are responsible for maintaining an effective control environment and the day-to-day internal control and risk management work. Managers at various levels within the company have the same responsibility within their respective areas of responsibility and in turn report to Group management.

RISK ASSESSMENT

Rottneros continuously updates its risk analysis with respect to assessing the risk of errors occurring in financial reporting. This is done mainly through contacts between Group management and the subsidiaries' management teams. At risk reviews, Rottneros identifies areas where there is an increased risk of errors occurring.

CONTROL ACTIVITIES

Monthly financial reports are prepared for all of the companies in the Group as well as consolidated financial reports. These form the basis of the monthly meetings at each mill, where the President, CFO and Group Controller review the respective company's management group. Areas emphasised for analysis are order status, cost follow-up, investments and cash flow. A conference call is made every quarter where the quarterly accounts and the subsidiary's forecast update are analysed. The CFO also visits the subsidiaries several times a year and the Chief Auditor accompanies the CFO at least once a year. These meetings are supplemented several times a year with Heads of Finance meetings, where the CFO, financial manager of each subsidiary and the Group's Chief Accountant and Controller meet. At these meetings, particular emphasis is placed on monitoring any problems and ensuring the accuracy of financial reporting. Forecasts are updated every quarter for all Group companies and there are controllers working on financial matters both locally and centrally, comparing these forecasts with outcomes and ensuring that the financial information is true, fair and correct.

The Board's Audit Committee meets regularly to discuss identified risks. The control environment has been created through common values, Rottneros' corporate culture, rules and policies, communication and follow-up as well as the way in which the business is organised. The main task of Group staff is to implement, develop and maintain the Group's control routines and to introduce internal control routines aimed at business-critical issues.

Rottneros' auditors examine both the financial information for the third quarter and the annual accounts. Every year the auditors also examine a selection of the company's control activities and processes and report any areas for improvement to both Group management and the management team of the respective subsidiary. The auditor in charge also attends most of the meetings of the Audit Committee.

INFORMATION AND COMMUNICATION

The information contained in Rottneros' important control documents, in the form of policies, guidelines and manuals, is primarily communicated through a Group-wide intranet.

FOLLOW-UP

Each company has its own finance department and reports through a Group-wide reporting system. The Group's Chief Accountant and Controller also work closely with the Heads of Subsidiaries in matters concerning the annual accounts and reporting.

In 2011, further areas within internal control were evaluated through various tests. These tests supplement the self-assessment conducted in 2010 concerning the status of internal control in respect of financial reporting. The assessment in 2010 commenced with a risk analysis that identified a number of areas of particular interest. Within these areas, tests were designed of the controls available to minimise identified risks, and Group companies were asked about how they considered that these controls were functioning. The companies' responses generally showed that there were sufficient and reliable controls to manage most of the risks within the areas identified. The Board is of the opinion that the Group's current scope and complexity does not warrant an internal audit function.

Proposed appropriation of profits

AT THE DISPOSAL OF THE AGM:
Retained earnings	471,355,626
Net profit/loss for the year	-90,620,672
SEK	380,734,954

THE BOARD OF DIRECTORS PROPOSES:
A total1 dividend of SEK 0.10 per share to be paid to shareholders	15,257,193
To be carried forward	365,477,761
SEK	380,734,954

¹ Following adjustment for repurchased treasury shares.

The dividend proposed corresponds to four per cent of the Parent company's unrestricted equity and just over one percent of the Group's total equity. It has been assessed by the Board that the proposed dividend allows scope for the Group to fulfil their obligations and implement desired investments and it is quite justified considering the company's financial position. The record day proposed for the right to dividends is 24 April 2012.

The consolidated income statement and balance sheet will be submitted to the Annual General Meeting on 19 April 2012 for adoption.

Consolidated accounts have been prepared in accordance with international financial reporting standards (IFRS) as adopted by the EU and give a true and fair view of the Group's financial position and results of operations. The Annual Report has been prepared in accordance with generally accepted accounting principles in Sweden and gives a true and fair view of the parent company's financial position and results of operations.

The Directors' Report for the Group and parent company gives a true and fair summary of the development of the Group's and parent company's operations, financial position and results of operations and describes significant risks and uncertainties faced by the parent company and companies included in the Group.

STOCKHOLM, 24 FEBRUARY 2012 ROTTNEROS AB (PUBL), CORPORATE ID NO. 556013-5872

Kjell Ormegard Chair of the Board

Bengt Unander-Scharin Board Member

Bengt-Åke Andersson Board Member

Roger Asserståhl Board Member

Ingrid Westin Wallinder Board Member

Mikael Lilja Board Member

Ole Terland President and CEO

Our audit report was submitted on 9 March 2012 Öhrlings PricewaterhouseCoopers AB

Bo Lagerström Auditor in charge

Board of Directors, auditors and management team

COMPOSITION OF THE BOARD

Kjell Ormegard Born 1949, MBA Chair of the Board since 2010. Member of the Board since 2007. Other assignments/positions: Board member of Allmänna Änke- och Pupillkassan in Sweden. Holdings, own and those of closely related persons, of financial instruments on 31 December 2011: 100,000 shares

Roger Asserståhl Born 1943, M.Sc. Forestry Member of the Board since 2008. Other assignments/positions: Board member of Bergvik Skog AB. Holdings, own and those of closely related persons, of financial instruments on 31 December 2011: 12,000 shares

Ingrid Westin Wallinder Born 1957, LLM Member of the Board since 2006. Other assignments/positions: Attorney and partner at Ramberg Advokater AB. Board member of Uppsala University's Trusteeship and Cooperative Association.

Holdings, own and those of closely related persons, of financial instruments: –

Bengt Unander-Scharin Born 1943, MBA Member of the Board since 2010. Other assignments/positions: Chair of Ljungträ AB. Holdings, own and those of closely related persons, of financial instruments: 20,000 shares which are all invested in endowment insurance

COMPOSITION OF THE BOARD

Bengt Åke Andersson Born 1951, System Technician, Vallviks Bruk AB Employee representative. Member of the Board since 2009.

Mikael Lilja Born 1966, Mechanic, Rottneros Bruk AB Employee representative. Member of the Board since 2008. Other assignments/positions: Member of the executive committee of the Swedish Paper Workers' Union.

Tord Strömberg Born 1950, Shift Supervisor, Rottneros Bruk AB Employee representative. Deputy board member since 2009. Other assignments/positions: Member of Ledarna (Swedish Organisation for Managers). Deputy General Examiner at Sunne Bostads Aktiebolag.

Thomas Wasberg Born 1962, Operator, Vallviks Bruk AB Employee representative. Deputy board member since 2009. Other assignments/positions: Member of the Swedish Paper Workers' Union.

AUDITORS

Öhrlings PricewaterhouseCoopers AB Elected at 2011 AGM. Auditor in charge: Bo Lagerström since 2011. Born 1966, Authorized Public Accountant and member of FAR.

SENIOR EXECUTIVES

Ole Terland

Born 1958, Licentiate of Engineering. President and CEO, employed since 2008. Other assignments/positions: Member of the board of the Swedish Forest Industries Federation Holdings, own and those of closely related persons, of financial instruments on 31 December 2011: 440,237 shares, of which 400,000 are invested in endowment insurance, and 5 million subscription warrants.

Olle Dahlin Born 1954, M.Sc. Engineering and MBA. MD of Rottneros Bruk AB, employed since 2005. Other assignments/positions: Chair of Board for Svenska Skidskytteförbundet (Swedish Biathlon Association) Holdings, own and those of closely related persons, of financial instruments on 31 December 2011: 125,576 shares and 1.5 million subscription warrants.

Ingemar Eliasson Born 1956, M.Sc. Forestry Wood Procurement Director, employed since 1987. Other assignments/positions: Deputy board member of VMF Qbera economic association. Holdings, own and those of closely related persons, of financial instruments on 31 December 2011: 46,223 shares and 2.5 million subscription warrants.

Tomas Hedström Born 1960, MBA CFO, employed since 2010. Other assignments/positions: Owner of New Horizons AB. Chair of board for Provrummet AB. Holdings, own and those of closely related persons, of financial instruments on 31 December 2011: 25,000 shares and 2.5 million subscription warrants.

Robert Jensen Born 1956, Production Engineer MD of Vallviks Bruk AB, employed since 1999. Other assignments/positions: Owner of the sole proprietorship Larm och Drift Service. Holdings, own and those of closely related persons, of financial instruments on 31 December 2011: 0.5 million subscription warrants.

Ragnar Lundberg Born 1947, M.Sc. Engineering Technical Director, employed since 2000. Other assignments/positions: Board member and Chair of JLR Pulping Systems AB. Holdings, own and those of closely related persons, of financial instruments on 31 December 2011: 29,312 shares.

53 FINANCIAL REPORTING

Income statements – Group

Amounts in SEK m	Note	2011	2010
Net turnover	1, 9	1,513	1,684
Change in inventories of finished goods		60	-25
Other income	2	90	121
		1,663	1,780
Operating expenses
Raw materials and consumables	3	-1,001	-961
Other costs	7, 8, 9	-450	-393
Personnel costs	5, 6	-209	-202
Depreciation/amortisation and write-downs of tangible and intangible fixed assets	13, 14	-120	-86
Operating profit/loss		-117	138
Financial items
Financial income	10	2	6
Financial expenses	11	-5	-6
Total financial items		-3	0
Profit/loss after financial items		-120	138
Tax on profit for the year	12	-24	-13
NET PROFIT/LOSS FOR THE YEAR		-144	125
Earnings per share¹		-0.95	0.82
Average number of shares		152,572	152,572

1 No programmes exist that result in dilution.

STATEMENT OF COMPREHENSIVE INCOME FOR THE GROUP 1 JANUARY–31 DECEMBER
Amounts in SEK m	2011	2010
PROFIT/LOSS FOR THE YEAR	-144	125
Other comprehensive income
Cash-flow hedging, profit/loss before tax	-54	20
Cash-flow hedging, tax effect	14	-5
Exchange rate differences	1	-2
Reclassification adjustment, deconsolidated subsidiaries¹	0	1
Total other comprehensive income	-39	14
TOTAL COMPREHENSIVE INCOME FOR THE YEAR	-183	139

¹ Accumulated exchange rate differences posted to the result in accordance with IAS 21.

Balance sheets – Group

CONSOLIDATED BALANCE SHEET ON 31 DECEMBER
Amounts in SEK m	Note	2011	2010
ASSETS
Fixed assets
Intangible fixed assets	13	3	2
Tangible fixed assets	14, 15	760	720
Deferred tax assets	12	73	82
Other financial fixed assets	17	5	63
Total fixed assets		841	867
Current assets
Inventories, etc.	18	276	213
Accounts receivable	19	125	150
Other current receivables	20	78	80
Tax assets		5	4
Derivative instruments	4	1	25
Cash and cash equivalents	21	21	155
Total current assets		506	627
TOTAL ASSETS		1,347	1,494

CONSOLIDATED BALANCE SHEET ON 31 DECEMBER
Amounts in SEK m	Note	2011	2010
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity	22
Share capital		153	153
Other injected capital	c730	730	730
Buy-back of treasury shares		-69	-69
Other reserves		-29	10
Profit brought forward		229	404
Total shareholders' equity		1,014	1,228
Non-current liabilities
Interest-bearing liabilities	15	5	10
Derivative instruments	4	11	–
Total non-current liabilities		16	10
Current liabilities
Interest-bearing liabilities	15	42	29
Accounts payable		119	92
Other non-interest-bearing liabilities	25	123	128
Derivative instruments	4	19	–
Other provisions	23	14	7
Total current liabilities		317	256
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES		1,347	1,494
Pledged assets	15, 26	650	686
Contingent liabilities	26	3	6

Statement of changes in shareholders' equity – Group

	2010 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY – GROUP
--	-----------------------------------------------------------

				Other reserves		Profit brought
Amounts in SEK m	Share capital	Other injected capital	Buy-back of treasury shares	Hedging reserve	Translation differences	forward, incl. profit/loss for the year	Total shareholders' equity
Opening balance, 1 January 2010	153	730	-69	4	-8	279	1,089
Comprehensive income
Profit/loss for the year						125	125
Other comprehensive income
Cash-flow hedging, profit/loss before tax				20			20
Cash-flow hedging, tax effect				-5			-5
Exchange rate differences					-2		-2
Reclassification adjustment, Rottneros GmbH					1		1
Total other comprehensive income	–	–	–	15	-1	–	14
Total comprehensive income	–	–	–	15	-1	125	139
Transactions with shareholders
Payment of newly issued subscription warrants		1					1
Issue expenses		-1					-1
Total shareholders' contributions	–	0	–	–	–	–	0
Closing balance, 31 December 2010	153	730	-69	19	-9	404	1,228

2011 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY – GROUP
			Buy-back of	Other reserves		Profit brought forward, incl.	Total
Amounts in SEK m	Share capital	Other injected capital	treasury shares	Hedging reserve	Translation differences	profit/loss for the year	shareholders' equity
Opening balance, 1 January 2011	153	730	-69	19	-9	404	1,228
Comprehensive income
Profit/loss for the year						-144	-144
Comprehensive income
Cash-flow hedging, profit/loss before tax				-54			-54
Cash-flow hedging, tax effect				14			14
Exchange rate differences					1		1
Reclassification adjustments					0		0
Total other comprehensive income	–	–	–	-40	1	–	-39
Total comprehensive income	–	–	–	-40	1	-144	-183
Transactions with shareholders
Dividends to shareholders						-31	-31
Total transfers of value to shareholders	–	–	–	–	–	-31	-31
Closing balance, 31 December 2011	153	730	-69	-21	-8	229	1,014

Cash flow statements – Group

CASH FLOW STATEMENTS – 1 JANUARY-31 DECEMBER – GROUP
Amounts in SEK m Note	2011	2010
OPERATING ACTIVITIES
Operating profit/loss	-117	138
Adjustment for items not included in cash flow
Depreciation/amortisation/write-downs	120	86
Gains/losses on sale of fixed assets	-4	-21
Write-down of receivables	72	–
Other items not affecting the cash flow	14	4
	85	207
Interest received and similar income items	5	1
Interest paid and similar income items	-5	-6
Income tax received/paid	-1	2
Cash flow from operating activities before working capital changes	84	204
Working capital changes
Change in inventories	-73	2
Change in current receivables	3	123
Change in current liabilities (non-interest-bearing)	21	-127
Total working capital changes	-49	-2
CASH FLOW FROM OPERATING ACTIVITIES	35	202
Investing activities
Acquisition of intangible fixed assets	-2	-1
Acquisition of tangible fixed assets	-155	-124
Sale of intangible fixed assets	–	14
Sale of tangible fixed assets	4	8
Increase in long-term receivables	–	-10
Decrease in long-term receivables	5	5
CASH FLOW FROM INVESTING ACTIVITIES	-148	-108
Financing activities
Payment from issue of subscription warrants	–	1
Borrowings	37	–
Repayment of debt	-28	-51
Dividend paid	-30	–
CASH FLOW FROM FINANCING ACTIVITIES	-21	-50
Cash flow for the year	-134	44
Cash and cash equivalents at beginning of year	155	111
Exchange rate differences in cash and cash equivalents	0	0
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 21	21	155
Unutilised credit facilities	63	108
Available cash and cash equivalents at the end of the year	84	263

57 FINANCIAL REPORTING

Income statements – Parent company

INCOME STATEMENT FOR PARENT COMPANY 1 JANUARY–31 DECEMBER
Amounts in SEK m	Note	2011	2010
Net turnover	1, 9	27	1,533
Other income	2	12	70
		39	1,603
Operating expenses
Raw materials and consumables	3	-8	-1,512
Other expenses	7, 9	-114	-64
Personnel costs	5, 6	-24	-25
Depreciation/amortisation and write-downs of tangible and intangible fixed assets	13, 14	0	-2
Operating profit/loss		-107	0
Financial items
Profit/loss from participations in group companies	10	16	171
Financial income	10	3	15
Financial expenses	11	-2	-6
Total financial items		17	180
Profit/loss after financial items		-90	180
Tax on profit for the year	12	-1	-19
PROFIT/LOSS FOR THE YEAR		-91	161

STATEMENT OF COMPREHENSIVE INCOME FOR THE PARENT COMPANY 1 JANUARY–31 DECEMBER
Amounts in SEK m	2011	2010
PROFIT/LOSS FOR THE YEAR	-91	161
Other comprehensive income	–	–
Total other comprehensive income	–	–
TOTAL COMPREHENSIVE INCOME FOR THE YEAR	-91	161

58 FINANCIAL REPORTING

Balance sheets – Parent company

BALANCE SHEET FOR PARENT COMPANY ON 31 DECEMBER
Amounts in SEK m	Note	2011	2010
ASSETS
Fixed assets
Intangible assets	13	2	–
Tangible assets	14	1	1
Financial assets	17	318	373
Total fixed assets		321	374
Current assets
Accounts receivable	19	0	36
Tax assets		1	1
Other current receivables	20	779	670
Cash and cash equivalents	21	8	79
Total current assets		788	786
TOTAL ASSETS		1,109	1,160

BALANCE SHEET FOR PARENT COMPANY ON 31 DECEMBER
Amounts in SEK m	Note	2011	2010
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity	22
Share capital		153	153
Statutory reserve		440	440
Profit brought forward		471	496
Profit/loss for the year		-91	6
Total shareholders' equity		973	1,095
Current liabilities
Interest-bearing liabilities	15	37	25
Accounts payable		2	3
Other non-interest-bearing liabilities	25	97	37
Total current liabilities		136	65
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES		1,109	1,160
Pledged assets	15, 26	563	567
Contingent liabilities	26	3	6

Statement of changes in shareholders' equity – Parent company

2010 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY – PARENT COMPANY
Amounts in SEK m	Share capital	Statutory reserve	Share premium reserve	Other non restricted capital	Total shareholders' equity
Opening balance, 1 January 2010	153	440	268	73	934
Payment of newly issued ordinary subscription warrants			1		1
Issue expenses			-1		-1
Profit/loss for the year				161	161
CLOSING BALANCE, 31 DECEMBER 2010	153	440	268	234	1,095

2011 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY – PARENT COMPANY
Amounts in SEK m	Share capital	Statutory reserve	Share premium reserve	Other non restricted capital	Total shareholders' equity
Opening balance, 1 January 2011	153	440	268	234	1,095
Dividends to shareholders				-31	-31
Profit/loss for the year				-91	-91
CLOSING BALANCE, 31 DECEMBER 2011	153	440	268	112	973

See also Note 22 'Shareholders' equity' on page 78.

Cash flow statements – Parent company

CASH FLOW STATEMENTS – 1 JANUARY-31 DECEMBER – PARENT COMPANY
Amounts in SEK m	Note	2011	2010
OPERATING ACTIVITIES
Operating profit/loss		-107	0
Adjustment for items not included in cash flow
Depreciation/amortisation/write-downs		0	2
Gains/losses on sale of fixed assets		0	0
Write-down of receivables		72	–
Other items not affecting the cash flow		2	-1
		-33	1
Interest received and similar income items		3	10
Interest paid and similar income items		-1	-6
Income tax received/paid		0	0
Cash flow from operating activities before working capital changes		-31	5
Working capital changes
Change in current receivables		-174	270
Change in current liabilities (non-interest-bearing)		-5	-176
Total working capital changes		-179	94
CASH FLOW FROM OPERATING ACTIVITIES		-210	99
Investing activities
Acquisition of intangible fixed assets		-2	–
Acquisition of tangible fixed assets		0	0
Sale of tangible fixed assets		0	0
Dividends from subsidiaries		1	18
Change in long-term receivables		–	-11
CASH FLOW FROM INVESTING ACTIVITIES		-1	7
Financing activities
Payment from issue of subscription warrants		–	1
Borrowings		37	–
Group contribution received		162	–
Repayment of debt		-28	-51
Dividends paid		-31	–
CASH FLOW FROM FINANCING ACTIVITIES		140	-50
Cash flow for the year		-71	56
Cash and cash equivalents at beginning of year		79	23
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR	21	8	79
Unutilised credit facilities		63	108
Available cash and cash equivalents at the end of the year		71	187

Supplementary disclosure and notes

Accounting Policies and Valuation Principles

BASIS OF THE REPORTS'

PREPARATION

These consolidated accounts have been prepared in accordance with the Swedish Annual Accounts Act, International Financial Reporting Standards (IFRS) and the interpretation statements issued by the International Financial Reporting Interpretations Committee (IFRIC), in the form they have been adopted by the European Union. RFR 1 on supplementary accounting rules for groups has also been applied.

PRECONDITIONS FOR THE PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS

The parent company's functional currency is Swedish kronor, which is also the presentation currency for both the parent company and the Group. Unless otherwise indicated, all amounts shown are rounded to the nearest million. The consolidated accounts are prepared according to the cost method, except in the case of certain financial assets which are measured at fair value.

The most important accounting policies applied when preparing the consolidated accounts are described below. These policies have been applied consistently for all years presented, unless otherwise indicated.

The parent company applies the same accounting policies with the exceptions and amendments stipulated by RFR 2 'Accounting for Legal Entities'. The parent company's accounting policies are described in the section entitled 'The Parent Company's Accounting Policies'.

AMENDMENTS OF ACCOUNTING POLICIES AND DISCLOSURE

New and amended standards applied by the Group

The Group has applied the following new and amended IFRS since 1 January 2011:

• IAS 24 (revised), Related Party Disclosures (applicable from 1 January 2011). The revised standard amends the definition of 'related party' and mitigates certain disclosure requirements concerning related parties in respect of undertakings related to the State. The revised standard has not had any impact on recognised

amounts, but entails further disclosures in the Group's financial statements.

None of the other IFRS or IFRIC interpretations that are compulsory for the first time in the financial year starting 1 January 2011 have had any significant effect on the Group.

New standards, amendments and interpretations of existing standards that have not yet taken effect and that have not been applied in advance by the Group

The assessments made by the Group and parent company regarding the effects of these new standards and interpretations are shown below:

• IFRS 9, Financial Instruments, deals with the classification, measurement and recognition of financial liabilities and assets. IFRS 9 was issued in November 2009 for financial assets and in October 2010 for financial liabilities and replaces those parts of IAS 39 that are related to classification in two different categories: fair value measurement or amortised cost measurement. Classification is determined on the first occasion of reporting on the basis of the company's business model and also contractual cash flow characteristics. There are no major changes in respect of financial liabilities compared with IAS 39. The main change relates to liabilities identified at fair value. The following applies to these: the portion of fair value attributable to own credit risk shall be recognised in comprehensive income instead of profit/loss, provided this does not give rise to any inconsistencies in the reporting. The Group intends to apply the new standard no later than the financial year starting 1 January 2015 and has not yet evaluated its effects. The standard has not yet been adopted by the EU.
• IFRS 10, Consolidated Financial Statements, is based on existing principles as it identifies control as the decisive factor for establishing whether a company is to be included in the consolidated accounts. The standard provides further guidance to assist in determining control when this is difficult to assess. The Group intends to apply IFRS 10 for the financial year starting 1 January 2013 and has not yet evaluated the full effect on the financial statements. The standard has not yet been adopted by the EU.
• IFRS 12, Disclosure of Interests in other Entities, encompasses disclosure requirements

for subsidiaries, joint arrangements, associates and unconsolidated 'structured entities'. The Group intends to apply IFRS 12 for the financial year starting 1 January 2013 and has not yet evaluated the full effect on the financial statements. The standard has not yet been adopted by the EU.

• IFRS 13, Fair Value Measurement, seeks to increase consistency and reduce the complexity of fair value measurements through the standard providing a precise definition and a common source in IFRS for fair values and associated information. The requirements do not extend the scope of the application of fair value, but provide guidance in relation to how it should be applied when other IFRS already require or permit fair value measurement. The Group has not yet evaluated the full effect of IFRS 13 on the financial statements. The Group intends to apply the new standard in the financial year starting 1 January 2013. The standard has not yet been adopted by the EU.

None of the other IFRS or IFRIC interpretations, which have not yet entered into force, are expected to have any significant impact on the Group.

Consolidated accounting policies

COMPOSITION OF THE GROUP The consolidated annual accounts include the annual accounts for the parent company and all subsidiaries in which Rottneros AB is entitled to formulate financial and operational strategies in a way that normally accompany a shareholding amounting to more than half of the voting rights. Rottneros AB owns 100 per cent of the participating interests in the Spanish company Rottneros Miranda S.A. Up to 31 March 2009, this company was included in the consolidated accounts for Rottneros and was consolidated according to the acquisition method contained in IFRS 3 Business Combinations and IAS 27, Consolidated and Separate Financial Statements. In April 2009, Rottneros Miranda S.A. became the subject of proceedings for restructuring in accordance with insolvency legislation in Spain. In conjunction with this, Rottneros AB no longer has any controlling influence over Rottneros Miranda S.A., as the parent company has lost the right to formulate the subsidiary's financial and operating strategies so as to obtain financial benefits from its activities. As of this point in time, the participating interests in Rottneros Miranda S.A. are recognised as a financial asset instead that can be sold in accordance with IAS 39, Financial Instruments: Recognition and Measurement. This means that the participating interests are measured at fair value and that

any changes in value are reported in other comprehensive income.

PRINCIPLES OF CONSOLIDATION

Acquisition accounting is used when preparing the consolidated accounts. This method means that the equity in the subsidiary at the time of acquisition shall be eliminated in full. Only the profit/loss arising after the time of acquisition is included in the Group's equity. The equity in the acquired subsidiary is determined on the basis of a fair value measurement of the assets and liabilities at the time of acquisition. In cases where the fair value measurement of assets and liabilities indicates significantly different values compared to the acquired company's book values, these fair values are deemed to constitute the Group's acquisition cost. The difference between the cost of the subsidiary's shares and the value of the equity calculated at the time of acquisition is reported as goodwill on consolidation where applicable. Expenses related to acquisitions are carried as an expense when they arise.

Intra-group transactions, balance sheet items, revenues and expenses for transactions between group companies are eliminated. Profits and losses resulting from intra-group transactions and that are recognised as assets are also eliminated.

All subsidiaries are wholly-owned. In other words, there are no holdings without a controlling influence in the subsidiaries.

UNTAXED RESERVES/APPROPRIATIONS

When preparing the consolidated accounts, the untaxed reserves and appropriations recorded for the individual companies are split between deferred tax and shareholders' equity. The deferred tax liability is calculated at the current tax rate. The estimated tax thus arrived at, which is attributable to the year's appropriations, is included in the Group's reported tax as 'deferred tax'. See also Note 12.

ASSOCIATED COMPANIES

Associated companies are all of those companies where the Group has a significant, but not decisive, influence; as a rule, this applies to shareholdings that comprise between 20 per cent and 50 per cent of the votes. Holdings in associated companies are reported according to the equity method.

TRANSLATION OF FOREIGN SUBSIDIARIES

The local currency for all companies within the Group is the functional currency for the company. The Swedish krona, which is the parent company's functional and presentation currency, is the currency used in the consolidated accounts. Assets and liabilities are translated at closing day rates. Items in the income statements are translated at the average rate for each month. Translation differences are not recognised in the income statement, but are instead posted directly to consolidateed shareholders' equity. When a foreign subsidiary is no longer included in the consolidated accounts, the accumulated exchange difference is recognised as a reclassification adjustment from the report of the comprehensive income for the Group to the consolidated income statement.

INCOME

Sales of goods are recognised when products are delivered to the customer in accordance with the terms of the sale. Sales are recognised net of VAT and discounts and thus correspond to the fair value of what has been or will be received.

The Group recognises an income when its amount can be measured reliably and it is probable that future economic benefits will flow to the company. This assessment is based on the historical outcome and takes into consideration the kind of customer, kind of transaction and special circumstances in each individual case.

Interest income is recognised as income applying the effective interest method, and dividend income is recognised when the right to receive payment has been determined.

SEGMENT REPORTING

IFRS 8, Operating Segments, requires that an operating segment is reported in a manner consistent with the internal reporting delivered to the chief operating decision maker. The chief operating decision maker is the function responsible for allocating resources and assessing the performance of the operating segment. Rottneros does not report any segments in its internal reporting and consequently nor in its annual accounts.

TRANSACTIONS AND BALANCE SHEET ITEMS IN FOREIGN CURRENCIES

Transactions in foreign currencies are translated to the functional currency in accordance with the exchange rates applicable on the transaction day or the day on which the items are revalued. Exchange gains and losses that arise when paying for such transactions are recognised in the income statement. An exception to this is when the transactions constitute hedging that meets the conditions for the hedge accounting of cash flows, when profits/losses are recognised in other comprehensive income.

Receivables and liabilities in foreign currencies are valued at the closing day rate. The difference between cost and the value on the reporting date is included in the profit/loss.

INVENTORIES

Inventories mainly comprise raw materials and consumables together with pulp.

Inventories are measured at the lower of cost (in accordance with the FIFO principle) and net selling price. Net selling price is the sales price after deductions for selling expenditure.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise cash and bank balances. Any blocked bank accounts are included under the balance sheet item 'Cash and cash equivalents'.

REPORTING OF LEASE CONTRACTS

Where a lease contract means that the Group, as lessee, essentially enjoys the financial benefits and bears the financial risks attributable to the lease object, the object is recognised as a fixed asset in the consolidated balance sheet. A corresponding obligation to make lease payments in the future is recognised as a long-term or short-term interestbearing liability respectively. Fixed assets held under finance lease contracts are depreciated over whichever is shortest of the asset's useful life and the lease term.

Other leasing is recognised as an operating lease and is carried as an expense on a straight-line basis over the term of the lease.

TANGIBLE FIXED ASSETS

Tangible fixed assets are carried at cost following deductions for accumulated depreciation and writedowns according to plan. Expenditure for repairs and maintenance are recognised as a cost in the period it arises. Additional expenditure is added to the asset's carrying amount or recognised as a separate asset.

INTANGIBLE ASSETS

Trademarks and licences acquired are carried at cost. Software licences acquired are capitalised on the basis of the costs that arose to commission the software. Intangible fixed assets under development are carried at cost. All intangible assets have limited useful lives.

DEPRECIATION/AMORTISATION

Depreciation/amortisation according to plan is based on the cost and estimated useful life of the assets. The linear depreciation method is used for all kinds of fixed asset. The residual value and useful life of the assets are assessed on each reporting date and adjusted if appropriate.

THE FOLLOWING DEPRECIATION/AMORTISATION PERIODS HAVE BEEN APPLIED
Licenses	10 years
Software	3–5 years
Intangible assets under development	5 years
Buildings and land improvements	20–50 years
Plant and machinery	10–20 years
Equipment, tools, fixtures and fittings	5–10 years
Computers	3–5 years

WRITE-DOWNS OF NON-FINANCIAL ASSETS

In cases where there are indications that the value of an asset exceeds its estimated recoverable amount, a review is conducted of whether there is a writedown requirement. The recoverable amount is the higher of the asset's net selling price and value in use. For assets that have previously been written down, a review is conducted on each reporting date of whether a reversal should be effected.

PROVISIONS

A provision is recognised in the balance sheet where: there is a legal or informal commitment as a result of an event that has occurred; it is likely that an outflow of resources will be required in order to settle the commitment; and the amount can be reliably estimated.

Provisions for restructuring measures are made when there is a detailed, formal plan for measures and well-founded expectations have been created among those affected by the measures.

TAXES

Income taxes recognised include tax that will be paid or received for the current year, adjustments in respect of current tax for the previous year, as well as changes in deferred tax.

Tax receivables/liabilities are valued at nominal amounts and in accordance with the tax provisions and tax rates established or where notice has been given and there is a high degree of certainty that they will be confirmed.

For items recognised in the income statement, the associated tax effects are also recognised in the income statement. Tax effects of items credited

directly to shareholders' equity are also recognised as equity.

Deferred tax is calculated and recognised according to the balance sheet method for all temporary differences arising between the tax base and the carrying amount of assets and liabilities, and also the accumulated loss carry-forward. Deferred tax is calculated using the tax rates (and laws) that have been established or where notice has been given as at the reporting date and that are expected to apply when the relevant deferred tax asset is realised or the deferred tax liability is settled.

Estimated current tax liabilities are recognised in the balance sheet as current liabilities. Deferred tax liabilities are recognised as provisions. Deferred tax assets are recognised as long-term receivables to the extent it is likely that a future tax surplus will be available.

REMUNERATION OF EMPLOYEES

With the exception of the ITP (supplementary pensions for salaried employees) plan, the Group only has defined contribution plans. The Group's payments in respect of defined contribution plans are recognised as a cost during the period when the employees performed the services to which the contribution relates.

The retirement and family pensions of salaried office workers in Sweden are guaranteed through an insurance policy with Alecta, an ITP plan that, according to a statement from the Swedish Financial Accounting Standard Council (UFR 3), is a defined benefit plan covering a number of employees. However, a disclosure in accordance with the provisions of Item 29 of IAS 19 cannot be made as the insurance provider is unable to provide the necessary information. Accordingly the ITP plan is recognised in accordance with Item 30 of IAS 19 as a defined contribution plan. This year's pension insurance premiums according to ITP that have been taken out with Alecta amount to SEK 4 million (SEK 5 million). Alecta's surplus can be distributed to policyholders and/or the insured parties. At the end of 2011, Alecta's surplus in the form of the collective consolidation level amounted to 113 per cent (146 per cent). The collective consolidation level comprises the market value of Alecta's assets as a percentage of the insurance commitments calculated according to Alecta's actuarial assumptions, which are not in line with IAS 19.

Rottneros has no share-related remuneration for employees where the company receives services

from employees as consideration for the Group's equity instrument.

GOVERNMENT GRANTS

Government grants are recognised at fair value if it is reasonably certain that such a grant will be obtained and that the Group will satisfy all of the associated conditions.

Government grants related to the acquisition of assets are recognised in the balance sheet through the grant reducing the carrying amount of the assets.

Government grants relating to costs are recognised as deferred income and are taken up as income in pace with costs arising, which the grant is intended to compensate. Government grants are recognised as other income where the grants do not relate to either the acquisition of assets or compensation for costs.

EMISSION RIGHTS

Emission rights received are recognised in accordance with the rules for government grants. Upon allocation, emission rights are recognised as current receivables at cost, which is deemed to correspond to the market value of the emission rights at the time of allocation. A corresponding amount is recognised as deferred income. The deferred income is taken up as other operating income in pace with recorded receivables reducing and emissions being carried as an expense as raw materials and consumables. Income from emission rights is recognised for emissions made at the value at which they were recognised on allocation. Any remaining emission rights (not required to cover own emissions) are taken up as income when sold.

ELECTRICITY CERTIFICATES

Electricity certificates shall be allocated for renewable electricity produced by the company; they are sold on an ongoing basis. Electricity certificates sold, which are not settled as cash, are recognised at market value as accrued income and other operating income. Any unsold electricity certificates are recognised at market value on each occasion of allocation and as a current financial receivable. They are written down at the market value at year end if that value is lower.

RESEARCH AND DEVELOPMENT COSTS

Development work forms an integral part of production and refers to measures to improve processes and quality, the costs of which are carried as an expense when they are incurred.

BORROWING COSTS

Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. Other borrowing costs are recognised as an expense in the period they arise.

CASH FLOW STATEMENT

The cash flow statement is prepared in accordance with the indirect method. The recorded cash flow only covers transactions involving cash paid or received. This means that there may be variances when compared with changes to individual items in the balance sheet.

FINANCIAL ASSETS

Financial assets recognised in the balance sheet include derivative instruments and accounts receivable. Rottneros has no financial assets measured at fair value via the income statement. Financial assets are removed from the balance sheet when the right to receive cash flows from the instrument has expired or has been transferred and the Group has transferred essentially all risks and benefits associated with ownership.

Derivative instruments

Derivative instruments are recognised in the balance sheet on the contract date and are measured at fair value both initially and when they are subsequently remeasured. The method for recording the gain or loss arising from remeasurement depends on whether the derivative has been identified as a hedging instrument. The Group uses derivatives to hedge the risk of exchange rate fluctuations and changes in pulp prices, and to hedge its exposure to changes in electricity prices. All kinds of hedging are used at any given time to protect the value of future cash flows. Hedging instruments are taken up as income in the income statement in pace with them expiring.

When the transaction is entered, the Group documents the relationship between the hedging instrument and the hedged item as well as the Group's risk management objectives and risk management strategy for such hedging. The Group also documents its assessment – both at the inception of hedging and continuously – of whether the derivative instruments used in hedging transactions are effective in terms of cash flows attributable to the hedged items.

A disclosure about a fair value for the various derivative instruments used for hedging purposes can be found in Note 4. Changes in the hedging reserve in shareholders' equity are shown in

Note 22. The entire fair value of a derivative that constitutes a hedging instrument is classified as a fixed asset or long-term liability when the hedged item has a remaining maturity of more than twelve months, and as a current asset or current liability when the hedged item has a remaining maturity of less than twelve months.

The effective portion of the changes in fair value of a derivative instrument that has been identified as cash flow hedging and that meets the conditions for hedge accounting is otherwise recognised in other comprehensive income. The gain or loss attributable to the ineffective portion is immediately recognised in the income statement under the item 'Other income' for currency futures and pulp futures and under the item 'Raw materials and consumables' for electricity futures.

Loan receivables and accounts receivable

The only balance sheet item covered by this category is 'Accounts receivable'. Accounts receivable are amounts to be paid by customers for goods sold in operating activities. They are included in current assets with the exception of items maturing more than twelve months after the reporting date, which are classified as 'fixed assets'. Accounts receivable are recognised initially at fair value and subsequently at amortised cost less any provisions for depreciation. The fair value of accounts receivable with short credit periods corresponds to the nominal value. A provision is made for depreciation when there is objective proof that the Group will not be able to receive all amounts due for payment. This provision is recognised in the income statement and included under the item 'Other costs'.

Financial risk management

Rottneros is exposed to various risks that derive from financial instruments. According to IFRS 7, the financial statements must include qualitative and quantitative disclosures that enable users of the financial statements to assess the nature and extent of risks arising from financial instruments and to which the company is exposed at the end of the reporting period. Rottneros records such information first in its notes and second in detail in the section 'Opportunities and risks'; see pages 32- 36.

ACCOUNTS PAYABLE

Accounts payable are recognised initially at fair value and subsequently at amortised cost using the effective interest method.

BORROWING

Borrowing, including utilised credit, is initially recognised at fair value, net after transaction costs. Borrowing is subsequently recognised at amortised cost, and any difference between the amount received (net after transaction costs) and the amount repaid is recognised in the income statement over the term of the loan applying the effective interest method.

Borrowing is classified as current liabilities unless the Group has an unconditional right to defer payment of the liability for at least twelve months after the reporting date.

IMPORTANT ASSESSMENTS AND ASSUMPTIONS

When preparing financial statements, a number of important assessments must be made for accounting purposes, and the management team needs to make certain assessments when applying the Group's accounting policies. Assessments and assumptions are evaluated on an ongoing basis and are based on historical experience and other factors, including expectations for future events that are deemed reasonable in the prevailing circumstances.

The Group makes assessments and assumptions regarding the future. The resulting assessments for accounting purposes, by definition, seldom correspond to the actual outcome. The valuation of deferred tax assets, the valuation and classification of fixed assets at Utansjö Mill, which has been closed down, the valuation of the assets at Rottneros Mill in addition to the valuation of the receivable for the wholly-owned company Rottneros Miranda S.A. are among the areas that involve a high level of assessment on the part of Rottneros and where assumptions and estimates are of material importance for the consolidated accounts. Assessments and assumptions that entail a considerable risk of significant adjustments having to be made to the carrying amounts for assets and liabilities over the next financial year are discussed below.

Deferred tax assets

Deferred tax assets are recognised for tax losses to the extent that it is likely that they can be used through future taxable gains. Deferred tax recorded as of 31 December 2011 amounted to SEK 73 million, corresponding to an unutilised loss carryforward of SEK 277 million. There was also a tax loss carry-forward of SEK 142 million, for which deferred tax assets have not been recorded. Note 12 provides further information about the assessment of the opportunities to utilise loss carry-forwards.

Valuation and classification of fixed assets at Utansjö Mill

When closing down the operation at Utansjö Mill, all of the fixed assets, where it had been assessed that they could not be used to set up a new CTMP line, were written down at zero. The fixed assets that could be used for a new CTMP line were written down at their recoverable amount, which corresponded to the net selling price and was assessed to amount to SEK 100 million. Fixed assets were written down according to plan. Each time annual accounts are prepared, the recorded value of the assets is assessed and if this is considered to be less than the recoverable amount, a reversal of the write-down is made to the lower of recoverable amount and cost minus depreciation according to plan.

As of 31 December 2011, the book value of the fixed assets amounted to SEK 105 million. This is considered to correspond to the recoverable amount of the fixed assets.

Work is underway to find a new use for the CTMP line from Utansjö Mill and there are several interesting projects that are actively being worked on. However, no project has reached the stage where the likelihood of implementation has been such that it would be appropriate to classify the fixed assets as holdings for sale under IFRS 5. The assets shall therefore be classified as tangible assets until it is considered that they are likely to be sold in accordance with the rules contained in IFRS 5.

Valuation of the assets at Rottneros Mill

Profitability at Rottneros Mill is unsatisfactory and an improvement programme has started. The assets at the mill have been written down by SEK 65 million as a consequence of the profitability situation and the uncertain prospects for the groundwood pulp market. In the consolidated income statement, SEK 53 million of the write-down is recognised as 'Depreciation/amortisation and write-downs of tangible and intangible fixed assets' and SEK 12 million as 'Other costs'.

The amount of this write-down has been calculated on the basis of a write-down test, where the mill's carrying amount for the assets is compared with the assets' assessed recoverable amount. A write-down has then been made at the estimated recoverable amount, which comprises the assets' estimated value in use. When calculating the value in use, the mill's future cash flow for the coming eight years has been estimated and discounted by a discounting

factor of 10.2 per cent before tax (7.5 per cent after tax).

Impairment tests – receivable from Rottneros Miranda S.A.

At the end of each reporting period, the Group's financial assets are tested for impairment under IAS 29. It was announced on 16 April 2009 that Rottneros had decided to wind up the operation at its pulp mill in Spain, Rottneros Miranda S.A. The operation and company are being wound up in accordance with Spanish insolvency legislation. In 2009, Rottneros' receivable was written down by an amount corresponding to EUR 4 million because, in the opinion of the board and management team, it exceeded the value of the net assets of the Miranda Group.

The fact that Rottneros has no access to or control over the liquidation process for Rottneros Miranda SA taken together with the protracted crisis in the Spanish property market and uncertainty as to when the situation may stabilise led to Rottneros writing down the entire net receivable relating to Rottneros Miranda SA in 2011, which had a book value of SEK 53 million. As of the write-down in 2009 and the write-down of SEK 53 million in 2011, the receivable has a book value of SEK 0 million. Any future repayment of the entire or part of the receivable will thus have a positive effect on Rottneros' result.

PARENT COMPANY'S ACCOUNTING POLICIES

The parent company applies the same accounting policies as the Group, with the following exceptions.

Changes in the value of derivative instruments are not recognised during the term of a contract, but in conjuntion with the actual transaction instead. Premiums/discounts for futures are distributed as interest over the term of the contract. When hedging currency for future budgeted flows, the hedging instruments are not remeasured when the exchange rates fluctuate. The full effect of exchange rate fluctuations is recognised in the income statement when the hedging instruments mature.

Participating interests in subsidiaries are carried at cost less any write-downs.

The parent company's comparative figures have been amended as a consequence of the Swedish Financial Accounting Board having withdrawn UFR 2, which related to the reporting of group contributions and shareholders' contributions. Group contributions are reported for the financial year commencing 1 January 2011 or later in accordance with RFR 2 and this amendment applies retroactively.

This means that a group contribution that the parent company receives from a subsidiary of the parent company is reported according to the same principles as normal dividends from subsidiaries. This means that group contributions are reported as financial income. Tax on group contributions are reported in accordance with IAS 12 in the income statement.

Group contributions provided from the parent company to a subsidiary are reported, according to the main approach of RFR 2, as an increase in participating interests in a subsidiary. At the same time, a review is conducted of whether there is any write-down requirement for the participating interests for those subsidiaries that have received group contributions. The tax effect is reported in accordance with IAS 12; i.e. in the income statement.

The amended reporting had a positive effect of SEK 155 million in respect of the parent company's net income for 2010. The amendment had no effect on the company's equity.

All lease contracts are recognised as operating leases.

Dividends received are recognised when the right to receive a dividend is deemed to be certain.

Due to the link between accounting and taxation, the deferred tax liability on untaxed reserves is recognised by the parent company as part of untaxed reserves.

Joint risk management applies to all entities within the Group. Consequently, the description contained in the section 'Opportunities and Risks' (see pages 32-36) also applies in all essential respects to the parent company. However the parent company has no production or sales activities, and the risks associated with these areas are thus irrelevant to the parent company.

Note 1 Geographical distribution of turnover

Net turnover refers to sales of pulp delivered to geographic markets as follows:

	2011	%	2010	%
Sweden	179	11.9	192	11.4
Other Nordic countries	82	5.4	97	5.7
Germany	308	20.4	301	17.9
Italy	281	18.5	357	21.2
Spain	52	3.4	40	2.4
France	38	2.5	31	1.8
Poland	29	1.9	46	2.7
Rest of Europe	224	14.8	252	15.0
US	176	11.7	190	11.3
China	27	1.7	27	1.6
Rest of world	117	7.8	151	9.0
TOTAL	1,513	100.0	1,684	100.0

Revenues of SEK 236 (283) million relates to an individual external customer with several recipient paper mills.

Note 2 Other income

OTHER OPERATING INCOME	Group		Parent company
	2011	2010	2011	2010
Profit /loss from sale of fixed assets	4	22	0	0
Sale of by-products	26	15	–	–
Commission revenue	–	–	–	14
Transportation revenue	–	3	–	7
Currency futures – cash-flow hedging	6	41	6	41
Sale of green electricity certificates	22	27	–	–
Emissions rights	4	5	–	–
Exchange rate differences	6	–	–	–
Other	22	8	6	8
TOTAL	90	121	12	70

Note 3 Raw materials and consumables

RAW MATERIALS AND CONSUMABLES		Group		Parent company
	2011	2010	2011	2010
Electricity futures – cash-flow hedging	-7	3	6¹	3
Other costs for raw materials and consumables	-994	-964	-14	-1,515
TOTAL	-1,001	-961	-8	-1,512

¹ Only the profit/loss from electricity futures for the period where the company incurred costs for raw materials and consumables is reported in the parent company's cost of raw materials and consumables. The profit/loss for electricity futures is classified as 'other external expenses' for the rest of the year. The amount charged to 'other external expenses' was SEK -13 million for 2011.

Note 4 Financial instruments

The following table shows financial instruments measured at fair value on the basis of how the fair value hierarchy was classified. The various levels are defined as follows:

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)
• Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) (Level 2)
• Inputs for assets or liabilities that are not based on observable market inputs (i.e. unobservable inputs) (Level 3)

The following table shows the Group's assets and liabilities measured at fair value as at 31 December 2011:

	Level 1	Level 2	Level 3	Total
Assets
Derivative instruments used for hedging purposes	–	1	–	1
TOTAL	–	1	–	1
Liabilities
Derivative instruments used for hedging purposes	–	30	–	30
TOTAL	–	30	–	30

The following table shows the Group's assets and liabilities measured at fair value as at 31 December 2010:

	Level 1	Level 2	Level 3	Total
Assets
Derivative instruments used for hedging purposes	–	25	–	25
TOTAL	–	25	–	25
Liabilities
Derivative instruments used for hedging purposes	–	–	–	–
TOTAL	–	–	–	–

FINANCIAL INSTRUMENTS FOR EACH CATEGORY

31 December 2011	Loan and account receivables	Derivatives for hedging purposes	Total
Assets
Derivative instruments	–	1	1
Accounts receivable and other receivables, excluding accrued
receivables	178	–	178
Cash and cash equivalents	21	–	21
TOTAL	199	1	200
	Derivatives for hedging purposes	Other financial liabilities	Total
Derivative instruments	30	–	30
Borrowing	–	37	37
Liabilities relating to finance leases	–	10	10
Accounts payable and other liabilities, excluding non-financial liabilities	–	130	130
TOTAL	30	177	207

FINANCIAL INSTRUMENTS FOR EACH CATEGORY
31 December 2010	Loan and account receivables	Derivatives for hedging purposes	Total
Assets
Derivative instruments	–	25	25
Accounts receivable and other receivables, excluding accrued receivables	266	–	266
Cash and cash equivalents	155	–	155
TOTAL	421	25	446
		Other financial liabilities	Total
Borrowing		25	25
Liabilities relating to finance leases		14	14
Accounts payable and other liabilities, excluding non-financial liabilities		108	108
TOTAL		147	147

DERIVATIVE INSTRUMENTS	2011			2010
		Assets Liabilities	Assets	Liabilities
Currency futures – cash-flow hedging	1	4	8	–
Pulp futures – cash-flow hedging	–	–	–	–
Electricity futures – cash-flow hedging	–	26	17	–
TOTAL	1	30	25	–
Less long-term portion:
Currency futures – cash-flow hedging	–	-1	–	–
Pulp futures – cash-flow hedging	–	–	–	–
Electricity futures – cash-flow hedging	–	-10	–	–
Current portion	1	19	25	–

The full fair value of a derivative instrument that constitutes a hedging instrument is classified as a fixed asset or long-term liability if the hedged item has a remaining maturity of more than twelve months, and as a current asset or current liability when the hedged item has a remaining maturity of less than twelve months.

The ineffective portion, which is recognised in the income statement, is SEK 0 (0) million in respect of cash flow hedging.

The maximum exposure for credit risk on the reporting date is the fair value of derivative instruments recognised as assets in the balance sheet.

Market value of hedging derivatives, 31 December 2011

HEDGE
	Hedged volume	Hedging level	Market value	Reference value, spot rate
Currency USD, futures sold	USD 35 million	SEK 6.82/USD		-4 SEK 6.93/USD
Currency EUR, futures sold	EUR 5 million	SEK 9.08/EUR		1 SEK 8.95/EUR
Currency EUR, futures purchased	EUR 12 million	SEK 9.18/EUR		-1 SEK 8.95/EUR
Electricity	416,520 MWh	SEK 0.433/kWh		-26 SEK 0.30/kWh
TOTAL MARKET VALUE			-30

Market value of hedging derivatives, 31 December 2010

HEDGE
	Hedged volume	Hedging level	Market value	Reference value, spot rate
Currency USD, futures sold	USD 14 million	SEK 7.26/USD	8	SEK 6.80/USD
Electricity	80,875 MWh	SEK 0.397/kWh	17	SEK 0.771/kWh
TOTAL MARKET VALUE			25

The market valuation was conducted by independent parties and refers to the break-up value of futures on the reporting date. The reference value refers to spot rates on the reporting date.

The most significant opportunities and risks for the Rottneros Group are related to the performance of pulp prices in USD, the USD rate and electricity prices. Rottneros is working to lower volatility in its results and to create a secure platform from which to avoid loss-making periods by financially hedging these risks.

A more detailed description of the opportunities and risks, together with a sensitivity analysis, can be found in a separate section; see pages 32-36.

Note 5 Personnel

	2011			2010
	Average no. of employees	Of whom men %	Average no. of employees	Of whom men %
Parent company	10	70.0	12	75.0
Subsidiaries	288	84.4	296	84.5
Group total	298	83.9	308	84.1
Of which
Sweden	293	84.3	303	84.5
Latvia	5	60.0	5	60.0
	298	83.9	308	84.1

		2011			2010
	Pay and other remuneration	Social security contributions	(of which pension expenses)¹	Pay and other remuneration	Social security contributions	(of which pension expenses)¹
Parent company	13.6	9.3	3.6	18.6	10.7	4.1
Subsidiaries	125.8	50.5		7.3 120.3	47.9	6.7
GROUP TOTAL	139.4	59.8		10.9² 138.9	58.6	10.8²

¹ SEK 3.3 (3.5) million of the parent company's pension expenses relates to the President and other senior executives. There are no pension expenses or pension commitments for the board.

² SEK 3.7 (4.9) million of the Group's pension expenses relates to the President and other senior executives

Pay and other remuneration distributed between the Board and managing directors/Presidents and other employees:

		2011					2010
SEK m	managing directors Board, President, and other senior executives	(of which variable remuneration)	Other employees	(of which variable remuneration)	managing directors Board, President, and other senior	(of which variable remuneration) executives	Other employees	(of which variable remuneration)
Parent company	10.8	(0.3)	2.8		(–) 15.8	(3.3)	2.8	(–)
Subsidiaries	1.1		(–) 124.6	(–)	7.8	(–)	112.5	(–)
GROUP TOTAL	11.9		(0.3) 127.4		(–) 23.6	(3.3)	115.3	(–)

During the year, the President of the parent company received a salary and other remuneration of SEK 3.9 (5.7) million and the Chair of the Board SEK 0.6 (0.6) million.

Note 6 Remuneration of senior executives

Principles

The Chair and members of the Board, including work in Board committees, are remunerated in accordance with decisions taken at the AGM. The Board may in certain cases decide that a separate fee be paid for work over and above ordinary Board work in accordance with the guidelines for remuneration adopted by the AGM. Employee representatives receive a fee as determined by the AGM for the time needed to read materials prior to meetings.

Remuneration for the President and other senior executives complies with the guidelines for the remuneration of senior executives adopted by the AGM. Remuneration consists of a fixed salary, any variable component of pay, other benefits and pension benefits. The total remuneration package must be in line with market rates and competitive in the market in which the executives work. Fixed salary and variable remuneration are related to the responsibilities and powers held by each executive. 'Other senior executives' are the five people who make up Group management together with the President. See page 52 for the composition of Group management.

Variable remuneration

The variable component of pay is based on outcomes in relation to defined and measurable targets and is capped in relation to fixed salary. These targets are broken down into specified quantitative objectives, mainly directed at the Group's but also – in relation to Heads of Units – the respective business unit's financial objectives, results and cash flow, and also qualitative personal objectives, which means that the variable remuneration is related to the individual's efforts and performance. Variable remuneration for the President is capped at 50 per cent of fixed salary, and the special performance-based bonus linked to the Utansjö project is capped at twelve monthly salaries at the 2008 salary level. Variable remuneration for other senior executives is capped at 30 per cent of fixed salary. As a benchmark, variable remuneration is not qualifying income for pension purposes. The Board can impose conditions, restrict or decline to make variable remuneration payments in exceptional financial circumstances if the Board considers such measure to be reasonable and compatible with the duties of the company in relation to shareholders, employees and other interested parties.

Pensions

The retirement age for the President is 65 years. The pension premium amounts to 35 per cent of the basic salary. Other senior executives are covered by current collective agreements between the Confederation of Swedish Enterprise and the Federation of Salaried Employees in Industry and Services (PTK) and have a retirement age of 65.

Severance payments

The period of notice is six months if notice is given by the President. If notice is given by the company, the President of the parent company is entitled to 24 monthly salaries. For other senior executives, a period of notice of between six months and one year applies if notice is given by the employee. If notice is given by the company, the period of notice is between one and two years.

Decision-making process

All matters relating to the remuneration of the executive management are dealt with by the Compensation Committee, except in respect of the President and the principles for remuneration for the executive management, which are decided by the Board of Directors. If the company in a particular case assigns an individual Board member tasks over and above their regular Board and committee duties, the Board shall determine the level of remuneration for this work. Such remuneration must be reasonable and in line with market rates.

REMUNERATION AND OTHER BENEFITS IN IN 2011 (SEK M)	salary/Directors' Basic fees	remuneration Variable	Other benefits	Pension expenses	Other remuneration	Total
Chair of the Board, Kjell Ormegard	0.6	–	–	–	–	0.6
Board Member, Roger Asserståhl	0.3	–	–	–	–	0.3
Board Member, Bengt Unander-Scharin	0.3	–	–	–	–	0.3
Board Member, Ingrid Westin Wallinder	0.3	–	–	–	–	0.3
President, Ole Terland	3.8	0.0	0.1	1.3	0.0	5.2
Other senior executives (five people)	5.9	0.3	0.2	2.2	0.1	8.7
TOTAL	11.2	0.3	0.3	3.5	0.1	15.4
Total 2010	13.2	3.3	0.3	4.0	0.0	20.8

Comments on the table

• Variable remuneration refers to what is charged to the profit/loss for 2011 and 2010 respectively. SEK 1.2 million of the amount for 2010 was paid and carried as an expense for variable remuneration in 2009. The rest of this variable remuneration in 2010 relates to 2010, which will be paid out in 2011. Variable remuneration in 2011 is paid out in 2012.
• Other benefits refer to company cars. A share-related incentive programme was issued for senior executives in 2010. In total, twelve million subscription warrants were transferred, five million of which were for the President and seven million for other senior executives. More details are provided in Note 22.
• Kjell Ormegard (Chair of the Board) and Bengt Unander-Scharin (Board Member) have invoiced their respective fees, together with social security contributions and VAT, via their own companies. This process is cost-neutral for Rottneros.
• In 2011, Rottneros purchased legal services on market terms for KSEK 122 from Ramberg Advokater, where Board Member Ingrid Westin Wallinder is employed. The corresponding purchase for 2010 amounted to KSEK 291 from Advokatfirman Lindahl, where Board Member Ingrid Westin Wallinder was employed at that time.
• The Group's senior executives (six people in total) comprised six men at the end of the year. The board (four people in total) comprised one woman and three men at the end of

the year. This information applies to both the parent company and the Group.

Note 7 Audit expenses

	Group		Parent company
	2011	2010	2011	2010
PwC
Audit engagement	1.1	1.0	0.4	0.4
Audit business in addition to the audit engagement	–	0.2	–	0.2
Tax consultancy	0.2	0.4	0.1	0.3
Other services	0.8	0.1	0.8	0.0
TOTAL	2.1	1.7	1.3	0.9

Note 8 Research and development expenditure

As part of our normal customer relationship, work is conducted at Rottneros' mills on measures to improve processes and quality to adapt our product offering to customer needs. This development work forms an integral part of production and is carried as an expense when it occurs. The total amount of the measures to improve processes and quality that are carried as an expense over the year is insignificant.

Note 9 Transactions with related parties

Nemus Holding AB owns 20.1 per cent of the shares in Rottneros AB. Nemus Holding AB has a controlling influence in Arctic Paper AB, which has a controlling influence in the Arctic Paper S.A. Group, which includes the following customers of Rottneros and is thus reported as a related party to Rottneros:

• Arctic Paper Kostrzyn S.A.
• Arctic Paper Munkedals AB
• Arctic Paper Mochenwangen GmbH
• Arctic Paper Grycksbo AB

The following table shows the total amount of transactions with the above-mentioned related parties that occurred in 2011 and 2010 respectively. Goods are sold on the same terms as for non-related parties.

SALES OF GOODS
Related party		Sales, 2011 Sales, 2010	Accounts receivable, 31 Dec 2011	Accounts receivable, 31 Dec 2010
Arctic Paper S.A. Group	121	160	22	20
TOTAL	121	160	22	20

Receivables for related parties derive in full from sales transactions, and no provisions have been made for uncertain receivables for related parties.

The parent company's net turnover comprised 41 (3) per cent of turnover from subsidiaries, and 9 (94) per cent of its operating costs related to purchases from subsidiaries.

Note 10 Financial income

		Group		Parent company
	2011	2010	2011	2010
Financial income
Interest income	2	1	2	0
Interest income from group companies	–	–	1	10
Exchange rate differences	–	5	–	5
TOTAL	2	6	3	15

	Parent company
	2011	2010
Profit/loss from participating interests in group companies
Group contributions from subsidiaries	89	162
Dividends from subsidiaries	–	17
Write-downs of participating interests in subsidiaries	-73	-8
TOTAL	16	171

Note 11 Financial expenses

	Group		Parent company
	2011	2010	2011	2010
Financial expenses
Interest expenses	-4	-6	-1	-6
Exchange rate differences	-1	–	-1	–
TOTAL	-5	-6	-2	-6

Note 12 Tax on profit for the year

	Group		Parent company
	2011 2010		2011	2010
Current tax	0 0		–	–
Deferred tax	-24	-13	-1	-19
TOTAL	-24 -13		-1	-19

DEFERRED TAX FOR THE YEAR	Group			Parent company
	2011	2010	2011	2010
Deferred tax related to untaxed reserves	2	13	–	–
Deferred tax expense relating to other temporary differences	-26	-26	-1	-19
DEFERRED TAX IN THE INCOME STATEMENT	-24	-13	-1	-19

DIFFERENCE BETWEEN THE GROUP'S TAX EXPENSE AND TAX EXPENSE BASED ON THE APPLICABLE TAX RATE	Group		Parent company
	2011	2010	2011	2010
Pre-tax profit/loss	-120	138	-90	180
Tax at applicable tax rate	32	-36	24	-47
Tax effect of non-deductible items	-17	0	-33	-2
Tax effect of non-taxable revenues	0	0	23	47
Tax effect of adjusting temporary differences	-1	4	-1	-35
Tax effect of non-capitalised tax loss carry-forwards	-38	19	-14	18
Effect of foreign tax rates	0	0	–	–
TOTAL	-24	-13	-1	-19

Tax rates

The applicable tax rate is 26.3 per cent (26.3 per cent).

Temporary differences

Temporary differences exist where the carrying amount of assets or liabilities differs from its tax base. Temporary differences relating to the following items have resulted in deferred tax liabilities and deferred tax assets:

DEFERRED TAX LIABILITIES

Group	Excess depreciation	Derivative instruments	Total
As at 1 January 2010	-15	-2	-17
Recognised in income statement	13	–	13
Recognised in other comprehensive income	–	-5	-5
As at 31 December 2010	-2	-7	-9
Recognised in income statement	2	–	2
Recognised in other comprehensive income	–	7	7
AS AT 31 DECEMBER 2011	–	–	–

DEFERRED TAX ASSETS Group Tax differences in fixed assets Loss carry-forwards Derivative instruments Other Total As at 1 January 2010 0 117 0 0 117 Recognised in income statement – -26 – – -26 As at 31 December 2010 0 91 0 0 91 Recognised in income statement – -26 – – -26 Recognised in comprehensive income – – 7 – ⁷ AS AT 31 DECEMBER 2011 0 66 7 0 73

Deferred tax assets are recognised for tax losses to the extent that it is likely that they can be used through future taxable gains. Rottneros operates in a market where the volatility of pulp prices and exchange rates means that the profit/loss may vary significantly between different years. However, it is considered that there will be a positive return over a business cycle. If we continue to have results at the level of the average result for 2009-2011 (excluding the write-downs and one-off items of SEK -148 million charged to the result for 2011), the recorded deferred tax assets will have been utilised within three years. In total there is a tax loss carry-forward of SEK 142 million, for which deferred tax assets have not been recorded. All loss carry-forwards are attributable to Swedish legal entities and have no pre-determined due date according to applicable tax provisions.

Deferred tax assets, current – – – – Deferred tax assets, long-term 73 91 23 24 Deferred tax liabilities, current – – – – Deferred tax liabilities, long-term – -9 – – TOTAL 73 82 23 24 Deferred tax assets and tax liabilities are offset where there is a legal right to offset the tax assets and liabilities in question and when the deferred tax relates to the same tax authority. The following amounts resulted from such offset and have been recognised in the balance sheet:

	Group		Parent company
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Deferred tax assets	73	82	23	24
Deferred tax liabilities	–	–	–	–
TOTAL	73 82		23	24

Note 13 Intangible fixed assets

GROUP		31 Dec 2011					31 Dec 2010
	Software	Trademarks	Licenses	Assets under development	Total	Software	Trademarks	Licenses	Total
Opening cost	38	25	2	–	65	37	25	8	70
Acquisitions for the year	0	–	–	2	2	1	–	–	1
Sales/disposals	–	–	–	–	–	–	–	-6	-6
Closing accumulated cost	38	25	2	2	67	38	25	2	65
Opening amortisation	-37	-25	-1	–	-63	-34	-25	-3	-62
Sales/disposals	–	–	–	–	–	–	–	2	2
Amortisation for the year	0	–	-1	–	-1	-3	–	0	-3
Closing accumulated amortisation	-37	-25	-2	–	-64	-37	-25	-1	-63
CLOSING RESIDUAL VALUE ACCORDING TO PLAN	1	–	–	2	3	1	–	1	2

Group Parent company

31 Dec 2011

31 Dec 2010

31 Dec 2010

31 Dec 2011

Software includes maintenance systems and production control systems.

PARENT COMPANY	31 Dec 2011			31 Dec 2010
	Software	Assets under development	Total	Software	Total
Opening cost	15	–	15	15	15
Acquisitions for the year	–	2	2	–	–
Closing accumulated cost	15	2	17	15	15
Opening amortisation	-15	–	-15	-14	-14
Amortisation for the year	–	–	–	-1	-1
Closing accumulated amortisation	-15	–	-15	-15	-15
CLOSING RESIDUAL VALUE ACCORDING TO PLAN	–	2	2	–	–

Note 14 Tangible fixed assets

GROUP				31 Dec 2011							31 Dec 2010
	Land	Land improvements	Buildings	Machinery	Equip -ment	Constr. in progress/ advances	Total	Land	Land improve	ments Buildings Machinery		Equip ment	Constr. in progress/ advances	Total
Opening cost	3	22	85	1,559	52	110	1,831	3	19	84	1,581	51	8	1,746
Purchases/advances	–	–	–	9	1	145	155	0	–	1	16	1	106	124
Sales/disposals	–	–	–	-81	-8	–	-89	–	–	–	-41	-1	–	-42
Items transferred during the year	–	–	-4	54	8	-54	4	–	3	–	3	1	-4	3
Closing accumulated cost	3	22	81	1,541	53	201	1,901	3	22	85	1,559	52	110	1,831
Opening depreciation	–	-9	-37	-947	-41	–	-1,034	–	-5	-32	-896	-38	–	-971
Sales/disposals	–	–	–	41	7	–	48	–	–	–	37	1	–	38
Reclassifications	–	–	–	–	–	–	–	–	-3	–	–	–	–	-3
Depreciation for the year	–	-1	-5	-71	-3	–	-80	–	-1	-5	-88	-4	–	-98
Closing accumulated depreciation	–	-10	-42	-977	-37	–	-1,066	–	-9	-37	-947	-41	–	-1,034
Opening write-down	–	–	–	-80	1	2	-77	–	–	–	-101	1	2	-98
Sales/disposals	–	–	–	40	1	–	41	–	–	–	6	–	–	6
Write-down for the year	–	–	–	-46	-10	–	-56	–	–	–	-14	–	–	-14
Reversed write-downs	–	–	–	17	–	–	17	–	–	–	29	0	–	29
Closing accumulated depreciation	–	–	–	-69	-8	2	-75	–	–	–	-80	1	2	-77
CLOSING RESIDUAL VALUE ACCORDING TO PLAN	3	12	39	495	8	203	760	3	13	48	532	12	112	720

The Group did not receive any government support attributable to tangible fixed assets in 2010 and 2011.

PARENT COMPANY	31 Dec 2011		31 Dec 2012
	Equipment	Total	Equipment	Total
Opening cost	2	2	1	1
Purchases	0	0	1	1
Sales/disposals	0	0	0	0
Closing accumulated cost	2	2	2	2
Opening depreciation	-1	-1	0	0
Sales/disposals	0	0	0	0
Depreciation for the year	0	0	-1	-1
Closing accumulated depreciation	-1	-1	-1	-1
CLOSING RESIDUAL VALUE ACCORDING TO PLAN	1	1	1	1

Note 15 Interest-bearing liabilities

LONG-TERM INTEREST BEARING LIABILITIES		Group	Parent company
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Liabilities relating to finance leases	5	10	–	–
CLOSING BALANCE	5	10	–	–

CURRENT INTEREST-BEARING LIABILITIES	Group		Parent company
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Bank overdraft facility	37	–	37	–
Bank loans	– 25		–	25
Liabilities relating to finance leases	5	4	–	–
CLOSING BALANCE	42	29	37	25
TOTAL INTEREST-BEARING LIABILITIES	42	29	37	25

'Bank loans' as of 31 December 2010 refers to amounts drawn on the syndicated loan, which Rottneros terminated in January 2011, repaying the entire outstanding debt. A new secured financing agreement was concluded, which means that Rottneros can borrow up to an amount corresponding to

SEK 100 million. Total approved credit facilities amounted to SEK 150 million from 1 January 2012.

Pledged assets for credit are shown below:

	Group		Parent company
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Floating charges	275	275	275	275
Shares in subsidiaries	375	407	288	288
CLOSING BALANCE	650	682	563	563

Interest rate on reporting date as follows:

		31 Dec 2011			31 Dec 2010
Per cent	SEK	USD	EUR	SEK	USD	EUR
Bank loans	–	–	–	2.20	–	2.34
Bank overdraft facility	3.89	1.60	1.60	–	–	–

The fair value of short-term borrowing corresponds to its carrying amount, as the effect of discounting is insignificant. Fair value is determined on discounted cash flow at an interest rate based on the loan rate.

Carrying amounts by currency for the Group's borrowing are as follows:

	31 Dec 2011	31 Dec 2010
SEK	29	0
EUR	4	25
USD	4	–
	37	25

The Group has the following unutilised credit:

	31 Dec 2011	31 Dec 2010
Floating rate:
– expires within one year	–	–
– expires in more than one year	63	108
	63	108

Approved credit facilities have increased by SEK 50 million from 1 January 2012.

The Group's tangible assets include lease objects held under finance lease contracts as follows:

	Cost		Accumulated depreciation
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Plant and machinery	43	43	-34	-30
TOTAL	43	43	-34	-30

Future minimum lease payments have the following maturities:

	Nominal value		Present value
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Within one year	5	4	4	4
Later than one year but within five years	5	10	5	9
TOTAL	10	14	9	13

Future minimum lease payments are recognised as a liability to credit institutions, partly as current liabilities and partly as longterm liabilities.

The profit/loss for the Group includes contingent rent of SEK 5 (5) million that relates to finance lease contracts.

Note 16 Operating leases

The nominal value of future minimum lease payments relating to non-cancellable leases is broken down as follows:

	Group		Parent company
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Due within one year	0	1	0	0
Due later than one year but within five years	0	0	0	0
TOTAL	0	1	0	0

Lease payments and lease income relating to operating leases over the year amount to the following:

	Group		Parent company
	2011	2010	2011	2010
Lease payments	1	1	0	0
Of which minimum lease payments	1	1	0	0

Note 17 Financial assets

	Group		Parent company
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Participating interests in group companies			295	297
Deferred tax assets			23	24
Other long-term receivables	5	63	–	52
CLOSING RESIDUAL VALUE ACCORDING TO PLAN	5	63	318	373

The items above are specified below:

PARTICIPATING INTERESTS IN GROUP COMPANIES					Book value
Parent company holdings	Corporate identity number	Reg. office	No. of participating interests	Votes/share of equity %	31 Dec 2011	31 Dec 2010
Rottneros Bruk AB	556014-4502	Sunne	2,100,000	100	89	89
Utansjö Bruk AB	556012-7994	Härnösand	500,000	100	79	79
Vallviks Bruk AB	556445-8163	Söderhamn	415,000	100	101	101
Rockhammars Bruk AB	556150-8366	Lindesberg	145,000	100	19	19
Rottneros Packaging AB	556307-5356	Stockholm	10,000	100	1	1
SIA Rottneros Baltic	000319171	Latvia	100	100	6	6
Aspen Tree Re AG¹					-	1
Rottneros S.A.¹					-	1
TOTAL					295	297

¹ Companies liquidated in 2011

PARENT COMPANY

	31 Dec 2011	31 Dec 2010
Opening cost	769	761
Group contributions paid	73	8
Subsidiaries liquidated	-2	0
Closing accumulated cost	840	769
Opening write-downs	-472	-464
Write-downs for the year	-73	-8
Closing accumulated write-downs, net	-545	-472
CLOSING BOOK VALUE	295	297

DEFERRED TAX ASSETS	Parent company
	31 Dec 2011	31 Dec 2010
Deferred tax on temporary differences	23	24
TOTAL	23	24

OTHER LONG-TERM RECEIVABLES	Group		Parent company
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Opening cost	63	64	52	46
Acquired during the year	–	10	–	10
Translation difference	0	-4	1	-4
Transferred from/to current receivables	–	-2	–	–
Amortisation/dissolutions for the year	-5	-5	–	–
Write-downs for the year	-53	–	-53	–
CLOSING RESIDUAL VALUE ACCORDING TO PLAN	5	63	–	52

Other long-term receivables in the parent company as of 31 December 2010 include a receivable for the wholly-owned company Rottneros Miranda SA of SEK 52 million. As Rottneros Miranda is not included in the consolidated accounts for Rottneros after March 2009, this receivable is also included in other long-term receivables for the Group. The remainder of the receivable was written down to SEK 0 million in 2011.

Note 18 Inventories

	Group
	31 Dec 2011	31 Dec 2010
Raw materials and consumables	127	121
Pulp¹	149	92
CLOSING BALANCE	276	213

¹ 86 (21) per cent of the total pulp inventories has been measured at net selling price. There have been no write-downs.

Note 19 Accounts receivable

SPECIFICATION FOR ACCOUNTS RECEIVABLE	Group		Parent company
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Accounts receivable, gross	126	150	1	36
Provision for doubtful receivables	-1	0	-1	0
ACCOUNTS RECEIVABLE, NET	125	150	0	36

CHANGES IN PROVISION FOR DOUBTFUL RECEIVABLES ARE AS FOLLOWS:	Group		Parent company
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Opening balance	–	-4	–	-4
Provision for doubtful receivables	-1	–	-1	–
Receivables written off over the year as uncollectable	–	4	–	4
CLOSING BALANCE	-1	–	-1	–

The book value of accounts receivable is the same as fair value and corresponds to the nominal amount.

No receivables have been provided as collateral for liabilities or contingent liabilities.

As at 31 December 2011, accounts receivable amounting to SEK 32 (13) million were due but for which no write-down requirement was deemed necessary. These refer to a number of independent customers that have previously not had any difficulties in meeting their payment obligations. These receivables are also covered by credit insurance, which recovers most of any bad debt losses. The ageing of these accounts receivable is as follows:

	Group		Parent company
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Less than 3 months from due date	31	13	–	13
3 to 9 months from due date	1	0	–	0
9 to 12 months from due date	–	0	–	0
More than 13 months from due date	0	–	0	–
TOTAL	32	13	0	13

CARRYING AMOUNTS BY CURRENCY FOR ACCOUNTS RECEIVABLE ARE AS FOLLOWS:	Group		Parent company
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
SEK	32	37	0	9
USD	41	44	0	8
EUR	50	64	0	18
Other currencies	2	5	–	1
CLOSING BALANCE	125	150	0	36

Note 20 Other current receivables

	Group		Parent company
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Receivables from group companies	–	–	768	627
Other receivables	48	53	10	33
Prepaid expenses and accrued income	30	27	1	10
CLOSING BALANCE	78	80	779	670

SPECIFICATION OF PREPAID EXPENSES AND ACCRUED INCOME	Group		Parent company
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Pre-paid insurance premiums	4	4	0	0
Accrued income from hedging	–	8	–	8
Pre-paid expenses	13	9	1	1
Accrued income from sale of green electricity	–	5	–	–
Other accrued income	13	1	–	1
CLOSING BALANCE	30	27	1	10

Note 21 Cash and cash equivalents

	Group		Parent company
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Cash and bank balances	21	155	8	79
CLOSING BALANCE	21	155	8	79

Note 22 Shareholders' equity

Share capital and other injected capital

Parent company	Number of shares	Share capital	Other injected capital	Total
As at 1 January 2010	1,525,719,228	153	730	883
New issue of ordinary shares – cash	31	0	–	0
Reverse share split	-1,373,147,334	–	–	–
Issue expenses		–	-1	-1
Payment of newly issued subscription warrants		–	1	1
As at 31 December 2010	152,571,925	153	730	883
As at 31 December 2011	152,571,925	153	730	883

¹ Excluding the parent company's holding of treasury shares

Average number of shares, 2010	152,571,925
Average number of shares, 2011	152,571,925

All shares are of the class 'ordinary shares' and have a quota value of SEK 1 per share. All shares have been fully paid for.

The parent company's holding of treasury shares amounts to 821,965 ordinary shares, with a nominal value of KSEK 822.

The AGM on 22 April 2010 resolved to carry out a reverse share split, where ten existing shares are combined as one share. The AGM also resolved to have a directed new issue of 31 shares with a view to achieving a number of shares that was evenly divisible by ten. In April 2010 the directed new issue resolved at the AGM was implemented and the record day for the reverse split was 7 May 2010.

Share-related incentive programme

The AGM on 22 April 2010 resolved to issue no more than 30 million subscription warrants to be used for an incentive programme for eight senior executives. Ten subscription warrants entitle the holder to subscribe for one ordinary share in Rottneros. The subscription warrants were issued without payment and could only be subscribed for by Rottneros' wholly owned subsidiary Utansjö Bruk AB. Following subscription, eight senior executives were offered the opportunity to acquire to varying extents subscription warrants for SEK 0.10 per subscription warrant. In total, 12 million of these subscription warrants were transferred to those entitled to subscribe for the market price. Rottneros has cancelled subscription warrants that were not assigned and the dilution effect will amount to 0.8 per cent in the event that all warrants are exercised.

The issue price for each ordinary share is based on the average latest price paid for a Rottneros share on NASDAQ OMX Stockholm during the period 23 April 2010 to 6 May 2010 and is determined considering Black & Scholes' valuation model so that the warrant premium amounts to SEK 0.10 at the time the subscription warrant is transferred. The issue price thus amounts to SEK 9.75 per share. Warrants may only be subscribed for during the periods 17 May 2011 to 31 March 2013 and 1 April 2013 to 16 May 2013. The lowest subscription for each warrant holder and on each occasion during

the period 17 May 2011 to 31 March 2013 is 10,000 shares. Each warrant holder may only call for subscription on one occasion during the period 1 April 2013 to 16 May 2013. No shares had been subscribed for as at 31 December 2011.

A share added through subscription entitles the holder to a profit dividend from and including the first record day for dividends that occurs after the subscription has been executed to such an extent that the share is entered in the company's register of shareholders.

Dividends

The AGM on 19 April 2011 resolved to issue a dividend of SEK 0.20 per share, corresponding to SEK 31 million in total. This dividend was paid out in April 2011. The Board will propose at the AGM on 19 April 2012 that a dividend of SEK 0.10 per share be issued for the financial year 2011. The proposed dividend has not been recognised as a liability in these financial statements.

Management of capital risk

Rottneros' objective in respect of capital structure is to ensure that the Group is able to continue its operation so that it can continue to generate returns for its shareholders while creating benefits for other stakeholders, and to maintain an optimal capital structure as a means of keeping the cost of capital down.

In order to maintain or adjust its capital structure , the Group may decide to change the dividend paid to shareholders, repay capital to shareholders, issue new shares or sell assets to reduce its debt.

In the same way as other companies in the industry, the Group estimates its capital on the basis of its debt/equity ratio. This key ratio is defined as interest-bearing net receivables/ liabilities divided by shareholders' equity.

The debt/equity ratios on 31 December 2011 and 2010 are shown below:

	31 Dec 2011	31 Dec 2010
Interest–bearing net receivables (-)/net liabilities (+)	26	-116
Shareholders' equity	1,014	1,228
DEBT/EQUITY RATIO	0.03	-0.09

CHANGE IN HEDGING RESERVE	31 Dec 2011	31 Dec 2010
Opening balance	19	4
Cash-flow hedging
- fair value gains over the year	-54	63
- tax on fair value gains	14	-16
- transfers to income statement	0	-43
- tax on transfers to income statement	0	11
CLOSING BALANCE	-21	19

Note 23 Provisions

	Group		Parent company
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Short-term provisions
Provision for restructuring costs	14	7	–	–
TOTAL	14	7	–	–

Provisions for restructuring costs refer to one-off costs for contractual pensions and termination costs in conjunction with the reduction of the workforce at Rottneros Mill, which was communicated on 14 September 2011, and also provisions related to the winding up of Utansjö Mill according to the decision made on 8 January 2008. All provisions for restructuring costs are expected to be utilised in 2012.

PROVISION FOR RESTRUCTURING COSTS	Group		Parent company
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Provisions at the beginning of year	7	14	–	–
Additional provisions	11	–	–	–
Provisions utilised	-4	-7	–	–
PROVISIONS AT THE END OF YEAR	14	7	–	–

Note 24 Approved credit facilities

Approved credit facilities amount to SEK 100 (136) million for the parent company and SEK 100 (136) million for the Group. Utilised credit facilities for the Group amounted to SEK 37 million (31 December 2010: SEK 28 million) at year-end.

UNUTILISED CREDIT FACILITIES	Group		Parent company
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Falling due after one year	–	–	–	–
Falling due within one year	37	28	–	28
Of which:
Bank overdraft facility	37	–	–	–
Syndicated loan	–	28	–	28
TOTAL	37	28	–	28

Approved credit facilities as of 31 December 2010 refers to amounts drawn on the syndicated loan, which Rottneros terminated in January 2011, repaying the entire outstanding debt. A new secured financing agreement was concluded, which meant that Rottneros could borrow up to an amount corresponding to SEK 100 million. Total approved credit facilities amounted to SEK 150 million from 1 January 2012.

Note 25 Other non-interest-bearing liabilities

	Group		Parent company
	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Liabilities to Group companies	–	–	87	25
Other liabilities	11	16	0	1
Accrued expenses and deferred income	112	112	10	11
CLOSING BALANCE	123	128	97	37

SPECIFICATION OF ACCRUED EXPENSES AND DEFERRED INCOME	Group		Parent company
	31 Dec	31 Dec	31 Dec	31 Dec
	2011	2010	2011	2010
Holiday pay liability	23	23	2	2
Social security contributions	7	7	2	2
Payroll liability	9	8	1	–
Excise duties	1	1	–	–
Interest expenses	0	0	0	0
Delivery costs	6	10	–	6
Accrued cost of repairs	–	10	–	–
Waste disposal charges	–	4	–	–
Raw material cost and input goods	29	21	–	–
Emission rights	2	4	–	–
Other accrued expenses	35	24	5	1
CLOSING BALANCE	112	112	10	11

Note 26 Contingent liabilities

The parent company and the Group have contingent liabilities relating to guarantees amounting to SEK 3 (6) million. Collateral has been provided for this year's contingent liabilities in the form of blocked bank accounts of SEK 0 (4) million.

Note 27 Other disclosures

No significant events occurred after the end of the financial year.

See the 'Risk' section on pages 32-36 for disclosures about risks faced by the company.

Auditor's report

To the annual meeting of the shareholders of Rottneros AB (publ)

Corporate identity number 556013-5872

REPORT ON THE ANNUAL ACCOUNTS AND CONSOLIDATED ACCOUNTS

We have audited the annual accounts and consolidated accounts of Rottneros AB for the year 2011, with the exception of the 'Environment' section on pages 28-31. The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages 10-80.

Responsibilities of the Board of Directors and the Managing Director for the annual accounts and consolidated accounts

The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of these annual accounts in accordance with the Annual Accounts Act and the preparation and fair presentation of these consolidated accounts according to international financial reporting standards (IFRSs) as adopted by the European Union and the Annual Accounts Act, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company's preparation and fair presentation of the annual accounts and consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the Managing Director, as well as evaluating the overall presentation of the annual accounts and consolidated accounts.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinions

In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company as of 31 December 2011 and of its financial performance and cash flows for the year then ended in accordance with the Annual Accounts Act, and the consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the Group as of 31 December 2011 and of its financial performance and cash flows in accordance with international financial reporting standards (IFRSs), as adopted by the European Union, and the Annual Accounts Act. A corporate governance report has been prepared. The statutory administration report and the corporate governance report are consistent with the other parts of the annual accounts and consolidated accounts.

We therefore recommend that the annual meeting of shareholders adopt the income statement and balance sheet for the parent company and the group.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

In addition to our audit of the annual accounts and consolidated accounts, we have examined the proposed appropriations of the company's profit or loss and the administration of the Board of Directors and the Managing Director of Rottneros AB for the year 2011.

Responsibilities of the Board of Directors and the Managing Director

The Board of Directors is responsible for the proposal for appropriations of the company's profit or loss, and the Board of Directors and the Managing Director are responsible for administration under the Companies Act.

Auditor's responsibility

Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company's profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden.

As a basis for our opinion on the Board of Directors' proposed appropriations of the company's profit or loss, we examined the Board of Directors' reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act.

As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Managing Director is liable to the company. We also examined whether any member of the Board of Directors or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinions

We recommend to the annual meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year.

Stockholm, 9 March 2012

Öhrlings PricewaterhouseCoopers AB

Bo Lagerström

Authorised Public Accountant Auditor in charge

Six-year review

GROUP PERFORMANCE IN SUMMARY	2011	2010	2009	2008	2007	2006
FACTORS AFFECTING TURNOVER
Pulp price, NBSK list price (USD)¹	960	930	657	852	794	675
USD/SEK²	6.50	7.21	7.65	6.58	6.76	7.37
Pulp price, NBSK list price in SEK	6,229	6,705	4,989	5,617	5,368	4,977
Rottneros' deliveries (tonnes)	311,400	330,300	376,700	617,900	714,700	699,500
Sales and income (SEK m)
Net turnover	1,513	1,684	1,508	2,663	2,927	2,690
Operating profit/loss before depreciation	4	224	-62	-82	75	148
Depreciations and write-downs	-120	-86	-104	-224	-435	-155
Operating profit/loss after depreciation	-117	138	-166	-306	-360	-7
Net financial items	-3	0	97	-79	-24	-16
Profit/loss after net financial items	-120	138	-69	-385	-384	-23
Profit/loss after tax	-144	125	-69	-331	-301	-8
Balance sheet items (SEK m)
Fixed assets	841	867	849	1,149	1,123	1,363
Inventories	276	213	215	447	493	397
Current receivables	209	259	230	391	572	570
Cash and cash equivalents	21	155	111	45	121	122
Shareholders' equity	1,014	1,228	1,089	810	1,050	1,403
Long-term interest-bearing liabilities	5	10	57	692	173	177
Long-term non-interest-bearing liabilities	11	0	1	14	49	85
Current interest-bearing liabilities	42	29	44	82	452	304
Current non-interest-bearing liabilities	275	227	214	434	585	483
Total assets	1,347	1,494	1,405	2,032	2,309	2,452
Key ratios
Operating margin (%)	-7.8	8.2	-11.0	-11.5	-12.3	-0.3
Profit margin (%)	-8.0	8.2	-4.6	-14.4	-13.1	-0.9
Return on capital employed (%)	Neg.	11.6	Neg.	Neg.	Neg.	Neg.
Return on equity after tax (%)	Neg.	10.8	Neg.	Neg.	Neg.	Neg.
Equity/assets ratio (%)	75	82	78	40	45	57
Debt/equity ratio (ratio)	0.0	-0.1	0.1	1.0	0.6	0.3
Interest coverage ratio (ratio)	Neg.	26.2	Neg.	Neg.	Neg.	Neg.
Other
Investments (SEK m)	157	125	10	191	163	113
Average no. of employees (no.)	298	308	387	667	718	754

¹ PIX price was the source for the NBSK list price

² Source: The Riksbank's yearly average

Quarterly data

QUARTERLY DATA, GROUP (SEK M)

	2011				2010			2009
	IV	III	II	I	IV	III	II	I	IV	III	II	I
Net turnover	337	367	409	400	402	413	462	407	363	345	367	433
Operating profit/loss before depr.	-40	-50	54	39	35	88	61	40	32	-45	31	-80
Depreciations and write-downs	-3	-81	-18	-18	-20	-20	-13	-33	-26	-25	-23	-30
Operating profit/loss	-43	-131	36	21	15	68	48	7	6	-70	8	-110
Net financial items	-1	-1	1	-2	-2	-4	2	4	-6	113	-5	-5
Profit/loss after financial items	-44	-132	37	19	13	64	50	11	0	43	3	-115
Tax	-4	-4	11	-5	-5	-8	0	0	0	0	0	0
Profit/loss after tax	-48	-136	26	14	8	56	50	11	0	43	3	-115
Pulp production (thousand tonnes)	70.4	77.2	88.0	88.5	75.0	82.6	84.0	81.4	86.7	70.9	88.8	89.5
Pulp deliveries (thousand tonnes)	72.7	74.3	81.0	83.4	80.4	75.8	86.8	87.3	81.9	89.7	99.4	105.7
Pulp price, NBSK list price (USD)¹	887	992	1,008	954	957	976	943	844	770	670	591	595

¹ The PIX price is the source of NBSK

Definitions of key ratios

Equity/assets ratio

Shareholders' equity as a percentage of the total assets

Interest-bearing net receivables/liabilities

Cash and cash equivalents minus interest-bearing liabilities

Debt/equity ratio

Interest-bearing net receivables/liabilities divided by shareholders' equity

Operating margin

Operating profit/loss after depreciation as a percentage of net turnover for the year

Profit margin

Profit/loss after net financial items as a percentage of net turnover for the year

Net profit/loss

Net profit/loss is the profit/loss after tax

Earnings per share

Net profit/loss divided by the average number of shares

Return on capital employed

Profit/loss after net financial items, plus interest expense divided by average capital employed

Capital employed

Balance sheet total less non-interest-bearing operating liabilities including deferred tax liabilities

Return on equity

Net profit/loss as a percentage of average shareholders' equity

Interest coverage ratio

Profit/loss after net financial items plus interest expense, divided by interest expense

P/E ratio

Closing share price at year-end in relation to earnings per share after tax

Direct yield

Dividend as a percentage of the closing share price at year-end

Operating cash flow/share

Cash flow from operations and normal investments divided by the number of shares

Glossary

GLOSSARY
AOX	Absorbable organic halogens	Mechanical pulp	Pulp produced using a mechanical process for fibre separation and processing. Has a higher level of bulk, stiffness and opacity than chemical pulp.
BEK	Bleached Eucalyptus Kraft, bleached eucalyptus pulp	NBSK	Northern Bleached Softwood Kraft, bleached long fibre sulphate pulp. The leading indicator of world market prices.
BOD	Biological Oxygen Demand. Biological method for measuring oxygen-demanding substances	Norscan	Canada, the United States, Sweden and Finland
Bulk	Volume, inverted value for density expressed as cm3 /g	Nutrient salts	These consist of various phosphorus and nitrogen compounds which have a fertilising effect in the recipient.
Chemical pulp	Paper pulp produced by cooking raw timber together with chemicals. Has higher brightness and strength than mechanical pulp.	Opacity	Degree of opaqueness
COD	Chemical Oxygen Demand. Chemical method for measuring oxygen-demanding substances	Scm ub	Solid cubic metre under bark, used to measure raw timber
CTMP	Chemi-Thermo-Mechanical Pulp. Development of TMP, where the raw material is impregnated with chemicals. Stronger than TMP.	Shives content	Proportion of unseparated fibres found in the pulp
ECF	Elemental Chlorine Free. Sulphate pulp bleached using chlorine dioxide only	Sulphate	Method for producing chemical pulp
EPIS	European Pulp Industry Sector	Sulphite	Like sulphate, but using a different cooking technique, different chemicals and with a different chemical recovery
Grammage	Weight of paper per surface unit, expressed as g/m2	TCF	Totally chlorine-free bleached sulphate pulp
Groundwood pulp (SGP)	Mechanical pulp made from roundwood	TMP	Thermo-Mechanical Pulp. Mechanical pulp produced using a technique in which the chips are preheated with steam.
Latency	The deformed condition of pulp fibre	ULWC	Ultra Light Weight Coated. Similar to LWC but with a lower grammage.
Lignin	Polymer compound consisting mainly of phenylpropane units; the main binding agent for wood fibre	UKP	Unbleached Kraft Pulp, unbleached sulphate pulp
LWC	Light Weight Coated. A type of coated paper often used for catalogues and magazines

Annual general meeting

Shareholders are welcome to attend the AGM of Rottneros AB on Thursday, 19 April 2012 at 10.00 at the City Conference Centre, Norra Latin, Drottningtagan 71 B, Stockholm, Sweden.

Shareholders wishing to attend the AGM must

• be registered in the register of shareholders maintained by Euroclear Sweden AB on Friday, 13 April 2012, and
• notify the company by no later than Friday, 13 April 2012 via Rottneros' website www.rottneros.com, by telephone +46 8 590 010 00 or by fax +46 8 590 010 01. Notification can also be given in writing to Rottneros AB, Box 70 370, SE-107 24 Stockholm, Sweden. When registering, please provide your name, personal/corporate ID number, address, telephone number, together with the number of any assistants (no more than two).

Shareholders who have their shares registered in the name of a nominee through a bank or another manager must ask to be temporarily entered in the register of shareholders on Friday, 13 April 2012 in order to be entitled to attend the AGM. Shareholders must notify the nominee of this well in advance of this date.

A shareholder may appoint one or more proxies and shall in this case issue an authorisation for the proxy that is dated and in writing. This authorisation shall apply for no more than one year from issue, unless a longer period of validity is specifically stated, though no longer than five years. If the authorisation is issued by a legal entity, a copy of the registration certificate should be attached or, if no such document exists, a corresponding document confirming authorisation. This document confirming authorisation must be dated within the past year. To facilitate entry to the AGM, an original authorisation together with a registration certificate and other documents confirming authorisation should be submitted to the company at the above address no later than by Friday, 13 April 2012. Authorisation forms in Swedish and English are available from the company's website, www.rottneros.com.

The Annual Report

Text and production: Hallvarsson & Halvarsson

Photos: Juliana Yondt unless otherwise specified. Page 6 Victor Brott, page 18 and 28 Olov Lundberg, page 87 Lars Forsberg.

Printing: Exaktaprinting, March 2012. This annual report is printed on environmentally friendly paper. The cover is 200 g Artic Volume White and the paper inside is 115 g Artic Volume White.

Translation: English Law Translations

88 OTHER INFORMATION

Addresses

GROUP OFFICE

ROTTNEROS AB (PUBL)

Box 70 370 SE-107 24 Stockholm Sweden Visiting address: World Trade Center Kungsbron 1, C6, Stockholm, Sweden Telephone +46 8-590 010 00 Fax +46 8-590 010 01 info@rottneros.com www.rottneros.com

SUBSIDIARIES

VALLVIKS BRUK AB SE-820 21 Vallvik Sweden Telephone: +46 270-620 00 Fax: +46 270-692 10

ROTTNEROS BRUK AB

SE -689 94 Rottneros Sweden Telephone: +46 565-176 00 Fax: +46 565-176 80

SIA ROTTNEROS BALTIC

Pramju str 2 LV-3601 Venspils Latvia Telephone: +371 362 92 73 Fax: + 371 362 92 75