1 Highlights of 2007
2 Rottneros in brief
4 Comments by the President
7 Business concept, objectives and strategies
8 Rottneros' value chain
10 Markets and products
14 Group units
21 Raw materials procurement and the purchasing function
23 Rottneros' responsibility General
24 Rottneros' responsibility Employees
26 Rottneros' responsibility The environment
30 The Rottneros share
32 Action programme
33 Opportunities and risks
37 Contents Financial reporting
38 Directors' report and financial review
43 Income statement Group
44 Balance sheet Group
45 Statement of changes in shareholders' equity – Group
46 Cash flow statement Group
47 Income statement Parent company
48 Balance sheet Parent company
49 Statement of changes in shareholders' equity – Parent company
50 Cash flow statement Parent company
51 Supplementary information and notes
64 Audit report
65 Corporate governance
68 Board of Directors and auditors
70 Senior executives
72 Six-year review

Definitions, glossary

Addresses

All amounts are expressed in Swedish kronor (SEK). Million Swedish kronor is abbreviated as SEKm and billion Swedish kronor is abbreviated as SEKbn. Million US dollars is abbreviated USDm. Figures in parentheses refer to 2006 or the equivalent period the year before, unless otherwise stated. Figures relating to markets and the competitive situation are Rottneros' own estimates, unless a specific source is cited.

The results for 2004 have been restated in accordance with IFRS.

24 April

Financial information

Annual General Meeting	24 April 2008
Interim report (3 months)	24 April 2008
Interim report (6 months)	25 July 2008
Interim report (9 months)	24 October 2008
Year-end release for 2008	4 February 2009

ANNUAL GENERAL MEETING

Shareholders are welcome to attend the Annual General Meeting of Rottneros AB at 2 p.m. on Thursday, 24 April 2008 at Hotel Selma Lagerlöf in Sunne, Sweden. The record date for the right to vote at the AGM is 18 April 2008.

Shareholders wishing to participate in and vote at the AGM must be registered in the register of shareholders maintained by VPC no later than 18 April 2008 and notify the company of their intention to attend by mail to Rottneros AB, Box 600, 194 26 Upplands Väsby, Sweden, telephone +46 8 590 010 00, fax +46 8 590 010 01 or e-mail, [email protected] no later than 18 April 2008.

Shareholders whose shares are registered in the name of a nominee must temporarily re-register their shares in their own name to be entitled to participate in the AGM. Such re-registration must be completed by 18 April 2008.

The annual report is distributed to all shareholders.

Text and production: Hallvarsson & Halvarsson. Graphic layout: Meze Design. Photos: Cover and page 6 Johnér, page 8 BananaStock, page 9 lower picture, page 13 and page 18 Rottneros. Other pictures by Victor Brott. Preprint and printing: Elanders Gummessons in Falköping, March 2008.

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

Highlights of 2007

• Earnings after net financial items were negative at SEK -384 (-23) million, of which SEK 284 million refers to write-downs of fixed assets at Utansjö Mill.
• In March Rottneros and the South African forestry company NCT announced their plans to move the CTMP plant at Utansjö Mill to a jointly owned pulp mill at Richards Bay in South Africa.
• In the third quarter construction commenced on a factory for production of Rottneros' SilviPak food packaging in proximity to the company's pulp mill in Miranda, Spain. Upon completion, the factory will have a capacity of about 200 million packages per year. The investment amounts to around SEK 50 million.
• In October a new steam turbine for electricity production from surplus energy was opened at Vallvik Mill. The turbine, which represents an investment of SEK 90 million, will make Vallvik virtually self-sufficient in electricity.
• In October Lars Blecko, Rottneros' Chief Executive Officer since 1999, announced that he would be leaving the Group to take up the post of President and CEO of the cash handling company Loomis.

EVENTS AFTER THE END OF THE YEAR

• In January 2008 Rottneros' Board of Directors took the decision to wind up its operations at Utansjö Mill in the second quarter of 2008.
• On 1 February 2008 Ole Terland succeeded Lars Blecko as President and CEO. Before joining Rottneros, Ole Terland worked for the SCA Group, where he has held various executive positions over the past 20 years.
• After completing its main study, Rottneros has decided to go ahead with plans to establish a presence in South Africa. The Board has asked the CEO to conclude negotiations and sign the necessary agreements, primarily partnership agreements. This will be followed by final negotiations on financing the project.

ROTTN ERO S IN FIGURES
	2007		2006	2005		2005		2004	2004	2003		2002
			Total	Total		Remaining operations	Total		Remaining operations
Net turnover, SEKm	2,927		2,690	2,429		2,411	2,356		2,272	2,380		2,494
Profit after net financial items, SEKm	-384		-23	-103		-141		-121	-38		115	86
Investment in fixed assets, SEKm		163	113	234		234		283	283		193	244
Average number of employees		718	754	804		800		835	807		857	860
Ratios, %
Equity/assets ratio		45	57	58		58		65	65		73	72
Return on capital employed	Neg.		Neg.	Neg.		Neg.	Neg.		Neg.		7	5
Return on equity	Neg.		Neg.	Neg.		Neg.	Neg.		Neg.		5	3
SEK/share
Profit after tax	-1.67		-0.05	-0.35		-0.50	-0.50		-0.16	0.47		0.29
Dividend	0.00 *		0.10	0.10		0.10		0.20	0.20	0.30		0.30
*) Proposed dividend
QUART ERLY DATA , GRO UP (SEKM)
Including discontinued operations		2007				2006				2005
	IV	III	II	I	IV	III	II	I	IV	III	II	I
Net turnover	721	687	779	740	713	662	615	700	607	641	596	585
Operating profit/loss before depreciation	9	-44	51	60	69	47	36	-4	17	-24	43	12
Depreciation	-320	-38	-40	-38	-42	-36	-38	-39	-34	-37	-34	-33
Operating profit/loss	-311	-82	11	22	27	11	-2	-43	-17	-61	9	-21
Net financial items	-10	–	-6	-8	-6	-10	–	–	-4	-4	-2	-3
Profit/loss after net financial items	-321	-82	5	14	21	1	-2	-43	-21	-65	7	-24
Tax	71	22	-1	-9	3	-2	4	10	17	20	-6	9
Profit/loss after tax	-250	-60	4	5	24	-1	2	-33	-4	-45	1	-15
Pulp production, thousand tonnes	190.0	177.9	186.1	176.1	181.1	167.8	175.4	174.6	176.9	163.2	157.1	151.1
Pulp deliveries, thousand tonnes	174.2	164.5	193.2	182.9	178.9	168.7	164.2	187.7	165.8	175.7	162.9	162.3
Sawn timber production, thousand m3	–	–	–	–	–	–	–	–	–	–	–	1.3
Sawn timber deliveries, thousand m3	–	–	–	–	–	–	–	–	–	–	–	10.3

Rottneros in brief

• Rottneros, with its origins in the 1600s, is a non-integrated, customer-aligned supplier of high-quality paper pulp.
• Rottneros produces market pulp, i.e. paper pulp that is sold on the open market, in contrast to pulp that is produced at mills with integrated paper production.
• In 2006 Rottneros started producing food packaging made from pulp fibre under the SilviPak brand.
• Rottneros has an annual production capacity of just over 700,000 tonnes of pulp, which is produced at four mills in Sweden and one in Spain. The company's mill in Utansjö, Sweden will be closed in the first half of 2008.
• Rottneros is a world leader in mechanical pulp for the open market and an important supplier of other pulp grades. CTMP is a process for the production of mechanical pulp developed at Rockhammar Mill in 1974.

Maximiano San Martin Castellano inspects the production of chlorine dioxide at the Rottneros Miranda pulp factory in northern Spain.

FINANCIAL HEDGING STRATEGY

• The Rottneros Group is heavily dependent on pulp prices, the USD exchange rate and electricity prices.
• A change in the pulp price of USD 50 increases/decreases the Group's annual profit after net financial items by SEK 240m.
• A change in the USD exchange rate of SEK 0.50 increases/ decreases the Group's profit by SEK 230m.
• A change in the price of electricity of SEK 0.10 increases/ decreases the Group's profit by SEK 80m.
• To even out the effect of these factors, the Group applies an active financial hedging strategy that has had a total positive impact on earnings of about SEK 450m since its introduction in 2001.

NET TURNOVER, SEKm PROFIT/LOSS, SEKm

(SilviPak)

ROTTNEROS NICHES

Product niches	Recommended pulp from range
Woodfree/near woodfree bulky paper CTMP, groundwood pulp
Near woodfree coated paper	CTMP, groundwood pulp
Thin printing paper	Groundwood pulp
LWC/ULWC	Groundwood pulp
Label paper	Groundwood pulp, CTMP
Wallpaper base	Groundwood pulp, CTMP
Paper for transformers and cables	Unbleached long-fibre sulphate pulp
Filters	Long-fibre sulphate pulp, CTMP
Tissue	CTMP
Paperboard	Groundwood pulp, CTMP
Latex-impregnated board	Long-fibre sulphate pulp
Liquid packaging board	CTMP
Recycled fibre paper	CTMP, groundwood pulp

ORGANISATION

Forward-looking projects to reduce vulnerability

When I succeeded Lars Blecko as President of the Rottneros Group on 1 February 2008 the Group had just completed a successful year of operations. The company set new production records at its mills in Vallvik, Rottneros and Utansjö, accessibility at our five mills was high and average capacity use in the Group was close to 100%.

On top of that, the global pulp market performed well overall, with strong growth and relatively high pulp prices in US dollar terms. Despite this, the Group posted a loss after net financial items of SEK 384 million for 2007.

There are several reasons for the weak results. The most significant factor in SEK terms, albeit of a oneoff nature, is the write-down of SEK 284 million resulting from the decided closure of our mill at Utansjö. Other factors include costs factors such as sharply rising wood prices and the high electricity price, which had a negative impact on earnings.

Since paper pulp is priced primarily in dollars, the weak US dollar in 2007 was detrimental to Rottneros. However, this was partly offset by the fact that the weak exchange rate to some extent also pushed prices higher in US dollars.

In SEK terms of the price of short-fibre and mechanical pulp – the grades which dominate Rottneros' production – have remained largely flat for almost five years.

WOOD PRICES AN INDUSTRY-WIDE PROBLEM The high and rising prices of pulpwood pose a problem for Rottneros as well as the rest of the forestry industry. In 2007 wood prices increased by almost 20%. This necessitated restructuring measures among industry colleagues in Sweden and Finland and was one of the key reasons behind Rottneros' decision in January 2008 to implement the plan to close Utansjö Mill by the second quarter of 2008.

In particular, the cost of imported aspen wood from Russia has increased, partly as a result of Russia's decision to impose export duties of EUR 5 per cubic metre. Utansjö is entirely dependent on these imports. Another factor behind the higher wood prices is the increasing use of wood in the energy sector.

The high electricity prices were the original cause of the problems at Utansjö, where mechanical pulp production consumes large amounts of electricity. There is every indication that this situation will continue in the foreseeable future.

Since 2003, Rottneros has implemented several far-reaching streamlining and cost-cutting programmes (see page 32). Despite this, the company's vulnerability to external factors has escalated to an unacceptable level. That is why, in addition to continuing to improve efficiency and cut costs wherever possible, we aim to reduce our vulnerability by developing projects that are less sensitive to these factors. This is the key task facing me as new President and the rest of management.

TWO MAJOR PROJECTS

Rottneros' two major forward-looking projects, our investment in SilviPak, an advanced pulp fibre-based packaging product for chilled and frozen foods, and the establishment of a mill for the production of CTMP pulp in South Africa with a local partner, are two projects that will definitely reduce our vulnerability.

SilviPak was launched as a development project in spring 2006, and the packaging has so far been produced on a relatively small scale at Rottneros Mill. The venture has proved successful and the response from the market has been so positive that we will now be investing in another production facility next to our pulp mill in Miranda in northern Spain. Upon completion of the new facility, capacity will increase from about 20 million to about 200 million packages per year.

Although SilviPak is based on wood, the fact that it is an end product with much higher value-added than market pulp reduces our vulnerability to high wood prices. Our dependence on the US dollar exchange rate will also lessen, as the packages are priced in European currencies.

The planned establishment of a CTMP mill in South Africa in partnership with the South African company NCT (see page 19) will give us an advanced pulp factory in a market where the conditions are very different from those in the Swedish market. Internationally, prices of eucalyptus wood and electricity in South Africa are relatively low. Moreover, there is a good supply of low cost eucalyptus, which is highly suited for CTMP production. This means that the long-term cost structure is much more favourable than in Sweden. Rottneros will contribute to the joint venture in South Africa partly by selling its CTMP plant, which is only three years old, to a jointly owned company and move it from Utansjö to Richards Bay, the intended site for the new mill. As a result of the intended transaction, the plant will have a value that exceeds the SEK 300 million investment that was made when it was built in 2004 and 2005.

At the time of writing our negotiations on the various partnerships that are required among the parties involved have reached a very advanced stage, as has the process of finding a good financing solution for the project. However, the promise of electricity that we have for the project has suddenly become subject to doubt as a result of the vulnerable situation with respect to the supply of electricity in South Africa after the instability in the power grid on 24 January this year. However, we are assuming that the project will be implemented as planned.

These two projects are prime examples of determined and aggressive measures that are designed to significantly improve Rottneros' position and build a new foundation for future growth.

FACILITIES IN GOOD CONDITION

Looking at Rottneros' core business, i.e. its pulp mills in Sweden and Spain, the outlook for operations in 2008 is good. All mills are in good condition, with the potential to achieve high production volumes also in 2008.

Prospects for a continued strong market are also good. The balance between supply and demand in the pulp market is good. Only one new factory for the production of chemical pulp in South America is expected to be built in 2008 while capacity reductions are scheduled in Sweden and Finland, in addition to the closure of Utansjö. The expected expansion in Russia has so far failed to materialise. This creates prospects for a good US dollar pricing scenario also in 2008. Another factor is that rising global wood prices are expected to help push pulp prices higher in 2008.

THOROUGH REVIEW

I have initiated a thorough review of the Group, which is not an uncommon procedure when a new CEO is appointed, with the aim of ensuring good profitability. However, I do not expect to find any single solution to the challenges we face; instead, we need to continue to focus on costs, productivity and efficiency. The new electricity turbine in Vallvik, which will make the mill practically self-sufficient in electricity, is an excellent example of a tough and aggressive cost-cutting measure that also has a high environmental value. The most urgent problem is to find a wood supply solution that reduces our expensive import trade.

Closing Utansjö Mill was an important and, unfortunately, necessary part of our effort to strengthen the Group for the future. Running the mill without incurring significant losses was not possible after the last few years' sharp rises in the cost of imported hardwood and soaring electricity prices, which are expected to remain high. The fact that the CTMP line is operating efficiently and that the mill set a new production record in 2007 thanks to our highly skilled and loyal staff was unfortunately not enough.

INCREASING NET ASSET VALUE

By both releasing and creating new resources for the development of traditional and new businesses and through continued cost-efficiency, I hope to help increase the net asset value of Rottneros' shares.

We should not forget that what we produce are ecologically sound products, which the market is demanding. Consumers want cellulose-based products. Maintaining a healthy balance means that we have to be able to set prices that are in line with our overall costs. Charging the right price is not a company-specific issue, but an industry-wide issue.

Upplands Väsby, February 2008 Ole Terland, President and CEO

Niche strategy a key part of creating value

Rottneros' overall objective is to give its shareholders a competitive return on their investment over the course of a business cycle. In the last business cycle (2000–2006) almost 50% of the company's accumulated after-tax earnings were paid out in dividends. To achieve this objective, the Group needs to create value for customers, be an attractive employer and act in a socially responsible manner.

A key ingredient in the creation of value is Rottneros' niche strategy, which involves closer, long-term cooperation with customers in areas where Rottneros has market-leading expertise, either in products or applications.

Rottneros also creates value for customers by offering them new knowledge about pulp applications with the potential to strengthen their positions in the market.

BUSINESS CONCEPT

Rottneros' business concept is to be an independent and flexible supplier of high-quality, customised pulp.

This business concept is based on success factors identified by the Board of Directors and senior management, namely, to be a pure pulp-producing company that focuses on customer requirements, niche areas and efficient production. Rottneros adapts its product range to meet the needs and high expectations of its customers through continuous product development, high delivery reliability, technical support and service.

As an extension of the business concept, Rottneros has initiated production of advanced food packaging for chilled and frozen ready meals. The packaging is made from pulp fibre using the Group's expertise in fibre technology.

The business concept constitutes the basis for the strategy applied by the Group, which centres on specialisation, niche-thinking and customer orientation. Rottneros has invested considerable resources in product development, production, logistics, marketing and IT in order to improve its profitability over the course of a business cycle. The investments are supplemented by an ongoing management and skills development programme, which is building a foundation for a common set of values and an integrated approach among all of the Group's employees.

OBJECTIVES AND STRATEGIES

Group management has defined a number of general objectives for the company's operations that are designed to ensure a competitive return on shareholders' capital while reducing the volatility of the company's share price. The objectives are based on the assumption that the economy will follow a normal cyclical pattern, and that external factors that Rottneros has only a limited ability to influence will evolve in rational manner. This has not been the case in recent years, and as a result Rottneros' shares have underperformed the index. The main problems have been the persistently high price of electricity and the sharp rise in the price of wood in 2007.

• Rottneros will be a pure, customer-focused pulp producer and a world leader in mechanical market pulp.
• Rottneros aims to be a leading European supplier of fibre-based food packaging.
• In line with the Group's niche strategy, at least half of the sales will be in profitable and growing market niches and the rest will be among a limited number of long-term customers. The strategy was first applied in 2001.
• Rottneros will endeavour to stabilise profits over a business cycle.

BUSINESS CONCEPT

Rottneros is an independent and flexible supplier of customised, high-quality pulp. Through continuous product development, high delivery reliability, technical support and service, Rottneros is able to adapt its product range to meet the needs and high expectations of its customers.

VISION

Rottneros shall be perceived as the market leader in meeting the needs and high expectations of pulp customers. This in turn shall result in stable profitability throughout a business cycle.

Adding value – from wood to end product

Input goods

Rottneros is a major buyer of wood. A well functioning logistics solution for the Group's wood supply is therefore essential to guarantee the supply of wood, limit wood stores and minimise transports and their impact on the environment. The Group strives to buy as much wood as possible from areas close to the mill where it will be used.

Wood accounts for about 34% of the Group's costs and is bought both in the form of round timber and chips. Rottneros is one of Sweden's biggest users of electricity, which accounts for 7% of costs and is therefore considered in the category of input goods. Rottneros works continuously to improve its energy efficiency and increase the share of in-house produced electricity by making optimal use of the opportunities for power generation that are created in the production of chemical pulp.

Third on the list of Rottneros' input goods are chemicals, which are used in cooking of chemical pulp, impregnation of CTMP pulp and bleaching and dewatering of pulp. Chemicals represent about 8% of the Group's costs.

Pulp products

Rottneros produces two main types of pulp – mechanical and chemical pulp. In the two mechanical grades – groundwood pulp and CTMP – the Group is the leading market player. Rottneros also has a strong position in several product areas for chemical pulp.

Rottneros' wide product programme enables it to select a pulp or customise pulp mixtures to best meet its customers' stringent product requirements.

Rottneros has singled out about ten niche areas in which the Group can offer unique specialist expertise and where it conducts its product development activities in close partnership with customers. This increases value-added and creates a foundation for close relationships with customers, thereby reducing the company's cyclical sensitivity.

An example of a typical niche product is pulp used in making paper for electrical cables, which is an area where Rottneros, after several years of development work, is now the leading provider in terms of quality. Another example is a bleached long-fibre CTMP grade used in filters.

Markets and end products

Rottneros strives to build long-term customer relationships, which helps to improve profitability. One specific target is that customers in the selected niche areas should account for over half the Group's sales. Rottneros gives priority to customers with no inhouse production of the pulp grades that the Group offers, creating a strong basis for long-term relationships.

An example of the service and the added value that Rottneros offers its customers is a VMI system for a supplier-controlled warehouse that helps pulp buyers reduce their stocks and the amount of capital tied up while improving delivery reliability. Rottneros also helps customers develop their end products by participating in development work and thus offering a specially designed pulp, which increases value-added.

The Group has progressed to a new stage in the value chain by initiating production of pulp fibre packaging for chilled and frozen food under its SilviPak brand. The packaging solution is based on Rottneros' expertise in pulp fibre technology.

Good balance sustained in 2008

The market for Rottneros' pulp grades continued to offer surprises in 2007. Demand was strong and prices were very high in US dollar terms. The problem for Rottneros, and for the majority of pulp producers in Europe and Canada, was the weak US dollar. This is because raw materials are priced in the local currency while pulp is priced in US dollars. The pulp grades that Rottneros manufactures are long-fibre and short-fibre chemical pulp as well as the mechanical pulps CTMP and groundwood pulp.

Rottneros produces market pulp, i.e. pulp that is dried, packaged and shipped for sale in the market, as opposed to the considerably higher volume of pulp produced at mills with integrated paper production. Rottneros' strategy is to produce and market pulp in different niche areas. This strategy involves offering customers the pulp or the combination of pulp that satisfies the requirements for their end products in a way that ensures optimal cost-effectiveness and resource-efficiency.

There were two main drivers behind the increase in pulp prices. On the one hand, the weak US dollar exchange rate in Europe and Canada triggered producer-driven price increases to compensate for the resulting shortfall in income, and on the other hand, prices have been pushed higher by strong demand. The price increases and the strong market are thus both producer-driven and demand-driven.

The pulp grade that has increased most in price is NBSK, i.e. the bleached long-fibre Kraft pulp that Rottneros produces at its Vallvik mill in Sweden.

SHORTAGE OF WOOD

One problem that has affected a large part of the global pulp industry is the shortage of wood and the resulting upward pressure on prices, which increased by about 20% in 2007. Pulp manufacturers in Europe have also been hit by higher wood costs as a result of the introduction of export duties by Russia, which is a key exporter of pulpwood. This, in combination with high electricity prices, has prompted decisions to close several pulp mills in Sweden and Finland in 2008 and 2009, including Rottneros' Utansjö Mill.

The pulp market benefited from the fact that virtually no new production capacity was added in 2007, which, together with the strong demand, helped to create a good balance in the market. The balance was also positively influenced by the removal of capacity from the market following the closure or shut-down during parts or all of 2007 of pulp mills in Indonesia, Canada and other countries. The reason for this was the shortage of wood and resulting high wood costs. In Indonesia a more restrictive environment-related felling policy was a major factor behind the wood shortage.

STRONG MARKETS IN EUROPE AND CHINA

The European pulp market was strong in 2007, although margins were narrow due to the weak US dollar – a problem that also indirectly affected the paper mills, which were unable to raise their prices in EUR.

China, which has had a strong pulp market for several years, continued to increase its imports. The country's need to import market pulp increased following the opening of several new paper mills without any significant expansion of the country's pulp capacity. Another factor is that the country is experiencing an extreme wood shortage. Rottneros and other suppliers increased their sales to China partly due to the fact that several major Indonesian pulp mills remained inactive for much of the year.

STRONG DEMAND PREDICTED FOR 2008

Demand for pulp is expected to remain strong in 2008, especially in Asia and particularly China, where demand is outpacing domestic production. India is also becoming an attractive pulp market for global providers. Demand is increasing but has not yet reached the same levels as in China. India's domestic supply of wood is small, and the country primarily produces paper pulp from annual plants such as bamboo, and from recycled fibre.

Overall, everything points to a continued strong pulp market in 2008, but with a risk for a continued high cost scenario as a result of high wood and energy prices and tight margins due to the weak US dollar.

LONG-FIBRE CHEMICAL PULP THE MARKET

The market for long-fibre chemical pulp, which Rottneros produces in Vallvik, was strong in 2007, with a good balance between supply and demand.

Global production of bleached long-fibre chemical pulp in 2007 was 21,306 million tonnes, which is equivalent to 55% of the total market for bleached chemical market pulp.

The price per tonne increased during the year from USD 750 in January to USD 880 in December. In the EU, however, the price increase was only

ROTTN ERO S' PULP TYPES AND GRA	DES
---------------------------------------	-----

	Type of pulp	Wood	Bleaching	Type of bleaching	Application areas
MECHANICAL PULP	Groundwood pulp	Spruce	Unbleached/bleached TCF		Printing and writing paper, LWC/ULWC, paperboard
	CTMP	Spruce	Unbleached/bleached TCF		Printing and writing paper, paperboard, tissue
		Aspen	Bleached	TCF	Printing and writing paper, fine paper
		Pine	Unbleached/bleached TCF		Paperboard, filters

	Long-fibre sulphate pulp	Pine/ spruce	Bleached	ECF	Fine paper, printing and writing paper, LWC/ULWC, paperboard, tissue, filters
			Unbleached		Filters, electrical applications, absorbent products
CHEMICAL PULP	Eucalyptus pulp	Eucalyptus Bleached		ECF	Fine paper, tissue, printing and writing paper

ROTTNEROS' SHARE OF THE GLOBAL MARKET FOR MARKET PULP 2007

Groundwood pulp, 73% CTMP, 8%
Sulphate pulp, 1%

DEVELOPMENT OF GLOBAL STOCKS AND NBSK PRICES

DELIVERIES OF CHEMICAL MARKET PULP

about EUR 20 due to the unfavourable trend in exchange rates.

The main producers of long-fibre chemical market pulp are Arauco (Chile), Domtar/Weyerhaeuser (USA/Canada), Södra (Sweden) and Mercer (Canada/Germany/USA).

PRODUCTS AND APPLICATIONS

The only long-fibre chemical pulp grade that Rottneros produces is sulphate pulp. The pulp is made from spruce and pine and comes in two different grades, ECF (Elemental Chlorine Free) and UKP, which is unbleached. The largest category by far is ECF pulp, which is used primarily for printing and writing paper.

As a result of a multi-year development project, Vallvik's unbleached pulp now has a level of purity that is sufficient for very demanding paper qualities. The mill is thus above all a leading supplier of highquality pulp to producers of paper for transformers and cables. Vallvik's pulp is flash-dried, making it well suited also for the filters and other absorbent products that are included in Rottneros' niche areas.

OUTLOOK

In 2008 global production capacity for long-fibre chemical pulp is likely to decrease, as no significant additional capacity has been announced and one mill will close in Finland. This should ensure that the market remains balanced. In Vallvik Rottneros will continue to develop the unique properties of its pulp grades, which make them particularly suited for production of selected niche products.

SHORT-FIBRE CHEMICAL PULP THE MARKET

The market for the short-fibre chemical pulp produced by Rottneros at its Miranda mill in Spain was very strong in 2007. A total of 17,673 million tonnes of bleached short-fibre chemical pulp were produced in 2007, which is equivalent to 45% of the total market for bleached chemical market pulp.

The price per tonne increased during the year, from USD 670 in January to USD 780 in December. However, the price increase in EUR was only about EUR 15 due to the unfavourable trend in exchange rates.

The largest producers in the short-fibre chemical pulp market are Aracruz (Brazil), APRIL (Indonesia), CMPC (Chile) and Ence (Spain).

PRODUCTS AND APPLICATIONS

The raw material used in the production of shortfibre pulp is eucalyptus globulus, which provides a very strong short-fibre pulp. The pulp is ECFbleached and is used to ensure good formation in printing and writing paper and a high degree of softness in tissue.

The Miranda mill produces eucalyptus pulp that is stronger than the pulp produced by competitors. For this reason, Miranda's pulps are primarily used in the manufacture of products requiring strength as well as formation and brightness, such as highquality paperboard.

OUTLOOK

The supply of short-fibre chemical pulp is likely to grow in 2008 as a result of new capacity, primarily in South America. However, the current uncertainty in the Nordic wood market and the sharp production cuts in Indonesia raise doubts about how much the supply will increase during the year. Short-fibre chemical pulp will probably continue to see the strongest increase in demand also in 2008.

MECHANICAL PULP THE MARKET

2007 was a good year for mechanical pulp produced at the mills in Rottneros, Rockhammar and Utansjö (until the end of the second quarter of 2008). Total output was 2,805 million tonnes, compared to 2,633 million tonnes in 2006, which represents an increase of 6.5%.

The price strengthened during the year, and the increases were largely in line with those for shortfibre chemical pulp, i.e. approximately USD 110 from January to December.

The biggest producers of mechanical pulp for the open market are the Canadian companies Tembec and West Fraser.

PRODUCTS AND APPLICATIONS

CTMP, which is produced in Rottneros, Rockhammar and Utansjö (until the second quarter of 2008), is made from aspen, spruce, pine or a particular mix of raw materials to achieve specific quality parameters. CTMP made from spruce and pine is available in unbleached and bleached grades while aspen CTMP is mostly bleached. Aspen CTMP is used mainly for various grades of printing and writing paper while spruce and pine CTMP is used extensively by paperboard manufacturers. However, Rottneros' product range also includes a special grade of pulp that is especially suitable for filtermaking, while other grades are suitable for the production of tissue.

Groundwood pulp is produced at Rottneros and Utansjö (until the end of the second quarter of 2008) and is spruce-based. The mills produce both unbleached and bleached spruce groundwood pulp with varying degrees of brightness, depending on the customer's area of application. Groundwood pulp is mainly used for printing paper.

All pulps are TCF-bleached.

OUTLOOK

Apart from the closure of Utansjö Mill, the company knows of no significant changes in the supply of mechanical pulps in 2008. Demand is expected to continue to increase at a rapid pace, due partly to a growing interest among manufacturers of highquality printing and writing paper in using mechanical pulps. As the production process for mechanical pulp producers is very energy-intensive, the product is highly dependent on the price of electricity. Rising electricity prices therefore constitute a threat to production.

THE PULP MARKET

The global market for market pulp in 2007 was about 44 million tonnes, which is an increase of SEK 2 million on 2006. The market for bleached chemical pulp was about 39 million tonnes, of which 21 million tonnes, or 55%, was long-fibre bleached chemical pulp, and 18 million tonnes, or 54%, short-fibre chemical pulp. Unbleached chemical pulp and mechanical pulp accounted for the remaining 5 million tonnes. Producer stocks of chemical pulp at the beginning of the year were 3.04 million tonnes, increasing to 3.36 million tonnes by year-end. The largest market pulp markets are Western

Europe and North America, where a total of 24 million tonnes were delivered in 2007, representing around 60% of the global market. Deliveries to all major regions except Japan increased in 2007, with China accounting for the single largest increase, 804,000 tonnes, or 20%. The overall increase in deliveries in all markets was 3.4%.

The price difference between long-fibre and short-fibre chemical pulp in Europe was about USD 80 at the beginning of the year, but increased to about USD 100 by year-end.

VMI (Vendor Managed Inventory) is a method of reducing inventories and the amount of capital tied up while increasing delivery reliability through a closer partnership between producer and customer. Rottneros has developed a VMI solution that can also provide laboratory data on each delivery directly in the customer's production system to ensure optimal production results and economic efficiency.

14 GROUP UNITS Rottneros Annual Report ²⁰⁰⁷

High accessibility multiple production records

The Rottneros Group produces paper pulp at five pulp mills. Chemical pulp is produced at Vallvik in the Swedish county of Hälsingland and at the mill in Miranda in Spain, while mechanical pulp is produced at the mills in Rottneros in Värmland, Utansjö in Ångermanland and Rockhammar in Bergslagen. Rottneros Mill also produces the company's SilviPak food trays within the Rottneros Packaging business area. The Group also has wood supply companies in Latvia and Portugal as well as marketing companies in Germany and Belgium. Operations at Utansjö Mill will cease in the second quarter of 2008.

ROTTNEROS MILL

Rottneros Mill produces groundwood and Chemi-Thermo Mechanical Pulp (CTMP). Both processes are mechanical, involving a high degree of wood utilisation and requiring a relatively large amount of energy. The pulp produced at the mill is used for making printing and writing paper, tissue, paperboard and other products. Under a final environmental ruling issued in spring 2007, the company received permission to raise its manufacturing capacity at the mill to 200,000 tonnes.

Like the other mills in the Group, Rottneros Mill had a strong focus on raising productivity in 2007. The efforts have borne fruit, and the target of establishing a daily production volume of 450 tonnes has now been achieved. Production at the mill increased by almost 7,000 tonnes, from 147,000 to 154,000 tonnes, and the mill set a new production record for the fourth year in a row. The target for 2008 is to increase production by a further 6,000 tonnes.

The fact that the mill has been able to set new production records four years in a row is due in large measure to a consistent effort to increase accessibility while removing bottlenecks in production. An example from 2007 is that the dry content in the dewatering of pulp before it enters the flash dryers has been increased through adjustments to the machines. In addition to improving capacity, this has also reduced energy consumption per tonne.

Rottneros Mill has also worked to increase accessibility and shorten the duration of maintenance shutdowns through maintenance rounds and preventive maintenance, which helped to raise accessibility from 94% in 2006 to 95% in 2007.

In 2006 a cost-cutting programme was initiated at Rottneros Mill. The number of staff has been gradually reduced, with further reductions planned for 2008. In autumn 2008 a joint operations unit for the whole mill will be put into operation. This move is necessary to ensure that the cost-cutting programme can be completed through further staff cuts.

Other elements of the programme involve reducing the consumption of wood, chemicals, electricity and oil per tonne of pulp. This has been extremely successful, with savings well above target. A particularly successful part of the programme concerns the use of bleaching chemicals and electricity, where consumption per tonne of pulp was cut by 20% and 5%, respectively, compared with 2006 levels.

UTANSJÖ MILL

Utansjö Mill produces groundwood pulp and CTMP pulp (until the second quarter of 2008). Both grades of pulp are used primarily for coated and uncoated printing and writing paper. As at Rottneros Mill, production at Utansjö reached an alltime high in 2007, with a new annual record of 162,000 tonnes.

In 2007 a project aimed at raising production volumes was implemented, resulting in several new production records. A sub-project involved systematic efforts to minimise and rapidly address any disruptions in production and eliminate bottlenecks. Another sub-project involved intensive work on preventive maintenance to minimise the duration of unscheduled shutdowns. The projects resulted in a production increase of 10% in both the groundwood and CTMP lines. In 2006 the Group initiated a cost-cutting programme that is aimed partly at cutting electricity consumption. The programme resulted in a decrease in electricity consumption per tonne of pulp of more than 15%.

In autumn preparations for the relocating of the CTMP facility to South Africa were made in the form of full-scale test production of pulp from eucalyptus wood, which is the raw material that will be used in South Africa (see page 19). The test operations were conducted in cooperation with customers.

Utansjö Mill is the Rottneros unit that has been hardest hit by the high electricity prices and increasing cost of wood, especially imported wood. As it is no longer possible to continue operating the mill in a long-term perspective, as announced in August 2006, production at Utansjö will cease in the second

quarter of 2008. The Group is planning to sell the CTMP facility that was taken into operation in 2005 to a company in South Africa that is joint-owned by Rottneros.

Despite the fact that the decision to close Utansjö Mill in 2008 was taken back in August 2006, staff at the mill have been extremely loyal and have, through their efficiency and skills, made a strong contribution to minimising the losses, not least by setting several new production records. Unfortunately, this has not been sufficient to enable Rottneros to continue operations at Utansjö.

ROCKHAMMAR MILL

Rockhammar Mill produces mechanical pulp using the CTMP method developed at the mill in the early 1970s. One of Rockhammar's specialist products is CTMP based on pine for use in filters, which is one of Rottneros' niche areas.

In 2007 production reached 99.9% of the maximum production volume permitted by the environmental authorities, i.e. 66,000 tonnes of paper pulp. In 2007 Rockhammar Mill initiated the process of applying for permission from the environmental court to increase the production volume to 90,000 tonnes per year as of 2009.

A cost-cutting and streamlining programme was initiated in 2006 and continued in 2007. The programme has resulted in an overall cost reduction of SEK 10 million and an increase in production from 1,000 tonnes per employee to 1,147 tonnes per employee.

One of the goals for 2006 was to reduce the total energy consumption, which cut oil consumption in half and a 10% reduction in electricity use was achieved.

In 2007 efficiency improvements were made to the solid-fuel boiler, which will help to further reduce oil consumption.

A new control room covering the whole mill was put into operation in 2007 as part of the new organisation. This has significantly improved the efficiency of the production, as a single person is now able to monitor all production activities, compared with three previously.

VALLVIK MILL

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). The factory has permission to produce 220,000 tonnes.

The Group-wide cost-cutting programme that was initiated in 2006 has been successful for Vallvik Mill. Total savings in 2007 were SEK 28 million, which was well above the target of SEK 19 million. The calculation excludes the effect of the new turbine (see below). The programme has cut costs for energy, chemicals, staff and wood. As part of the programme, the number of employees was reduced from 193 to 181 as of 1 January 2007.

In 2007 the mill set a new production record at just over 201,000 tonnes (196,000), which represents an increase of 3%.

The focus on pulp grades for electrical applications, filters, coated fine paper and greaseproof continued in 2007. This included continued development of UKP pulp with a very low metal content for use in special electrical applications. The market regards the product as one of the best-quality pulps in this area of application.

In 2008 the company intends to further increase the share of pulp for electrical applications (sea cables, transformers, etc.) and filters (coffee filters, air filters, oil filters, etc.)

In autumn 2007 a new steam turbine to produce electricity based on back-pressure power was put into operation. The turbine's 28 MW capacity will make Vallvik Mill 90% self-sufficient in electricity, raising the Group's overall self-sufficiency. The investment cost about SEK 90 million. The size of the turbine will allow for future increases in production levels at the mill. In December Vallvik Mill set a new record for electricity generation, producing 13.7 GWh of electricity, representing a self-sufficiency rate of 91.3%.

The production record set in 2007 was a result of systematic efforts in preventive maintenance, planned measures, preventive maintenance rounds also by operators, improved system support for maintenance work and the decision to give priority to activities that actually increase production.

During the year staff at the mill also continued their efforts to minimise the number of accidents. The statistics for 2006 show that Vallvik Mill had the smallest number of accidents per employee in the entire Swedish forestry industry.

ROTTNEROS MIRANDA

Rottneros' pulp mill in Miranda in Spain produces sulphate pulp from eucalyptus wood. Production in 2007 was 145,800 tonnes (142,200). Total production capacity at the mill is about 149,000 tonnes.

Accessibility in the mill was very high in 2007. Maintenance shutdowns during the year were limited to six days, compared with 14 normally. This was partly due to the fact that no installations were made, but also to good planning. Although the factory is in good condition, there is a certain need for investments in the next few years.

As in Sweden, wood prices in Spain increased sharply in 2007. The increase exceeded 16%, primarily due to mounting competition for wood. In an effort to keep costs down, Rottneros Miranda strives to buy as large a share as possible of its wood from producers on the Iberian Peninsula and thereby avoid imports from South America.

In autumn 2007 work on constructing a new factory for the production of food trays, i.e. Silvi-Pak, was started in Miranda (see page 18).

SIA ROT TNEROS BALTIC AND ROTTNEROS MADEIRAS

The Swedish mills import part of their raw material, and most of this comes from Latvia through the subsidiary company SIA Rottneros Baltic. Imports to the Spanish mill in Miranda are made through the subsidiary Rottneros Madeiras in Portugal.

SIA Rottneros Baltic is a strategic part of the Rottneros Group's raw materials supply system. The company also assists in the procurement of wood from the rest of the Baltic region, Russia and Belarus. Rottneros is fortunate to have members of the workforce who speak fluent Russian.

In 2007 the Latvian and Portuguese operations provided for 22% of the raw material needs of the Swedish and Spanish mills, down from 29% 2006. The decline is due to the fact that the cost of importing wood from the Baltic States has become significantly higher than buying it in Sweden. Wood that is not required by Rottneros is sold to external customers.

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

Deliveries from SIA Rottneros Baltic involve complex logistical operations in which delivery volumes are integrated with other deliveries in a constant flow to the mills. In 2007 the company exported around 400,000 cubic metres of wood in 111 shiploads.

Governor Gun-Marie Pettersson inaugurate the steam turbine that will make Vallvik practically self-sufficient in electricity.

Rottneros PULP MILL S
	Employees	Pulp types			Production		Pulp deliveries
	Average number	Mechanical	Chemical	2006, tonnes	2007, tonnes	Increase 06/07, %	2003–2007, thousand tonnes
Rottneros Mill	143	Groundwood CTMP		70,500 76,700 147,200	75,000 79,000 154,000	6 3 5	136 131 147 146 154
Rockhammars Mill	63	CTMP		65,500	65,900	1	58 57 58 64 67
Utansjö Mill	141	Groundwood CTMP		72,200 76,200 148,400	79,800 83,200 163,000	11 9 10	129 101 117 149 156
Vallviks Mill	181		Long-fibre sulphate	195,500	201,400	3	179 190 196 201 190
Rottneros Miranda	161		Eucalyptus sulphate	142,200	145,800	3	139 146 149 139 147

SilviPak – new factory to be built in Spain

Rottneros Packaging is a business area in the Rottneros Group that produces food trays from pulp fibre under the SilviPak brand. The business started in spring 2006 and is the result of a development project lasting several years. SilviPak marks a move by Rottneros into a new stage in the value chain, involving the manufacture of products that are delivered directly to the end user, unlike pulp, which is categorised as input goods.

SilviPak is produced at Rottneros Mill and, as of summer 2008, also at a facility close to the Group's unit in Miranda in Spain.

The reason for Rottneros' decision to enter an entirely new sector is the Group's long-term ambition to reduce its one-sided dependence on pulp market fluctuations and the US dollar rate. The venture also offers synergies with Rottneros' existing operations, both in terms of production and development, as the trays are based on advanced pulp technology.

FROZEN AND CHILLED PORTION TR AYS

SilviPak is primarily used for frozen and chilled portion food for small households that are sold in supermarkets and other outlets and used in professional kitchens and restaurants. SilviPak has properties that enable heating of the product in traditional or microwave ovens as well as insulation properties that make it possible to handle the product immediately after heating.

SilviPak meets a growing demand for alternatives to traditional oil-based packaging and has strong environmental credentials compared with the majority of competing products. The fact that the product is made from a renewable resource and weighs less than most of the other options puts SilviPak in a good position to benefit from the current environmental trend in Europe. Such factors are valued throughout the chain from food producer to consumer.

Rottneros has a worldwide licence to produce food packaging made from cellulose fibre using this method and machinery.

MARKET

The European market for the category of packaging produced by Rottneros is about 6.5 billion items per year, most of which are 100% oil-based. There are about ten major manufacturers in the market, and growth in the market is about 10% annually.

The goal is to achieve a market share of around 5% within the next four years, which translates to sales of around 350 million trays per year. At that time sales of SilviPak are expected to account for about 15% of net turnover, or SEK 300–400 million.

Establishing an entirely new producer of food packaging is a long-term effort, as a switch to a new supplier is a comprehensive process for most big food producers and their customers.

Two years after its introduction, SilviPak has become a well-known player in the European market, and the Group has established contact with several of the big producers of ready meals.

CAPITAL EXPENDITURE

To meet the growing demand and achieve its target, Rottneros is currently building another factory for the production of SilviPak. The new factory is being built adjacent to the Group's pulp mill in Miranda in Spain and will supplement the current production unit at Rottneros Mill. It is estimated that the new factory, which will require an initial investment of about SEK 50 million, will be completed in the second quarter of 2008. When fully operational, it will have a capacity of about 200 million trays per year.

Operating more than one factory for the production of SilviPak so as to reduce vulnerability is a requirement from the major European customers.

One of the reasons for choosing Miranda for the Group's second SilviPak factory is the location's proximity to a large section of the European end market. There are also several advantages to placing the factory adjacent to a pulp or paper mill, one being that a large part of the existing infrastructure can be used.

In addition to the new factory, the Group has invested in further capacity for SilviPak at Rottneros Mill, which, combined with the use of a continuous three-shift roster, ensures a production capacity of about 30 million trays per year.

SilviPak is used primarily for chilled and frozen portion food.

Plans to invest in South African pulp mill

In March 2007 Rottneros and NCT Forestry Co-operative Ltd, a South African forestry company, signed a letter of intent to explore the possibility of building a factory for production of CTMP mechanical pulp in South Africa. The Group intends to sell the CTMP facility that went into operation at Utansjö Mill in spring 2005 to a jointly-owned company and move it to a new plant at Richards Bay on the east coast of South Africa.

Under the main structure of the agreement, Rottneros will undertake to complete the construction of a production plant with a capacity of 165,000 tonnes for the production of CTMP pulp from eucalyptus wood. The CTMP facility in Utansjö will be used as a basis for the new plant and the investment will be project-financed through the jointly-owned company. The new plant may be operational at the end of 2009.

Demand for CTMP, which represents one of Rottneros' main ventures, is considered to have a good growth potential while only limited new production capacity is being added globally.

MULTIPLE BENEFITS

South Africa offers multiple benefits for CTMP production, which is relatively energy-intensive. The price of electricity is among the lowest in the world, and the supply of eucalyptus wood and other raw materials is good. NCT will guarantee the supply of wood at competitive prices. These factors explain why Rottneros is aiming to make the fac-

tory one of the world's most cost-efficient CTMP producers.

The electricity supply in South Africa has been high on the agenda in recent months. This issue is central to the project and must be resolved before any decision to invest is taken.

The reason Rottneros is choosing to move its CTMP facility to South Africa and discontinue operations at Utansjö Mill is that electricity prices and the cost of wood are expected to remain at levels that make it impossible to continue operations at Utansjö for the foreseeable future.

FULL-SCALE TEST PRODUCTION

The planned new factory will be the first in the world to produce CTMP from eucalyptus on a large scale. The full-scale test production activities that took place in Utansjö in autumn 2007 showed very good results in terms of both production and quality.

For Rottneros the new South African venture is a good opportunity to establish production in the Southern Hemisphere using eucalyptus as raw material to make a product whose properties will strengthen the Group's focus on niche products. This is an area where Rottneros can exploit its expertise to become a driving force in the market.

NCT is a co-operative forestry company in South Africa that sells timber from plantations covering some 300,000 hectares. The company is owned by over 2,000 members. The company's main product is hardwood from eucalyptus for the pulp industry. NCT runs three chipping plants in Richards Bay and Durban. So far, most of the chips have been exported to the Japanese pulp industry.

JOINT-OWNED COMPANY

The intention is for the planned operation to be run by the jointly-owned company Pulp United (Pty) Ltd, which was set up by NCT to assess the possibility of establishing a factory for the production of CTMP pulp in Richards Bay.

The pulp will primarily be exported to Southeast Asia and Europe, and the plan is to sell it through Rottneros' marketing organisation.

Purchasing and raw materials supply – strategic functions

The most important input goods in the production of paper pulp are wood and electricity, followed by chemicals. Having a flexible and sophisticated wood supply system is of strategic importance for Rottneros, as the Group owns no forests of its own. Energy supply is assured primarily through trading on the Nord Pool electricity market and through long-term contracts. In 2008 Rottneros will also be establishing a Group purchasing function with responsibility for all purchases except wood and transports.

NEW PURCHASING DEPARTMENT

Rottneros has for a number of years sought to make use of available opportunities for efficiency improvements by focusing on how resources are used. As part of this effort, a Group purchasing department has been established, which means that purchases for the Group's Swedish operations, which were previously decentralised to the four mills, will now be made jointly for the whole Group. The new organisation will involve coordinating the existing purchasing systems. All goods except wood, which is handled separately, are covered by the new department. Transports also fall outside the new purchasing organisation.

Purchasing is to a large extent a logistical process involving an effort to optimise synergies and flows. Coordinating purchasing activities makes it easier to make measurements and evaluations. This will enable evaluations of the whole chain, stretching from requests for quotes and tenders to delivery and storage, for the entire company. Coordination will also generate economies of scale for the Group.

One of the objectives for the new purchasing organisation is to introduce a new computer-based product system. In a longer-term perspective, this will make it possible to retrieve information about inventories of consumables (excluding wood) throughout the Group, creating better opportunities to optimise purchasing activities.

The new purchasing organisation will involve a complete review of the Group's suppliers, which will probably result in a reduction of the number of suppliers.

WOOD SUPPLY

Rottneros has wood procurement operations in Sweden and Spain, i.e. in those countries where the Group produces pulp. These are supplemented by wood supply companies in Latvia and Portugal. Rottneros works with several wood and chip suppliers and seeks to conclude multi-year contracts with key suppliers to reduce its dependence on the spot market.

In Sweden the main suppliers are Skogsägarföreningen Mellanskog and the government-owned Sveaskog, while Marques Alves and Alvarex Forestal are the main suppliers to the mill in Spain. Each year, the Group consumes about 2.3 million cubic metres of wood in the form of round timber and woodchips. A significant share is imported, largely via the Group's raw material companies in Latvia and Portugal.

In Spain, Rottneros' aim is to buy eucalyptus wood from Spain and Portugal, but in some years wood is also purchased from South America.

Effective logistics are essential for the Group's wood supply because of the importance of using fresh raw materials and maintaining limited stocks. To avoid unnecessary transportation for both environmental and cost reasons, the forestry industry endeavours to use Swedish wood sourced from forests as close to the mills as possible. It is therefore a common practice in the industry to swap wood with other companies.

The wood that is imported into Sweden is transported by sea and mainly goes to the mills in Utansjö and Vallvik, which are situated by the coast and have their own port facilities.

THE WOOD MARKET

One of the biggest problems facing Rottneros as well as other pulp and paper enterprises in 2007 was the sharp rise in the price of pulpwood. Prices in Sweden increased by about 20% over the year. Price increases on imported raw materials were even bigger, having a serious impact on profitability.

The main reasons behind the price increases are the Russian export duties on birch, aspen and softwood, the strong demand pressures on pulpwood and chips, and mounting competition for wood in the heating sector. Buyers from Finland, Germany and Norway are now also competing for Swedish wood. It is now very clear that the Baltic Sea region has become essentially a single timber market.

Sawmills in Sweden and elsewhere have performed very well thanks to high timber prices, which have encouraged many forest owners to

increase their felling. Despite record felling levels, there have been regional wood shortages, which in turn has resulted in higher transportation costs.

The price increases, which were already noticeable in the first half of 2006, continued through most of 2007, but peaked in the first half of the year. An exceptionally wet autumn in 2006 and a warm winter made it impossible to use logging machines and lorries in many areas due to soft ground and roads.

The biggest increase occurred in the price of imported wood, partly as a result of the Russian export duties. A duty of EUR 5 per cubic metre was imposed on aspen pulpwood imported by Rottneros. The Russian duties constitute a threat primarily to the Finnish forestry industry, but in the longer term also to the Swedish industry. Prices of Swedish wood have also increased, but not to the same extent as for imported wood. Overall, the Rottneros Group's costs for wood increased by SEK 182 million compared with 2006.

Rottneros strives to minimise the imported share to reduce its raw material costs. As part of this policy, the imported aspen wood used at the mills in Rottneros and Rockhammar will to a larger extent be replaced by locally sourced raw materials. This means that the raw material used will be more varied, being based on different types of wood.

Towards the end of the year the balance in the timber market had improved, although demand pressure remained high. As a result, the price of Baltic wood, in particular, started to fall.

TR ACEABILIT Y CERTIFICATION

Rottneros has introduced a set of procedures for traceability certification to monitor the origin of the pulpwood used by the Group, which is a factor that is becoming increasingly important in our relationships with pulp buyers.

The Group has a multi-site certificate for FSC and PEFC certification, which are the two international systems used in Sweden. This means that the Swedish mills have a joint traceability certification system. The Latvian subsidiary SIA Rottneros Baltic is also FSC-certified as well as environmentally certified according to ISO 14001. In addition to certification, random checks of the traceability system are carried out by an external party.

Random checks are also carried out by external parties on wood from Estonia and Russia to ensure that no wood arriving at Rottneros' mills has illegal or controversial origins.

ELECTRICIT Y SUPPLY

High electricity prices have constituted a problem in recent years. The high price of electricity is behind the SEK 100 million cost-cutting programme announced in February 2006 as well as the decision to close Utansjö Mill.

The price of electricity on Nord Pool, which increased dramatically in 2006, averaged SEK 0.28 per kWh in 2007, against SEK 0.45 per kWh in 2006. In February 2008 electricity for 2008 and future periods was trading at slightly less than SEK 0.50 per kWh on Nord Pool.

Improving electricity efficiency is an important element of the Group's cost-cutting programme. In 2006 and 2007 major efforts were made to reduce electricity use per tonne of production. An example of this is an initiative aimed at optimising the grinding discs used in the production of CTMP, which resulted in energy savings of about 15%.

The single largest energy-related measure implemented in 2007 was a SEK 90 million investment in a new steam turbine for electricity generation at Vallvik Mill, which was put into operation in autumn 2007. The turbine has made Vallvik virtually selfsufficient in electricity and increased the Group's self-sufficiency rate from 18 to about 25 %. Overall, this means that consumption of bought electricity will have fallen by almost 20% per tonne since the initiative to improve energy efficiency began.

Electricity consumption at the Spanish Miranda unit, which is a chemical mill, is moderate and prices were regulated in 2007.

Rottneros was one of the first forestry industry companies to start using contracts to fix electricity prices. In 2002 the company hedged its entire electricity production for 2003 up to 2005 and then in decreasing degrees up to 2009. See the section "Opportunities and risks" on page 33.

The Swedish energy policy poses a long-term threat to Rottneros' mechanical pulp mills. Rottneros has therefore joined Bas El, a company set up in 2005 with the aim of increasing electricity supply in Sweden.

CHEMICALS

Hydrogen peroxide, which is the main chemical used in pulp production, is a very important raw material for Rottneros. On the whole, chemical prices follow the general economic trend. The Group concludes long-term framework agreements for delivery of chemicals, and prices are negotiated annually.

Responsibility – a key part of our corporate culture

At Rottneros we value the good relationships we have with our stakeholders. We take pains to act responsibly towards those who depend on us and on whom we depend. We understand that it is only by working together with our stakeholders that we can build shareholder value, prosperity and quality of life. We work to protect human rights and our common environment and to promote sustainable development, and our attitude to our fellow man is based on respect for the equality and integrity of each human being.

EMPLOYEES

We act responsibly towards our employees by promoting health, safety and a good work environment. We provide excellent 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 in the workplace.

SOCIET Y

We act responsibly towards society. Many of Rottneros' mills have strong ties to local communities that grew up around the mills, and the company is often the biggest employer in the area. This gives us an economic as well as a social responsibility. We work with local authorities in the areas where we operate, offering apprenticeships and organising mill visits and other initiatives.

CUSTOMERS AND SUPPLIERS

Rottneros acts responsibly towards its customers by always striving to offer products of the highest possible quality. We create value for our customers by offering new knowledge that has the potential to strengthen their positions in the market. We act responsibly towards our suppliers and other partners. Rottneros representatives are prohibited from engaging in misappropriation for personal gain or inappropriately providing the company with competitive advantages. Rottneros does not enter into business relationships with companies that consciously and systematically violate laws, regulations or international human rights conventions.

ENVIRONMENT

We assume our environmental responsibility by ensuring that all production units in the Group comply with the environmental standards set out in laws and decrees. The goal is to reduce emissions to levels that are technologically possible, economically viable and ecologically motivated. Rottneros' environmental goals are followed up on a regular basis in connection with financial reporting, and we have an active dialogue with stakeholders on the environmental impact of the Group's operations and products.

SHAREHOLDERS

We act responsibly towards our shareholders by working to maximise shareholder value within the framework of what the laws, regulations and industry norms permit. Our capital market activities are characterised by transparency and honesty. We openly report the actions, salary terms and benefits of senior management and the Board of Directors. We comply with the laws, regulations and ethical guidelines that apply to the capital market. We aim to reduce the Group's risk exposure and pay stable dividends to our shareholders.

Continued focus on leadership skills

In 2007 Rottneros initiated its second trainee programme for engineers as part of an effort to ensure that the Group retains the pool of expertise required for future growth. In the programme trainees spend one year learning about the Rottneros Group. They spend time at various mills, but have a base at one of the four Swedish mills. The programme started in September 2007 and will continue for one year. Individualised programmes focus on participants' particular talents to ensure that they provide maximum benefit for both the individual and the company. Five trainees, including two women, are taking part in the second round.

SKILLS DEVELOPMENT

Rottneros' business and leadership development programme, R-plus, continued in 2007. The programme covers about 120 company executives, leaders and other key individuals and specialists with significant informal leadership or a large internal or external network.

The purpose of R-plus is to spread knowledge about key figures and market conditions of importance to the Group and build a common view of leadership and the values and strategies which form the basis for Rottneros' business.

ISO CERTIFICATION OF HEAD OFFICE

During the year work began on certifying the parent company of the Group according to the ISO 9001 quality standard. The work involves defining processes linked to the head office from a customer perspective. The Group's five pulp mills were certified in previous years. The certification audit was conducted at the end of November, whereby it was established that Rottneros AB (the parent company) fulfilled the requirements, resulting in a recommendation that a certificate be issued. The certification provides confirmation that Rottneros AB is a well ordered company that employs appropriate processes for meeting its obligations to customers.

EMPLOYEE SURVEY

An employee survey aimed at assessing satisfaction levels, leadership, communication and work environment issues was conducted during the year. The analysis that is currently being made will be used as a basis for an action programme designed to develop the improvement areas identified in the survey.

HEALTH AND FITNESS PROGRAMME

A health and fitness programme was initiated in 2006. The objective is to cut absence due to illness by 15% and the number of accidents by 50% compared with 2005 levels. So far, absence due to illness and accident levels have been reduced by 13 and 25%, respectively. The goal of the programme is to make Rottneros one of the healthiest companies in the forestry industry.

EMPLOYEES

The Rottneros Group has 718 employees (754), of whom about 156 are based in Spain, about ten in Latvia and five in Portugal. Out of these, 544 have collective wage agreements negotiated by trade unions. Women make up 12.3% of the workforce. The average age is 47.0 years. About 20 employees work with the SilviPak brand within the Group's new Rottneros Packaging business area.

The reduction of 36 employees is due to the costcutting programme that was initiated in 2006, which involves reducing the number of staff at Rottneros Mill by 30 people in 2008.

Staff turnover increased slightly, to 6.1%, in 2007. The average period of employment is 20.6 years. Levels of absence due to illness and accidents are low in the Rottneros Group. Absence due to illness was at 3.9% in 2007 and employees suffered 12 accidents resulting in more than one day of leave, accounting for 0.1% of total absence due to illness.

CLOSURE OF UTANSJÖ MILL

In January 2008 a decision was taken to discontinue operations at Utansjö Mill in the second quarter, which means that all 140 employees will be laid off.

SAL ARIES

In 2007 salaries and other remuneration paid to employees, excluding social security contributions, amounted to SEK 281.0 (279.1) million (see also Note 5 on page 55). This represents about 10% of net turnover.

Investments further reduce carbon dioxide emissions

Over the past few years Rottneros has worked actively to increase the proportion of biofuels used at its mills and cut resource use across the Group. Electricity consumption in the Group's CTMP lines, for instance, has been cut by 15%. All these measures have directly and indirectly led to reduced atmospheric emissions of carbon dioxide from production of paper pulp at Rottneros' mills. In 2007 Rottneros also made a number of investments that will lead directly to reduced carbon dioxide emissions.

Global warming as a result of atmospheric emissions of carbon dioxide and other greenhouse gases has dominated the environmental debate over the past few years. Despite exaggerations and some ill considered proposals, the fact remains that emissions of greenhouse gases need to be reduced significantly. The forestry industry, which is the biggest user of biofuels in Sweden, accounts for a few percentage points of the country's total carbon dioxide emissions. The forestry industry has the same carbon dioxide emissions today as in 1990, despite increasing production by 40%. This means that carbon dioxide emissions have fallen by 30% per tonne of products since 1990.

ROT TNEROS' CARBON DIOXIDE EMISSIONS Rottneros' conscious focus on biofuels and reduced resource use has led to reduced emissions of carbon dioxide, as shown in the table "Rottneros' carbon dioxide emissions." Compared to 1998 and 2001, which served as baseline years for allocations of emission allowances for the period 2005 to 2007, the average reduction is 44,200 tonnes, or 35%. The reduction varies from one mill to another due to differing circumstances. Rockhammar Mill, for instance, has a very high share of biofuels, 98.5%. This share is very close to the highest level that can practicably be achieved at a factory of this type. The fossil fuel used at Rockhammar today is used only for start-up after maintenance shutdowns.

Vallvik Mill also has a very high share of biofuel use, at 98%. This includes the black liquor from chemical recovery. This, too, is a level that is difficult to exceed from a technological perspective.

INVESTMENTS REDUCE CARBON DIOXIDE EMISSIONS

Many of the Group's investments over the past few years have led to reduced use of fossil fuels at Rottneros' plants. The Group's investments in 2007 yielded similar results.

At Vallvik Mill the old back-pressure turbine has been replaced by a larger one (see also page 16). This has increased electricity production by 33 GWh/ year, or 30%. The investment has raised Vallvik's self-sufficiency rate for electricity from 70 to 90%. As all steam used in the turbine is generated by biofuels, only "green" electricity is produced.

At Rottneros Mill a large percentage of the pulp produced has a high grinding degree, making it difficult to dewater and dry. Drying such pulp has thus required extra energy in the form of fossil fuels. The mill has now rebuilt the pulp presses so that the pulp has a higher dry content when it reaches the dryers. This has reduced the use of fossil fuels per tonne of pulp. At the end of 2007 a heat exchanger was installed in which excess heat is used to pre-heat air for the flash dryer, thus cutting electricity consumption. Together, these measures will reduce fossil fuel consumption.

CLIMATE DECL AR ATION ON "CARBON FOOTPRINT"

To assess the environmental impact of different products, a method known as a "life cycle analysis" is often used today. For a number of years now, this has involved the use of an advanced calculation technique. Life cycle analysis is also a good method for comparing paper products with other materials.

As a result of the increasing focus on emissions of greenhouse gases, efforts are now being made to find a better way of determining the emissions of carbon dioxide caused, directly and indirectly, by a product. The approach is the same as in a conventional life cycle analysis. The term "carbon footprint" is often used to describe this work.

The calculations behind this analysis are complicated. In 2007 the Confederation of European Paper Industries (CEPI) therefore produced a proposal, at the request of the national federations, on how to perform the calculations. Further studies will be conducted before a generally applicable calculation technique becomes available. Until such a technique has been developed and gained acceptance, it serves no purpose for Rottneros and other companies to conduct calculations for its own products.

CARBON DIOXIDE EMISSION ALLOWANCES ALLOCATED TO ROTTNEROS, tonnes per year

Mill		2005 emissions 2006 emissions 2007 emissions 2007 allowance
Rottneros	20,600	19,640	20,183	24,103
Rockhammar	760	440	459	1,512
Utansjö	12,570	9,610	6,354	19,135
Vallvik	9,700	9,660	6,655	19,382
Miranda	56,410	45,360	45,772	59,507
Total	100,040	84,710	79,423	123,639

BREAKDOWN OF THE ROTTNEROS GROUP'S TRANSPORTS, tonne-km

	Road	Rail	Sea	total trans Share of ports, %
Pulpwood,%	21	27	52	34
Chemicals, %	79	15	6	2
Pulp, %	14	23	63	64
Share of total transports, %	24	19	57	100

EMISSIONS TO AIR AND WATER 2007

	Rottneros	Rockhammar	Utansjö	Vallvik	Miranda
Production, tonnes	154,000	65,930	162,100	201,400	145,800
S, tonnes/year	12	8	0.6	111	423
Permit	–	–	–	317	–
NOx, tonnes/year	37	17	25	302	255
Permit	–	–	–	330	1,265
Suspended solids, tonnes/day	0.5	0.1	2.4	0.7	0.8
Permit	1.2	0.3	1.7	2.0	1.0
COD, tonnes/day	9.0	2.3	18	20	7.8
Permit	11	–	22	38	8.5
BOD7, tonnes/day	2.1	0.2	4	7.0	1.05
Permit	–	0.3	–	–	1.14
AOX, tonnes/day	–	–	–	0.1	0.1
Permit	–	–	–	0.4	–
Phosphorus, kg/day	1.5	0.3	58	29	45
Permit	6.0	2.5	30	–	–

Provisional target values were exceeded at Utansjö for emissions to water of suspended solids and phosphorus.

ENERGY CONSUMPTION AND CARBON DIOXIDE EMISSIONS 2007

	Rottneros	Rockhammar	Utansjö	Vallvik	Miranda	Total
Energy consumption, GWh
Biofuels, incl. black liquor	57	70	93	1,437	594	2,251
Fossil fuels	77	1	23	24	154	279
Total energy consumption, excl. electricity	134	71	116	1,461	748	2,530
Share of biofuel, %	43	99	80	98	79	89
Electricity generated in mills	0	0,4	0	106	50	156
of which, green electricity				104	35
Purchased electricity	266	92	356	62	37	813
Total electricity consumption	266	92	356	168	87	969
Share produced in mills, %	0	0,4	0	63	57	16

Carbon dioxide emissions, tonnes/year

Fossil fuels*	20,183	459	6,354	6,655	45,772	79,423
Biofuels	34,625	31,287	46,765	561,723	175,833	845,666
% biofuels	63	99	86	99	79	91

* Only fossil fuels contribute to the greenhouse effect.

LEGIONELL A BACTERIA IN BIOLOGICAL TREATMENT PL ANTS

At the request of the Swedish Forest Industries Association, the National Laboratory of Bacteriology (SBL) in Sweden completed a study in 2007 on the presence of legionella bacteria in the forest industries' biological water treatment plants. The study confirmed the previously known finding that the conditions in the treatment plants are conducive to growth of legionella bacteria. If the desired treatment effect is to be achieved in a biological treatment plant, the risk of such bacterial growth would remain. SBL is therefore drawing up recommendations on how work at biological treatment plants should be conducted to minimise the risk of disease transmission. These rules supplement the rules already being applied at Rottneros' plants and in the rest of the Swedish forestry industry.

ENVIRONMENTAL ACTIVITIES AT THE MILLS Rottneros Mill

In 2007 pressing equipment for increasing the dry content of pulp prior to flash drying has been upgraded, resulting in an increase in the dry content before final drying. This resulted in a reduction in oil consumption. The use of fossil fuels has also been cut following the installation of a new heat exchanger. This installation enables the use of waste heat to preheat air for the flash dryer, which in turn reduces oil consumption. As the installations were made late in the year and at a time when production increased, overall oil consumption in 2007 did not fall despite a decrease in consumption per tonne of pulp.

Mechanical pulp production is very energyintensive. To reduce electricity consumption in the CTMP line, efforts are currently under way to use energy-efficient grinding segments in the refiners (mills) where the pulp is ground. This work will continue in 2008. In February 2006 the mill received a ruling from the Environmental Court. The company has appealed the ruling to the Environmental Court of Appeal on a number of points. Negotiations were held in May 2007 and a ruling was issued one month later. In its ruling the Environmental Court of Appeal, which agreed with the mill's claims on virtually all points, stated that Rottneros Bruk AB has the right to produce 200,000 tonnes of pulp per year and to install a solid-fuel boiler, which may be equipped with an electricity turbine.

During the year a survey was made of polluted industrial land in the industrial estate of Rottneros Mill. The purpose of the survey is to determine if any part of the estate is polluted. It was established that the area can be used for less sensitive land use, including industrial activities.

Rockhammar

In 2007 Rockhammar Mill produced 65,930 tonnes of CTMP and thus reached its temporary production allowance of 66,000 tonnes per year.

During the year the mill worked on preparing an application for an increase in production to 90,000 tonnes per year. The company is planning to submit a permit application to the Environmental Court under the Environmental Code in the first quarter of 2008. The company expects to initiate negotiations in 2008.

Rockhammar Mill did not exceed any of its limits or target values for emissions to air and water in 2007.

Since 2005 Rockhammar Mill has been taking part in an industry-wide legionella study. In response to the conclusions presented in the final report, the mill will, for the time being, retain instructions for the identified risk areas. A risk analysis/plan will be performed in respect of legionella in accordance with the industry template that is being prepared.

ROTTNEROS' ENVIRONMENTAL AND ENERGY POLICY

• All production units in the Group must comply with the requirements on the activities contained in laws and regulations.
• A goal for the Group's environmental work is to reduce emissions to levels that are technologically feasible, economically viable and ecologically justified. The same applies to energy consumption in respect of the choice of energy sources. When renewable resources are used the business becomes a part of the natural eco-cycle.
• All employees must have the necessary expertise in environmental and energy matters, be familiar with the company's environmental policy and play an active part in its implementation.
• Environmental conservation and energy targets are reviewed regularly in connection with financial reporting.
• An active dialogue is conducted with stakeholders on the environmental impact and energy consumption of the Group's activities and products.
• One goal for the Group's product and process development is to limit environmental impact and reduce energy consumption, both at the production stage and in the use of the Group's products.

Utansjö

The production of groundwood pulp and CTMP developed well in 2007. However, the market has been demanding products that increase the pressure on the biological treatment facility. This has made it difficult to comply with provisional emissions conditions.

During the year work continued on producing documentation for the upcoming final report to the Environmental Court, which will set final conditions for emissions to water and air. At the beginning of the year a status report was submitted to the Environmental Court with results describing the ongoing adjustments to the biological treatment plant.

As in previous years, the sludge produced at the plant has been supplied to an external recipient for processing. No sludge was burned internally in the bark boiler.

One of the environmental targets for 2007 was to reduce oil consumption to less than 3,000 m3 of oil. This target was reached. Oil use was reduced by 33% compared with 2006. The success is due to several factors, including better use of waste heat from the grinding unit and more efficient operating procedures, especially in the CTMP line. This reduced the need for steam and thus also the fossil fuel requirement.

Vallvik

The internal environmental targets for 2007 related to reductions in emissions of COD to water and a reduction of the operating time for the smell destruction device.

The COD target – 36 kg/tonne of pulp – was achieved. The result was 34 kg/tonne. The reduction of COD was possible thanks to continued efforts to optimise the investments made since 2003 in a project aimed at improving internal processes. In 2007 further changes were implemented to reduce emissions. Other measures included strict monitoring of washing effect losses in the wash presses of the oxygen bleaching unit.

The target for the operating time of the bleeder could not be achieved despite extra efforts. In the last quarter of the year it was possible to reduce the operating time thanks to adjustments to the lime kiln during the maintenance shutdown.

The mill complied with all conditions for emissions to air and water in 2007. In October the new back-pressure turbine for generation of green electricity was inaugurated. The target of increasing Vallvik's self-sufficiency rate in electricity from 70 to 90% has been achieved. In December the selfsufficiency rate reached 91.3%.

Total emissions of fossil CO2 were reduced by about 30% compared with 2006.

Vallvik Mill has appealed the Environmental Court's decision stipulating that the mill build a biological treatment plant. Two of the four members had differing opinions on the ruling. They agreed with the Swedish Board of Fisheries' and the company's assessment that biological treatment is unwarranted. Instead, there is a risk that such treatment will result in a greater environmental impact through emissions of nutrients. Biological treatment would lead to increased resource use and consequent negative environmental effects.

Miranda

Since Rottneros acquired the factory in 1999, Miranda has made several significant investments aimed at improving the environment. The measures have enabled the factory to apply for an environmental licence for its operations under the EU's IPPC Directive. This work was initiated in summer 2006 through an application to the regional authority (Junta Castilla y León). On 8 October 2007, after a series of negotiations and reviews, Rottneros Miranda S.A. was granted an environmental licence. This represents a major success, as this is one of the first licences to be granted in the region in any area of business. It is also only the second such licence to be granted to a pulp or paper company in Spain.

Under the licence, all environmental parameters will be included in a single permit that applies for eight years. This creates stability and enables longterm planning. Under the terms of the licence, the company is also required to meet certain requirements contained in the IPPC Directive on "best available technology" (BAT).

Weak share performance in 2007

Rottneros' shares have been listed on the Stockholm Stock Exchange (now OMX Nordic Exchange Stockholm) since 1987. Since October 2006, the exchange lists have been divided into three size-based segments. Within each segment, companies are also classified by industry. Rottneros is included in the Small Cap segment and is classified as a materials company. At year-end 2007 Rottneros had a market capitalisation of SEK 435 million (1.2bn). The number of shareholders was 17,688 (19,051), and foreign shareholders held 18.8% (23.4) of the share capital.

SHARE PRICE TREND

In 2007 Rottneros' share price fluctuated considerably, ending the year at SEK 2.31, a fall of 65% since year-end 2006. The highest price paid was SEK 6.85 in February and the lowest SEK 2.21 at the end of December. The stock exchange as a whole, as measured by the Affärsvärlden General Index, declined by 6.82% (+24.5), while the Affärsvärlden Forestry Index lost 10.38% (+16.3).

SHARE TURNOVER

In 2007 a total of 146 (207) million shares were traded for a value of SEK 690 million (SEK 1.4bn). This represents a turnover rate of 78% (115) for the year. The overall turnover rate among companies in the Small Cap segment on the exchange in Stockholm was 74%. The average for all segments on the exchange in Stockholm was 139%. An average of 81 trades in Rottneros shares were executed every day. A block consists of 1,000 shares.

SHARE CAPITAL AND BUY-BACK OF TREASURY STOCK

The share capital at year-end was SEK 94.2 million, represented by 188,432,105 shares. All shares carry equal voting rights and equal rights to the company's assets and profits. Information about share capital is described in the tables on page 31.

At the 2007 AGM the Board was authorised to transfer repurchased shares in the company. No such transfer took place during the year, however, and the company's holding of treasury stock is the same as the previous year, 8.2 million shares, or 4.4% of the number of outstanding shares.

DIVIDEND POLICY

The dividend paid to shareholders is based on Rottneros' results, financial position and future growth potential. The goal is to pay a dividend of about 25% of accumulated after-tax earnings during the course of a business cycle. This means that years with poor results need to be taken into account when assessing the dividend for any individual year. The Board proposes that no dividend be paid for the 2007 financial year.

INFORMATION TO SHAREHOLDERS

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

The annual report is sent to all shareholders.

OWNERSHIP STRUCTURE, 31 DEC 2007

Shareholder	Number of shares	% of share capital
Nemus Holding AB	51,366,484	27.26
Evli Bank PLC, Stockholms Filial	7,809,600	4.14
Clearstream Banking S.A., W8IMY	7,027,000	3.73
Skagen AS	7,020,000	3.73
Yield (Prior O Nilsson)	3,229,150	1.71
SSB CL Omnibus AC OM07 (15 PCT)	2,518,037	1.34
Larsson/O, Bo	2,220,500	1.18
Idea, Prior & Nilsson, Fond och kapitalförvaltning	2,131,500	1.13
Second AP-Fonden	1,705,872	0.91
Nordea Bank AB (Publ.) – Securities Finance	1,440,000	0.76
Total, 10 largest shareholders	85,172,187	45.89

Rottneros AB (treasury stock from buy-back)	8,219,641	4.36
Other shareholders	95,040,277	49.75

Total	188,432,105	100.00

Geographic distribution of ownership	Share holding	% of share capital
Domiciled in Sweden	152,971,421	81.18
Other Nordic	11,607,439	6.16
Other Europe (excl. Nordic region)	19,589,374	10.40
USA	3,401,600	1.81
Rest of world	862,271	0.46
Total	188,432,105	100.00

Distribution of ownership by shareholder category	Shareholding	Share holding (%)
Natural persons	66,351,981	35.21
Legal entities	122,080,124	64.79
Total	188,432,105	100.00

SHARES BY SIZE OF HOLDING, 31 DEC 2007

Shareholding			No. of shareholders	Percentage of share capital
1	–	500	6,738	0.8
501	–	1,000	3,748	1.82
1,001	–	5,000	4,705	6.7
5,001	–	10,000	1,182	5.3
10,001	–	15,000	322	2.3
15,001	–	20,000	303	3.1
20,001	–		669	80.0
Total, 28 Dec 2007			17,668	100.0

Source: VPC Analysis

ANALYSTS WHO TRACK THE ROTTNEROS SHARE

ABN AMRO	Linus Larsson
Enskilda Securities	Richard Nilsson
Handelsbanken Capital Markets Olof Grenmark
Swedbank	Claes Rasmuson
Carnegie	Cecilia Kellner

SHARE DATA1, 6)

		2007	2006	2005	2004	2003	2002
Shares, opening 2)	Amount	180,212	180,212	180,212	180,722	182,980	188,399
Repurchased treasury shares 2)	Amount	–	–	–	510	2,258	5,418
Shares, closing 2)	Amount	180,212	180,212	180,212	180,212	180,722	182,980
Average number of shares 2)	Amount	180,212	180,212	180,212	180,392	181,422	187,709
Operating profit or loss/share	SEK	-2.00	-0.04	-0.50	-0.64	0.67	0.31
Profit/loss after net financial items/share	SEK	-2.13	-0.13	-0.57	-0.67	0.64	0.46
Profit/loss after tax/share	SEK	-1.67	-0.05	-0.35	-0.50	0.47	0.29
Operating cash flow/share 3)	SEK	-0.56	0.19	-2.28	-0.41	-0.23	-0.13
Equity/share	SEK	5.83	7.78	8.45	9.28	9.50	9.33
Dividend 4)	SEK	0.00	0.10	0.10	0.20	0.30	0.30
Dividend/equity/share	%	–	1.3	1.2	2.2	3.2	3.2
Share price at end of period	SEK	2.31	6.55	6.80	7.55	8.55	7.45
Share price/equity per share	Multiple	0.4	0.8	0.8	0.8	0.9	0.8
P/E ratio/share	Multiple	Neg.	Neg.	Neg.	Neg.	18.3	25.3
Direct yield 5)	%	–	1.5	1.4	2.6	3.5	4.0

1) No programmes exist that result in dilution.

2) Number of shares is in thousands.

3) Cash flow after normal investments but excluding strategic investments.

4) Proposed dividend.

5) The calculation of direct yield is based on the share price at year-end.

6) The years 2002 and 2003 have not been restated as a resulted of the transition to IFRS. Adjustments would need to be made in respect of IAS 39.

Two-step action programme

Over the past five years Rottneros has implemented two cost-cutting and streamlining programmes, primarily in response to sharp increases in the cost of energy, but also due to rapidly increasing wood prices in the last two years. Among other things, the cost-cutting programmes of SEK 200 million have led to a reduction in the number of employees by about 140 during the five-year period. During the same period production increased by 94,000 tonnes, which means that productivity measured as tonnes of production per employee increased by 37%.

In 2003 the Rottneros Group initiated its first costcutting and streamlining programme, which resulted in staff cuts at Utansjö Mill as well as the closure of the Rockhammar Timber sawmill, which had about 30 employees. The programme was concluded in 2005 and resulted in annual savings of around SEK 100 million, of which SEK 32 million pertains to reduced staff costs as a result of a reduction in the number of employees by 49.

In the second half of 2005, after the commissioning of the new facility at Utansjö, significant productivity improvements were achieved in the Group, with a 25% increase in production on the same period in 2004, despite reduced staff levels.

Due to sharp price increases, primarily of electricity but also of oil price-related products and services such as transportation, fuel and chemicals, further savings were required in spite of the productivity increase.

In early 2006 Rottneros therefore initiated another SEK 100 million cost-cutting programme focusing on variable costs and further staff cuts. The target was to reduce the number of staff by about 70. The savings effect was about SEK 40 million for 2006 and SEK 100 million for 2007.

In August 2006 the programme was expanded to comprise the winding-up of all operations at Utansjö Mill. At the same time management and the Board started to explore the possibility of moving the new CTMP plant, which went into operation in spring 2005, to a country with lower electricity prices. This resulted in a plan to establish a presence in South Africa (see page 19).

The full effect of the cost-cutting programme will be felt in 2009 following the completion of staff cuts of 30 people at Rottneros Mill and commissioning of a new operations unit.

Improving electricity efficiency is an important aspect of the latest cost-cutting programme. This has resulted in savings of around SEK 20 million, or a 20% reduction in electricity consumption per tonne of production, while the self-sufficiency rate has increased from 18 to 25% since the start of 2006.

In addition to savings through restructuring measures and increased productivity, efforts are also under way to rationalise the use of capital with a view to reducing the amount of capital tied up and streamlining the purchasing organisation (see page 21).

Streamlining and productivity improvements must be continual to ensure a strong competitive position. The highest priority measures for Rottneros are the plans to set up a factory in South Africa and the establishment of SilviPak. In 2007 these forward-looking projects negatively affected Rottneros' earnings, as did the loss-making operation at Utansjö. The Group expects the SilviPak venture to start generating profits in 2009, and the South African factory is scheduled for completion in late 2009.

Risk management is a vital factor

Rottneros is one of the most cyclical listed companies. The company's opportunities and risks fall into two categories: operational and financial.

Operationally, the company employs a number of measures and strategies, such as focusing on certain niche areas and specific customer segments, in order to reduce the Group's dependence on the list price of market pulp and minimise fluctuations in profitability over the course of a business cycle. The establishment of a new business area, Rottneros Packaging, and the company's expansion into a new stage in the value chain is another step in the process of reducing the Group's one-sided dependence on fluctuations in the pulp market. As a complement to its operational strategy, the Group also has a strategy for dealing with financial risk.

Through more advanced management of this risk, Rottneros strives to stabilise the Group's volatile earnings trend and, above all, create a secure foundation from which to avoid unprofitable periods (see new accounting principles on page 51). The risks that have the greatest impact on consolidated earnings are associated with exchange rates, pulp prices and electricity. The price of wood is another significant factor affecting Rottneros' earnings.

The company takes an integrated approach to the various financial risks to which it is exposed and hedges these risks according to a portfolio concept.

Financial risk management is handled at Group level on the basis of guidelines defined in the Group's financial policy, by the Board of Directors and by the Finance Committee. Strategic exposure is a key issue for the Board, and the positions taken are reviewed at each regular Board meeting. At these meetings the Board seeks to determine whether the USD rate, pulp prices or electricity prices present attractive opportunities for strategic hedging. The Finance Committee monitors the financial policy and the risk mandates defined by the Board. 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 ECONOMY

Over the past 30 years pulp cycles have been very regular, with a boom occurring every five years. Prices have generally responded to shifts in the economy at an early stage of the global economic cycle. During the intervening years, i.e. the four years that are not the boom year, pulp prices have typically followed a highly cyclical trend determined by changes in demand and capacity. Mini-cycles occur during such years, with fluctuations in both demand and supply. Fluctuations in demand are mainly related to irregular purchasing behaviour in Asia/China. Since the last boom year of 2000, pulp prices have not followed their historical five-year cyclical pattern. Significant added capacity, primarily in South America, has led to excess capacity in the global market. In 2006 a better balance was achieved, primarily as a result of the removal of Canadian capacity through a series of plant closures, and little new capacity was added in 2007.

The price of pulp (NBSK) is set in USD but production costs are largely incurred in local currencies. The average USD exchange rate in 2007 was 8% lower than in 2006. There is a certain correlation between the NBSK price and the US dollar. If the USD is strong the NBSK price expressed in USD tends to be lower, while a low USD exchange rate tends to result in a higher NBSK price in USD. The NBSK price translated to SEK averaged SEK 5,368 per tonne in 2007, against SEK 4,977 per tonne in 2006. The price translated to SEK thus improved by 8% on 2006. In 2000, the last boom year, the pulp price was SEK 6,245. The price in local currency of short-fibre pulp increased marginally from SEK 4,711 to SEK 4,743 per tonne, an increase of SEK 32 per tonne.

CUSTOMERS

The Group has several major customers with a good geographical spread and is not dependent on any single country. The Group has about 280 customers in total, the ten largest of which account for just over 35% of turnover. Rottneros thus has a good commercial risk diversification. Credit insurance is used for all sales.

CAPITAL EXPENDITURE

Each year management assesses investment requirements for the next few years at all of the Group's mills. The results show that the Group has an average annual investment requirement of about SEK 150 million. This figure does not include expansion investments aimed at removing bottlenecks or improving quality, which have been prioritised in recent years. However, these are adapted to economic trends and cash flow. In general, Rottneros has a cautious and cost-effective investment strategy and is happy to purchase used equipment of good quality. Moreover, compared with the rest of the industry, Rottneros has a relatively low level of equity in fixed assets, which results in low depreciation and cost of capital. At year-end 2007 Rottneros had fixed assets with a book value of SEK 1,123 million. Dividing this by the total annual capacity of 730,000 tonnes results in a book value per tonne of about SEK 1,500. The replacement cost of the equivalent capacity is around 7–8 times the book value.

FINANCIAL OPPORTUNITIES AND RISKS PULP PRICE HEDGING (INCOME)

After making extensive use of pulp price hedges over the past five years, Rottneros has recently reduced its pulp price portfolio. The company intends, however, to continue hedging pulp prices if attractive levels can be obtained. Counterparty risk relating to the Group's financial hedging activity is in such cases very limited thanks to ISDA (netting) agreements with major banks.

CURRENCY EXPOSURE (PRIMARILY INCOME)

Transaction exposure

The largest portion of direct USD flows, estimated at 40% of the total inflow, is hedged. While Rottneros invoices in different currencies, the underlying currency for the price of paper pulp is normally USD. About 10% of sales is tied to eurodenominated contracts, and this portion has been hedged for 2008.

This means that the underlying exposure to USD is very high, but the direct inflow of USD only accounts for about 40% of sales. However, the impact of exchange rate fluctuation on indirect exposure is delayed, as the contracts usually have a term of 1–3 months. Lower or higher prices in local currencies as a result of changes in the USD exchange rate do not affect results until some time later. Moreover, the company has pulp delivery contracts running over periods of several years. Since it was first introduced, Rottneros' financial policy has had a total positive impact on earnings of around SEK 450 million. In 2007 the result of hedging activities was negative, SEK -69 million (100).

Balance exposure

The selling price for pulp is often based on the actual pulp price listed in USD and translated into the invoicing currency. Invoicing is done largely in USD, EUR and SEK. The balance exposure from EUR and USD-denominated accounts receivable is hedged and balanced through loans raised in the same currency. See the section "Liquidity risk and refinancing."

Translation exposure

The company has decided not to hedge the equity of foreign subsidiaries. The Group's underlying USD exposure on 31 December 2007 is shown in the table on the next page. Counterparty risk relating to currency hedging refers to major banks and is linked exclusively to currency futures.

ELECTRICIT Y DERIVATIVES

As of 2004, all of Rottneros' Swedish mills purchase physical electricity directly on the Nord Pool electricity exchange. The electricity prices are quoted in EUR. As part of its financial hedging activities, Rottneros has commissioned two risk managers to manage one part each of the company's electricity hedging portfolio.

Prior to the dramatic rise in electricity prices at the end of 2002, the Board decided to hedge virtually all of the Group's electricity consumption for the following three years, 2003 to 2005. For 2007, 89% of consumption was hedged at SEK 0.31 per kWh. For 2008, 20% has been hedged at SEK 0.27 per kWh, and for 2009, 13% has been hedged at SEK 0.25 per kWh. Counterparty risk relating to financial hedging is very modest thanks to ISDA agreements with Vattenfall and Nord Pool.

MARKET VALUE OF FINANCIAL INSTRUMENTS

The market value of all financial instruments as at 31 December 2007 is shown in Note 4 on page 55. These are the values that have been recognised in the accounts, in accordance with IFRS and IAS 39.

INTEREST R ATES

The Group's borrowing is relatively small, and its exposure to changes in interest rates is therefore limited.

LIQUIDIT Y RISK AND REFINANCING

The Group manages liquidity risk by retaining sufficient liquid assets and short-term investments in liquid markets, securing access to finance through credit facilities and ensuring that it is able to close positions in the market. It also makes regular liquidity forecasts. The Group has a syndicated loan of USD 85.8 million (SEK 550m) that was raised in 2003. The loan is structured in two tranches with maturities of five and seven years, and is intended to bridge any temporary weakness in the economy and enable attractive acquisitions to be made. At yearend, SEK 403 million had been drawn, with the following breakdown by currency: USD 13.5 million, EUR 16.1 million and SEK 164 million. In autumn 2004 the company also took out an eightyear SEK 150 million debenture from the Nordic Investment Bank to finance the Utansjö CTMP line.

The table on page 36 shows an analysis of the Group's financial liabilities that will be settled net, broken down by remaining maturities as at the

SENSITIVITY ANALYSIS 2007

	Effect on annual result after:
			Net financial items		Taxes (SEKm)
Type of risk	Change	2007	2006	2007	2006	Sensitivity
Pulp price	USD 50/tonne	240	260	173	187	High
USD	SEK 0.50/USD	230	160	166	115	High
Electricity price SEK 0.10/kWh		80	90	58	65	High
EUR	SEK 0.50/EUR	60	40	43	29	Medium
Wood price	SEK 10/m3f	20	20	14	14	Medium
Interest risk	1 % point	6	4	4	3	Low
Refinancing						Refinancing in progress
Credit risk						10% excess

EFFECTS OF HEDGING ON	EARNIN		GS IN 2006 AND 2007
SEK 000s			Quarter 1 Quarter 2 Quarter 3 Quarter 4		Total
2006
Currency futures	5,711	9,241	7,068	14,094	36,114
Pulp price hedging	0	0	0	-8,226	-8,226
Electricity price hedging	15,572	14,450	28,647	13,855	72,524

Total	21,283	23,691	35,715		19,723 100,412
2007
Currency futures	5,988	2,307	6,011		24,960 39,266
Pulp price hedging	-12,184	-15,204	-15,633	-19,935 -62,956
Electricity price hedging		-12,683 -19,905 -22,683			10,177 -45,094

CURR ENC	Y HEDGING AS OF 31 DECEMBER 2007
Year	Percentage of annual exposure, %	Amount in USDm	Average SEK/USD rate
2008	4	15	6.57
Year	Percentage of annual exposure, %	Amount in EURm	Average SEK/EUR rate
2008	100	25	9.28

AVERAGE EXCHANGE RATE PER QUARTER

0 200 400 600 800 1,000 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 NBSK prices in Europe C.I.F. per tonne quarterly 1963–2007

HISTORICAL FIVE-YEAR CYCLES IN THE PULP INDUSTRY

USD

PROFIT/LOSS AFTER NET FINANCIAL ITEMS PER QUARTER, SEKm

MAR KET VAlUE (SEKm) DECEMBER 2007
Hedge	Hedged volume	Hedge level	Market value	Reference – spot rate 31 December 2007
Currency USD, future	USD 15m	SEK 6.57/USD	2	SEK 6.43/USD
Currency EUR, future	EUR 25m	SEK 9.28/EUR	-4	SEK 9.46/EUR
Pulp price	96,000 tonnes	USD 637 (PIX)	-126	USD 869/SEK 6.43/USD
Electricity	140,400 MWh	SEK 0.264/kWh	31	SEK 0.398/kWh
Total market value			-97

MAR KET VALUE (SEKm) DECEMBER 2006
Hedge	Hedged volume	Hedge level	Market value	Reference – spot rate 31 December 2006
Currency USD, future	USD 22m	SEK 7.31/USD	11	SEK 6.87/USD
Currency EUR, future	EUR 44m	SEK 9.22/EUR	9	SEK 9.04/EUR
Pulp price	156,000 tonnes	USD 634 (PIX)	-79	USD 730/SEK 6.87/USD
Electricity	753,700 MWh	SEK 0.313/kWh	22	SEK 0.217/kWh
Total market value			-37

balance sheet date. The amounts stated in the table are the contractual, undiscounted cash flows. Amounts maturing within 12 months are the same as the book amounts, as the discount effect is insignificant.

MANAGEMENT OF CAPITAL RISK

The Group's objectives in respect of capital structure is to secure the Group's ability 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 as a means of keeping down the cost of capital.

To maintain or adjust its capital structure, the Group may decide to change the dividends 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 assesses its capital on the basis of the debt/equity ratio. This key ratio is defined as interest-bearing liabilities divided by shareholders' equity. In 2007 the Group's strategy, which was unchanged compared with 2006, was to maintain a debt/equity ratio of no more than 1.0. The debt/ equity ratio as at 31 December 2007 and 2006 is shown in the table below.

CREDIT RISK

Credit risk is managed at Group level. Credit risk arises 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 10% excess. In its decision to provide credit insurance, the insurance company takes into account factors such as the concentration of credit risks. This ensures a good risk diversification. The maximum credit risk on outstanding accounts receivable is SEK 40 million (10% excess + any uninsured receivables). As at 31 December, all accounts receivable were insured. Historically, the Group has incurred only minor credit losses.

INSUR ANCE

Rottneros insures all its mills against property damage and business interruption. The excess varies and is largely covered by a commitment in a captive reinsurance company (self-insurance). The captive company's actuarial reserves are reviewed at the end of the year, when it is possible to assess actual damage.

OTHER OPPORTUNITIES AND RISKS POLITICAL RISKS

The Group and its customers currently operate in countries that are regarded as politically stable. Exposure to political risk is therefore limited.

ENVIRONMENT

Rottneros' management has developed an environmental plan that takes account of all known changes in Swedish and European environmental legislation. See the environment section on pages 26–29.

DEBT/EQUITY RATIO
As at 31 December 2007	2007	2006
Long-term interest-bearing liabilities	173	177
Current interest-bearing liabilities	452	304
Total interest-bearing liabilities	625	481
Total equity	1,050	1,403
Debt/equity ratio	0.6	0.3

THE GRO UP'S FINANCIAL LIA BILITI ES
As at 31 December 2007	< 1 year		2 years 3–5 years	> 5 years
Bank loans	448		150
Derivative instruments – inflow	650	167
Derivative instruments – outflow	718	212
Accounts payable and other liabilities	283	4	13	6
Interest	17	8	23
As at 31 December 2006	< 1 year		2 years 3–5 years	> 5 years
Bank loans	300			150
Derivative instruments – inflow	1,026	299	172
Derivative instruments – outflow	1,075	326	192
Accounts payable and other liabilities	229	4	13	10
Interest	14	6	17	5

CONTENTS – FINANCIAL REPORTING

38	Directors' report and financial review
43	Income statement – Group
44	Balance sheet – Group
45	Statement of changes in shareholders' equity – Group
46	Cash flow statement – Group
47	Income statement – Parent company
48	Balance sheet – Parent company
49	Statement of changes in shareholders' equity – Parent company
50	Cash flow statement – Parent company
51	Supplementary information and notes
54	Note 1 Distribution of net turnover and operating income
	Note 2 Other income
	Note 3 Raw materials and consumables
55	Note 4 Financial instruments
	Note 5 Personnel
56	Note 6 Remuneration of senior executives
	Note 7 Audit expenses
	Note 8 Intra-Group buying and selling transactions
57	Note 9 Financial income
	Note 10 Financial expense
	Note 11 Tax on income for the year
58	Note 12 Intangible fixed assets
59	Note 13 Tangible fixed assets
60	Note 14 Interest-bearing liabilities
	Note 15 Operating leases
61	Note 16 Financial fixed assets
	Note 17 Inventories
62	Note 18 Accounts receivable
	Note 19 Other current receivables
	Note 20 Cash and cash equivalents
	Note 21 Shareholders' equity
63	Note 22 Provisions
	Note 23 Approved credit facilities
	Note 24 Other non-interest-bearing liabilities
	Note 25 Other information
64	Audit report

Directors' report

• After a write-down of the book value of fixed assets at Utansjö of SEK 284 million, the loss after net financial items for 2007 was SEK -384 (-23) million.
• Higher wood costs reduced earnings by SEK 182 million compared with 2006.
• After completing its main study, Rottneros has decided to go ahead with plans to establish a presence in South Africa, and the Board has asked the CEO to conclude negotiations and sign the necessary agreements, primarily partnership agreements. This will be followed by final negotiations on financing for the project.
• A provision of SEK 10 million was made for the implementation of staff cuts to reduce the headcount by about 30 at Rottneros Mill. To make this staff reduction possible, Rottneros will be investing about SEK 20 million in a new control room and shipment line.
• The Board has taken a decision to invest in a new factory for the production of SilviPak, Rottneros' packaging concept for chilled and frozen food. The factory will be built in proximity to the pulp mill in Miranda, Spain. The investment amounts to SEK 50 million and the factory is expected to go into operation in the second quarter of 2008.
• On 31 January 2008 Rottneros' CEO, Lars Blecko, stepped down and was succeeded by Ole Terland.
• The company will not be providing a forecast for the full year 2008.
• On 9 January 2008 it was announced that Rottneros' Board of Directors has asked the Group's CEO to conclude negotiations with the relevant trade unions and implement the previously agreed closure of Utansjö Mill. The intention is for production to cease at the mill in the second quarter of 2008.

The Board of Directors and President of Rottneros AB hereby present the annual accounts and consolidated accounts for the 2007 financial year.

PRODUCTION AND DELIVERIES

The Group's five mills in Rottneros, Rockhammar, Utansjö, Vallvik and Miranda in Spain have a combined production capacity of just over 700,000 tonnes per year. Total production in 2007 was 730,100 (698,900) tonnes, an increase of 4%. The total figure is a production record for Rottneros and several of the mills beat their production records in 2007. However, production was affected by a shortage of wood, primarily in the first quarter. Annual maintenance shutdowns were implemented in Vallvik and Rottneros in the third quarter and in Miranda and Utansjö in the fourth quarter. All costs relating to maintenance shutdowns are recognised in the periods in which the shutdowns took place.

Deliveries from the mills in 2007 totalled 714,800 (699,500) tonnes, up 15,300 tonnes from 2006.

INVOICED SALES AND RESULTS

The Group generated a net turnover of SEK 2,927 million (2,690). As Rottneros Packaging is still in a build-up phase, results for this business area are not reported separately.

Sales for the period were SEK 237 million higher than the previous year, mainly due to: increased delivery levels, SEK 59 million; a weaker US dollar, SEK -264 million; higher USD pulp prices, SEK 439 million; and other changes, SEK 3 million. The average price of long-fibre sulphate pulp (NBSK) in USD increased from USD 675 to USD 794, while the average price of NBSK pulp expressed in SEK increased from SEK 4,977 to SEK 5,368 per tonne, an increase of 8%. The average price in USD of eucalyptus pulp (BEK) increased from USD 640 to USD 702 per tonne, or by 10%, while the corresponding average price converted into SEK increased from SEK 4,711 to SEK 4,743 per tonne, a marginal increase of just under 1%.

The market developed well in 2007, with strong demand and rising prices in dollars. However, the USD price increases were to a large extent neutralised by the decline in the value of the US dollar, and the price increases in SEK or EUR were not sufficient to offset the increase in the cost of raw materials. Significant productivity improvements were achieved, resulting in increased production. The ongoing cost-cutting programme reached the target cost reduction of SEK 100 million.

The result includes a write-down of the book value of fixed assets at Utansjö Mill of SEK 284 million. The remaining book value of the fixed assets at

Utansjö is the net realisable value, which is SEK 100 million after the write-down.

The largest share of the loss for the year is attributable to the Group's operations in Utansjö. The operating loss after financial items in 2007 for Utansjö Mill was SEK -75 million, not including the write-down of fixed assets.

Rottneros is also running a number of important projects for the future, including the plans to establish a production facility in South Africa and a new food packaging venture under the SilviPak brand in the Rottneros Packaging business area. The overall charge for these projects in the 2007 income statement is SEK 28 million. The projects constitute important steps in Rottneros' long-term efforts to turn around its negative earnings trend and build a profitable company. It is expected that the new ventures will be able to make positive contributions to earnings in 2009.

The price of electricity on the Nord Pool exchange, which increased dramatically in 2006, averaged SEK 0.28 per kWh in 2007. For 2008 and future periods, electricity is currently trading at prices around SEK 0.45 per kWh on Nord Pool.

The supply of wood was disrupted during the year by a number of factors, pushing the price of wood sharply higher. The poor supply of wood also resulted in an increase in transportation costs due to the longer distances covered. All in all, wood costs were SEK 182 million higher than in the same period the previous year.

The Group posts an operating loss during the period of SEK -360 million (-7), including a SEK 284 million write-down of fixed assets at Utansjö.

The costs having the biggest impact on annual earnings in 2008, as compared with previous years, were the SEK 284 million write-down of fixed assets, costs relating to Rottneros' development projects and increased costs for wood of SEK 182 million. Electricity costs, including the effect of electricity hedges, fell by SEK 20 million compared with 2006. The result for 2006 included a restructuring provision of SEK 27 million. The 2007 results include a provision of SEK 10 million for restructuring measures at Rottneros Mill involving cutting the headcount by about 30. Hedging transactions in 2007 produced a result that was SEK 170 million lower than the previous year, SEK -69 million (101).

The Group reported a loss after net financial items of SEK -384 million (-23), which includes a net financial expense of SEK 24 million (-16). The loss after tax was SEK -301 million (-8). Earnings per share after tax were SEK -1.67 (-0.05) and cash flow per share was SEK -0.56 (0.19).

Parent company

The loss after financial items for 2007 in the parent company was SEK -377 million (122). The parent company's results include a write-down of shares in subsidiaries of SEK 265 million. All pulp invoicing in the Group has been centralised to the parent company. The parent company acts as a distributor for all the mills, for which it is paid sales commissions at normal rates. The notes relating to the Group sales therefore also apply to sales in the parent company. This includes a loss of SEK -69 million (101) relating to hedging transactions for the entire Group. The parent company's operations include Rottneros Packaging. As the business area is still in a start-up phase, it is cost burden. Costs relating to the South African project are also included in the parent company income statement.

COST-CUT TING PROGR AMME

At the beginning of February 2006 the company announced its decision to implement a cost-cutting programme to save SEK 100 million. The programme specifically targets variable costs and will involve further staff cuts. The target is to reduce the number of staff by about 70. The programme was drawn up in the first quarter of 2006 and produced savings of about SEK 40 million in 2006. In 2007 savings were on target at SEK 100 million.

As part of the cost-cutting programme, the Board has decided to implement staff cuts at Rottneros Mill to reduce the head count by about 30. To make this staff reduction possible, an investment of around SEK 20 million in a new control room and shipment line will be required.

NEW BUSINESS AREA – ROT TNEROS PACK AGING

In 2006 Rottneros started producing packaging made from paper pulp for chilled and frozen ready meals under the SilviPak brand. This venture, which is run as a new business area called Rottneros Packaging, is expected to account for around 15% of Group sales within a five-year period and capture about 5% of the European market. As the business is still in a build-up phase, results for this business area are not reported separately.

The Board of Directors has decided to increase SilviPak's production capacity by investing in a new factory for the production of packaging adjacent to the pulp mill in Miranda, Spain. This is an investment of SEK 50 million and the factory is expected to go into operation in the second quarter of 2008.

RESEARCH AND DEVELOPMENT

Development work is an integrated aspect of production and related to measures to improve processes, the costs of which are expensed as incurred.

RISK MANAGEMENT

Operationally, the company employs a number of measures and strategies, such as focusing on certain niches and specific customer segments, in order to reduce the Group's dependency on the list price of market pulp and minimise fluctuations in profitability over the course of a business cycle. The establishment of a new business area, Rottneros Packaging, and the company's expansion into a new stage in the value chain is another step in the process of reducing the Group's one-sided dependence on fluctuations in the pulp market. As a complement to its operational strategy, the Group also has a strategy for dealing with financial risk. By employing advanced methods of managing financial risks, Rottneros seeks to stabilise the Group's volatile earnings trend and, above all, create a stable foundation to prevent lossmaking periods. The risks that have the greatest impact on consolidated earnings are associated with exchange rates, pulp prices and electricity. The price of wood is another significant factor affecting Rottneros' earnings.

USD

The largest portion of direct flows in USD, which is estimated at 40% of the total inflow, is hedged. Although Rottneros invoices in different currencies, the underlying currency for pulp prices is largely USD. This means that the underlying exposure to USD is very high, but the direct inflow of USD only corresponds to around 40% of sales. That portion of sales which is contractually denominated in EUR, about 10%, has been hedged for 2008.

The average USD rate in 2007 was 8% lower than in 2006, averaging 6.76, against 7.37 in 2006. The lower average USD rate against SEK during the period had an impact on turnover of SEK 264 million, compared with 2006. Meanwhile, the price of NBSK pulp continued to rise, averaging USD 794 in 2007, against USD 675 the previous year. All in all, this resulted in an average improvement in the NBSK price in SEK of about 8% for 2007 compared with 2006.

At the end of December currency hedging in the form of forward contracts for USD 15 million had been concluded, at an average exchange rate of SEK 6.57 per USD. The contracts refer to January and February 2008. Hedging contracts for EUR 25 million had been concluded at an average rate of SEK 9.28/EUR for deliveries in 2008.

Pulp price

The price of pulp (NBSK) is set in USD, while production costs are largely incurred in local currencies. Pulp price forward contracts have been signed for two-year and three-year periods for an original total volume of 168,000 tonnes maturing from the beginning of the fourth quarter of 2006 and thereafter. The hedges represent 5,000 tonnes per month in 2008 and 4,000 tonnes per month in 2009 and expire at the end of September 2009. The level of hedging is USD 633 per tonne.

Electricity

Rottneros was one of the first forestry companies to start employing long-term contracts to fix electricity prices at attractive levels. In 2002 Rottneros hedged its entire electricity consumption up to 2005 and thereafter continued to do so at progressively lower levels until 2009. For 2007 around 90% of the Group's electricity consumption had been hedged at an average price of around SEK 0.32. For 2008 about 20% has been hedged at SEK 0.27 per kWh, and for 2009 13% has been hedged at SEK 0.25 per kWh. The average price of electricity for 2007 on the Nord Pool exchange was around SEK 0.28 per kWh, against SEK 0.45 per kWh for the full year 2006.

ACCOUNTING PRINCIPLES

The consolidated accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS), as adopted by the EU, while the parent company's accounts have been prepared in accordance with recommendation RR 32 of the Swedish Financial Accounting Standards Council. The accounting principles are the same as those used in preparing the most recent annual accounts. For a more detailed description, see under Accounting principles on page 51.

SALE OF OWN SHARES

The 2007 Annual General Meeting authorised the Board, for the period until the next AGM, to take decisions regarding the transfer of shares in the company. No such transfer has taken place during the year.

CAPITAL INVESTMENTS AND FINANCIAL POSITION

The Group's investments in fixed assets in 2007 were SEK 163 million (113).

The largest single investment related to a turbine at Vallvik Mill. The investment cost about SEK 90 million. The new turbine, which will raise the level of self-sufficiency in electricity at Vallvik Mill from around 70% to almost 100%, was installed in connection with the maintenance shutdown in September 2007. As a result, the amount of electricity purchased externally will be reduced by almost 50 GWh per year.

The Group's cash and cash equivalents at yearend were SEK 121 million, against SEK 122 million at the end of 2006. As at 31 December 2007, the company had interest-bearing liabilities totalling SEK 625 million (481) and net borrowing of SEK 504 million (359). Approved but unutilised lines of credit totalled SEK 196 million. The equity/assets ratio was 45%compared to 57% at the beginning of the year. Shareholders' equity per share was SEK 5.83 (7.78).

CASH FLOW

Cash flow from operations before investments was SEK 63 million (149). The figure includes cash flow from financial hedging of SEK -64 million (105). The cash flow after investments was SEK -100 million (38). Investments were financed by cash flow from operations.

AVER AGE NUMBER OF EMPLOYEES

The average number of employees during the reporting period was 718 (754).

SUBSEQUENT EVENTS

On 9 January it was announced that Rottneros' Board of Directors has asked the Group's CEO to conclude negotiations with the relevant trade unions and implement the previously agreed closure of Utansjö Mill. The intention is for production to cease at the mill in the second quarter of 2008. The decision to close Utansjö Mill, which will affect 140 employees, was taken back in August 2006, when co-determination negotiations with trade union representatives were initiated. In March 2007 the company announced its intention to continue operations at Utansjö throughout 2008.

The cost of winding up operations at Utansjö is estimated at SEK 90 million, which will be charged to earnings in the first quarter of 2008 in the form of a provision. The closure of the mill will have a positive net cash flow effect on the Rottneros Group through the release of working capital. In March 2007 Rottneros and NCT, a South African forestry company, signed a letter of intent to explore the possibility of building a jointly-owned mill for the production of CTMP mechanical pulp in South Africa. The fixed assets at Utansjö, which include a newly invested pulp line for production of CTMP pulp, are intended to be used as a basis for the new operation in South Africa.

After completing its main study, Rottneros has decided to go ahead with plans to establish a presence in South Africa, and the Board has asked the CEO to conclude negotiations and sign the necessary agreements, primarily partnership agreements. This will be followed by final negotiations on financing for project. The electricity supply in South Africa has been high on the agenda in recent months. The issue, which is central to the project, must be resolved before any decision to invest can be taken.

Under the main structure of the agreement, Rottneros undertakes to complete the construction of a production plant with a capacity of 165,000 tonnes for the production of CTMP pulp from eucalyptus wood. The CTMP facility in Utansjö is intended to serve as a foundation for the new plant and the investment will be project-financed through the jointly owned company. The new plant may go into operation at the end of 2009. The pulp will primarily be exported to Southeast Asia and Europe and will be sold through Rottneros' marketing organisation. NCT will supply the wood. Rottneros will receive an associate company share in a company that is well placed to achieve good profitability and constitutes a strategic investment.

OUTLOOK FOR 2008

During the fourth quarter of 2007 price increases were implemented. The price of long-fibre chemical pulp (NBSK) has been raised to USD 880/tonne and the price of short-fibre chemical pulp to USD 780/ tonne. The effect of the USD price trend on the SEK pulp price has, however, been offset by the weakening USD rate, and overall the price increases in 2007 have not been sufficient to compensate for the increased raw material costs. In respect of raw materials and input goods, the price of wood is expected to remain at a high level while the price of electricity increased at the start of 2008.

The company expects the balance in the pulp market to remain favourable. The supply of shortfibre pulp will increase in 2008 through new production capacity, primarily in South America. At the same time closures announced in 2007 and the start of 2008 will be implemented.

The company will not be providing a forecast for the full year 2008.

DIVIDEND FOR 2007

The Board of Directors will propose to the Annual General Meeting on 24 April 2008 that no dividend be paid.

REMUNER ATION OF SENIOR EXECUTIVES

The Board proposes that the Annual General Meeting approves the following guidelines with respect to remuneration of the President and other senior executives. The proposal is identical to the guidelines adopted at the 2007 AGM. At present, other senior executives refers to the 11 people who, together with the President, make up Group management. These individuals are presented on the company's website and on pages 70–71 of the 2007 Annual Report.

The compensation paid to the President and other senior executives consists of a basic salary, variable pay, 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 basic salary and variable pay are related to each executive's responsibilities and authority. The variable component is based on outcomes in relation to defined and measurable targets and is subject to a ceiling.

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 annual remuneration for two years at a rate corresponding to the salary paid out during the period of notice.

Pension benefits are either defined benefit or defined contribution plans or a combination thereof. The executives are entitled to receive pension from the age of 62.

All matters relating to the remuneration of company management are handled by a compensation committee, except in respect of the President, whose remuneration is decided by the Board of Directors. If the company in special cases assigns an individual Board member to a committee or tasks over and above his/her regular Board duties, the Board determines the level of compensation for this assignment. Such compensation must be reasonable and according to market rates.

The Board has the right to deviate from these guidelines if, in an individual case, there are specific

PROPOSED APPROPRIATION OF THE PARENT COMPANY'S PROFITS

At the disposal of the Annual General Meeting:
Retained earnings	618,501,610

SEK	296,309,865
Net loss for the year	-355,311,745
Group contributions received	33,120,000

The consolidated financial statements have been prepared in accordance with the accounting standards referred to in Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards and give a true and fair view reasons for this. It is intended that a special capped performance-based bonus linked to the South African project be paid to the President and, subject to a decision by the Compensation Committee, to other senior executives involved in the project.

PROPOSAL FOR HANDLING OF HOLDINGS OF OWN SHARES

The Board of Directors will propose that the Annual General Meeting resolves to extend the Board's mandate to make decisions regarding the transfer of treasury shares to finance strategic investments or acquisitions, and that this mandate be in place until the next AGM in 2009. Details of the proposal will be announced when they have been established by the Board.

SEK	296,309,865
To be carried forward	296,309,865
share to be paid to shareholders
A dividend of SEK 0.00 per
The Board of Directors proposes:

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

Upplands Väsby, 22 February 2008

Rottneros AB (publ.), corporate identity number 556013-5872

Bengt Nordin Chairman of the Board

Board member Board member Board member

Ingrid Lindquist Hans-Åke Nordstrand Kjell Ormegard Board member Board member Board member

Per Eiritz Johan Holmgren Rune Ingvarsson

Jan Viper Ingrid Westin Wallinder Board member Board member

Ole Terland President and Chief Executive Officer

Our audit report was submitted on 3 March 2008

Öhrlings PricewaterhouseCoopers AB

Magnus Brändström Chief Auditor

Income statement – Group

1 January – 31 December, Amounts in SEKm	Note	2007	2006
Net turnover	1, 8	2,927	2,690
Change in inventories, finished goods		84	-4
Other income	2	57	97
		3,068	2,783

Operating costs
Raw materials and consumables	3, 4	-1,859	-1,573
Other costs	7, 8	-718	-643
Personnel costs	5, 6	-415	-419
Depreciation/amortisation and write-downs of intangible and tangible fixed assets	12, 13	-436	-155
Operating income		-360	-7
Financial items
Financial income	9	9	7
Financial expense	10	-33	-23
Total financial items		-24	-16
Income before tax		-384	-23
Tax on income for the year	11	83	15

Net profit for the year		-301	-8
Earnings per share 1)		-1.67	-0.05
Average number of shares, thousands		180,212	180,212

1) No programmes exist that result in dilution.

Balance statement – Group

1 January – 31 December, Amounts in SEKm	Note	2007	2006
Assets
Fixed assets
Intangible fixed assets	12	22	36
Tangible fixed assets	13, 14	1,015	1,284
Derivative instruments	4	11	24
Deferred tax asset	11, 22	74	18
Other financial fixed assets	16	1	1
Total fixed assets		1,123	1,363
Current assets
Inventories etc.	17	493	397
Accounts receivable	18	411	402
Other current receivables	19	120	137
Tax asset		8	6
Derivative instruments	4	33	25
Cash and cash equivalents	20	121	122
Total current assets		1,186	1,089
Total assets		2,309	2,452

Shareholders' equity and liabilities
Shareholders' equity	21
Share capital		94	94
Other injected capital		387	387
Buy-back of treasury shares		-69	-69
Other reserves		-39	-5
Retained earnings		677	996
Total shareholders' equity		1,050	1,403
Long-term liabilities
Interest-bearing liabilities	14	173	177
Non-interest-bearing liabilities		2	1
Derivative instruments	4	47	37
Deferred tax liabilities	11, 22	–	47
Total long-term liabilities		222	262
Current liabilities
Interest-bearing liabilities	14	452	304
Accounts payable		279	225
Tax liability		–	–
Other non-interest-bearing liabilities	24	212	207
Derivatives	4	83	50
Other provisions	22	11	1
Total current liabilities		1,037	787
Total shareholders' equity and liabilities		2,309	2,452
Pledged assets		None	None
Contingent liabilities		None	None

Statement of changes in shareholders' equity – Group

	Other reserves
			Buy			Retained	Total
		Other	back of		Trans	earnings	share
	Share	injected	treasury	Hedging	lation dif	incl. profit	holders'
Amounts in SEKm	capital	capital	shares	reserve	ference	for the year	equity
Opening balance, 1 January 2006	94	387	-69	56	33	1,022	1,523
Cash-flow hedging, income before tax				-114			-114
Cash-flow hedging, tax effect				32			32
Exchange rate differences					-12		-12
Total transactions recognised directly in equity	–	–	–	-82	-12	–	-94

Profit/loss for the year						-8	-8
Total recognised income and expense						-8	-8

Dividend for 2005						-18	-18
Closing balance, 31 December 2006	94	387	-69	-26	21	996	1,403

	Other reserves
			Buy			Retained	Total
	Share	Other injected	back of treasury	Hedging	Trans lation dif	earnings incl. profit	share holders'
Amounts in SEKm	capital	capital	shares	reserve	ference	for the year	equity

Opening balance, 1 January 2007	94	387	-69	-26	21	996	1,403
Cash-flow hedging, income before tax				-61			-61
Cash-flow hedging, tax effect				17			17
Exchange rate differences					10		10
Total transactions recognised directly in equity	–	–	–	-44	10	–	-34
Profit/loss for the year						-301	-301
Total recognised income and expense						-301	-301

Dividend for 2006						-18	-18
Closing balance, 31 December 2007	94	387	-69	-70	31	677	1,050

See also Note 21, Shareholders' equity, on page 62.

Cash flow statement – Group

1 January – 31 December, Amounts in SEKm Note	2007	2006
Current operations
Operating income	-360	-7

Adjustment for items not included in cash flow
Depreciation/amortisation/write-downs	436	155
Gains/losses on sale of fixed assets	16	3
	92	151
Interest received and similar income items	6	2
Interest paid and similar income items	-34	-20
Income tax received/paid	-5	-3
Cash flow from current operations before changes in working capital	59	130
Changes in working capital
Change in inventories	-94	30
Change in current receivables	6	46
Change in current liabilities (non-interest-bearing)	92	-57
Total change in working capital	4	19
Cash flow from current operations	63	149

Investing activities
Acquisition of intangible fixed assets	-5	-18
Acquisition of tangible fixed assets	-157	-95
Acquisition of financial fixed assets	-1	–
Change in long-term receivables	–	2
Cash flow from investing activities	-163	-111

Financing activities
Net borrowing	119	–
Amortisation of debt	-4	-18
Dividend paid	-18	-18
Cash flow from financing activities	97	-36

Cash flow for the year	-3	2

Cash and cash equivalents at beginning of year	122	125
Translation difference in cash and cash equivalents	2	-5
Cash and cash equivalents at year-end 20	121	122

Undrawn credit facilities	196	579
Available liquidity at year-end	317	701

Income statement – Parent company

1 January – 31 December, Amounts in SEKm	Note	2007	2006
Net turnover	1, 8	2,905	2,689
Change in inventories, finished goods		–	–
Other income	2	104	140
		3,009	2,829
Operating costs
Raw materials and consumables	3	-2,922	-2,596
Other costs	7, 8	-169	-139
Personnel costs	5, 6	-36	-30
Depreciation/amortisation and write-downs of tangible and intangible fixed assets	12, 13	-6	-5
Operating income		-124	59
Financial items
Financial income	9	45	125
Financial expense	10	-298	-62
Total financial items		-253	63
Income after financial items		-377	122
Year-end appropriations		–	–
Income before tax		-377	122
Tax on income for the year	11	22	-9
Profit/loss for the year		-355	113

Balance sheet – Parent company

As at 31 December, Amounts in SEKm	Note	2007	2006

Assets
Fixed assets
Intangible fixed assets	12	13	15
Tangible fixed assets	13, 14	19	15
Financial fixed assets	16	520	510
Total fixed assets		552	540
Current assets
Inventories etc.	17	2	1
Accounts receivable	18	393	351
Other current receivables	19	952	784
Cash and cash equivalents	20	21	35
Total current assets		1,368	1,171

Total assets		1,920	1,711
Shareholders' equity and liabilities Shareholders' equity	21
Share capital		94	94
Restricted equity		365	365
Retained earnings		651	522
Profit/loss for the year		-355	113
Total shareholders' equity		755	1,094
Long-term liabilities
Interest-bearing liabilities	14	150	150
Total long-term liabilities		150	150

Current liabilities
Interest-bearing liabilities	14	460	308
Accounts payable		20	13
Other non-interest-bearing liabilities	24	535	146
Total current liabilities		1,015	467
Total shareholders' equity and liabilities		1,920	1,711

Pledged assets		None	None
Contingent liabilities		2	2

Statement of changes in shareholders' equity – Parent company

Amounts in SEKm	Share capital	Restricted equity	Non-restric ted equity	Total
2006
Opening balance, 1 January 2006	94	365	577	1,036
Dividend			-18	-18
Group contributions provided			-51	-51
Less tax on Group contributions			14	14
Profit/loss for the year			113	113
Closing balance, 31 December 2006	94	365	635	1,094

Share capital	Restricted equity	Non-restric ted equity	Total

94	365	635	1,094
		-18	-18
		46	46
		-12	-12
		-355	-355
94	365	296	755

See also Note 21, Shareholders' equity, on page 62.

Cash flow statement – Parent company

1 January – 31 December, Amounts in SEKm	Note 2007	2006
Current operations
Operating income	-124	59

Adjustment for items not included in cash flow
Depreciation/amortisation/write-downs	6	5
Anticipated dividend from subsidiaries	–	–
Interest received and similar income items	-118 40	64 123
Interest paid and similar income items	-36	-19
Income tax received/paid	1	-1
Cash flow from current operations before changes in working capital	-113	167

Changes in working capital
Change in inventories	-1	-1
Change in current receivables	-269	-105
Change in current liabilities (non-interest-bearing)	277	-46
Total change in working capital	7	-152
Cash flow from current operations	-106	15

Investing activities
Acquisition of intangible fixed assets	-2	-5
Acquisition of tangible fixed assets	-5	-2
Acquisition of financial fixed assets	-1	-
Cash flow from investing activities	-8	-7

Financing activities
Net borrowing	118	–
Repayment of loans	–	-15
Dividend paid	-18	-18
Cash flow from financing activities	100	-33

Cash flow for the year	-14	-25

Cash and cash equivalents at beginning of year Translation difference in cash and cash equivalents	35	60 –

Cash and cash equivalents at year-end	20 21	35
Undrawn credit facilities	190	557
Available liquidity at year-end	211	592

Supplementary information and notes

ACCOUNTING AND VALUATION PRINCIPLES

Basis of report preparation

This report has been prepared in accordance with the Swedish Annual Accounts Act, the International Financial Reporting Standards (IFRS) and the interpretation statements issued by the International Financial Reporting Interpretations Committee (IFRIC), which have been adopted by the European Union. The Swedish Financial Accounting Standards Council's recommendation RR 30 on supplementary accounting rules for groups has also been applied.

Preparation of the consolidated financial reports

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

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

The parent company applies the same accounting principles with the exceptions and amendments that are stipulated by the Swedish Financial Accounting Standards Council's recommendation RR 32 Accounting for Legal Entities. The parent company's accounting principles are described in the section entitled "Parent company's accounting principles."

New accounting principles

Amendments to published standards that take effect in 2007

• IFRS 7, Financial Instruments: Disclosures, and the amendment in IAS 1, Presentation of Financial Statements – Capital Disclosures. The standard introduces additional disclosure requirements in respect of financial instruments but has no impact on the classification and valuation of the Group's financial instruments.
• IFRIC 10, Interim Financial Reporting and Impairment, does not permit the write-down reported during a reporting period for goodwill, investments in equity instruments or financial assets recognised at cost to be reversed as of the subsequent closing date. This interpretation has no impact on the Group's financial reports.

Standards, amendments and interpretations that took effect in 2007 but have no relevance for the Group

• IFRS 4, Insurance Contracts.
• IFRIC 7, Applying the Restatement Approach under IAS 29, Financial Reporting in Hyperinflationary Economies.
• IFRIC 8, Scope of IFRS 2, assessment of whether equity instruments fall within the framework of IFRS 2.
• IFRIC 9, Reassessment of Embedded Derivatives, is not relevant, as no Group company has changed the terms of existing contracts.
• IFRIC 11, IFRS 2 Group and Treasury Share Transactions.

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

• IAS 1 (Amendment) Presentation of Financial Reports (applies as of 1 January 2009) is still subject to the EU's approval process. The amendments relate primarily to changes in the form of presentation and naming of financial reports. The presentation of the Group's future financial reports will thus be affected by this standard.
• IAS 23 (Amendment) Borrowing Costs (applies as of 1 January 2009) is still subject to the EU's approval process. Following the amendment, companies will be required to capitalise borrowing costs that are directly attributable to the acquisition, construction or production of an asset

that takes a substantial period of time to get ready for its intended use or sale as part of the cost of the asset. The alternative of immediately charging these borrowing costs to expense will be removed.

• IAS 27 (Amendment) Consolidated and Separate Financial Statements (applies as of 1 July 2009) is still subject to the EU's approval process. Under the amendment, results attributable to minority shareholders must always be recognised even if this results in a negative minority share, transactions with minority shareholders must always be recognised in equity and, in case a parent company loses its controlling influence, any remaining share must be restated at fair value. The amendment of the standard will affect the reporting of future transactions.
• IFRS 3 (Amendment) Business Combinations (applies as of 1 July 2009) is still subject to the EU's approval process. The amendment applies prospectively for acquisitions after the effective date of the amendment. Application of the amendment will result in a change in the way in which future acquisitions are reported, e.g. in respect of the reporting of transaction costs, any conditional purchase prices and gradual acquisitions. The amendment of the standard will not have any impact on previously concluded acquisitions but will affect the reporting of future transactions.
• IFRS 8 Operating Segments (applies as of 1 January 2009). IFRS 8 replaces IAS 14 and adapts segment reporting to the requirements of the US standards SFAS 131, Disclosures about segments of an enterprise and related information. The new standard requires that segment information be presented from a management perspective, which means that it is presented in the same way as in the company's internal reports. The Group will apply IFRS 8 from 1 January 2009. Management is still analysing what impact the standard will have but does not expect that this will lead to any significant impairment requirement.

Interpretations of existing standards that have not yet taken effect and that have no relevance for the Group

• IFRS 2 Share-based Payment (Amendment) Vesting conditions and cancellations (applies as of 1 July 2009) is still subject to the EU's approval process. The amendment will affect the definition of vesting conditions and introduces a new concept, non-vesting conditions. The standard states that non-vesting conditions must be taken into account in estimating the fair value of equity instruments. Goods or services received from a counterparty that meet all other vesting conditions must be recognised regardless of whether the non-vesting conditions have been met or not. The Group currently has no share-based payments.
• IFRIC 12 Service Concession Arrangements (applies as of 1 January 2008). This interpretation is still subject to the EU's approval process. IFRIC 12 applies to contractually regulated arrangements in which a private-sector operator participates in the development, funding, operation and maintenance of infrastructure for public-sector services. IFRIC 12 has no relevance for the Group, as no Group company provides services to the public sector.
• IFRIC 13 Customer Loyalty Programmes (applies as of 1 January 2008). This interpretation is still subject to the EU's approval process. IFRIC 13 states that when goods or services are sold together with some form of incentive for customer loyalty (e.g. loyalty points or free products) this constitutes a contract with multiple elements ("multiple elements arrangement"). The compensation received from the customer should be distributed among the various elements of the contract based on the fair value of each element. The Group does not currently have any loyalty programmes that fall within the meaning of IFRIC 13.

CONSOLIDATED ACCOUNTING PRINCIPLES Composition of the Group

The consolidated financial statements include the closing accounts of the parent company and all subsidiaries in which Rottneros AB owns at least 50% of the votes or in another way has a decisive influence.

Principles of consolidation

The purchase method is used in the preparation of the consolidated accounts. With this method, the equity in the subsidiary at the time of acquisition is eliminated in its entirety. Only the profit arising after the time of acquisition is included in the Group's equity. The equity in the acquired subsidiary is determined based on a market valuation of the assets and liabilities at the time of acquisition. In cases where the market valuation of assets and liabilities differs significantly from the acquired company's book value, these market values constitute the Group's cost. The difference between the cost of the subsidiary's shares and the calculated value of the equity at the time of acquisition is reported as goodwill on consolidation where applicable.

Intra-group profits are eliminated in full.

All subsidiaries are wholly-owned. Minority interests are thus not relevant.

Untaxed reserves/appropriations

In compiling the consolidated accounts, the untaxed reserves and appropriations reported for the individual companies are divided between deferred tax and restricted equity. The deferred tax liability is calculated at the current tax rate. The tax arrived at in this way, which pertains to the year's appropriations is included in the Group's reported tax as deferred tax. See also Note 11.

Translation of foreign subsidiaries

The local currency is the functional currency for each of the companies in the Group. The Swedish currency, which is the parent company's functional currency and reporting 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 that occur are not reported in the income statements, but instead are taken directly to the Group's equity.

Income

Sales of goods are reported upon delivery of products to the customer in accordance with the terms of the sale. Sales are recognised net of VAT and discounts. Intra-group sales are eliminated in the consolidated accounts.

Other income earned is recognised as follows:

• Rental income in the period to which the rent applies
• Interest income in accordance with effective return

Segment reporting

The Rottneros Group's primary segments are operating segments. The pulp market is a global market that is subject to world market prices. The Group's opportunities and risks are the same regardless of where manufacturing takes place. The Group's new business area, Rottneros Packaging, which is marketed under the name SilviPak and which was launched in 2006, is a separate segment within the Group but has not yet reached sufficient volume to be reported separately.

All production in the Group takes place in Western Europe. All of the Group's sales activities are carried out by a joint sales company, which is also responsible for logistics. All units in the Group are integrated from an organisational perspective and act essentially in a common market with similar risks and opportunities. There is therefore no basis for secondary segment reporting by geographical area. The net turnover is, however, reported by country, see Note 1.

Receivables and liabilities in foreign currencies

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

Receivables and liabilities

Assets and liabilities are valued at cost unless stated otherwise. Doubtful receivables are stated at the amount that is expected to be paid following individual assessment.

Inventories

Inventories consist mainly of raw materials and consumables, felling rights, pulp and sawn timber. Inventories are valued at the lower of cost (in accordance with the FIFO principle) and net realisable value. Net realisable value is the selling price after deductions for selling costs. Felling rights are valued at contract prices, which on average do not exceed the fair value.

Cash and cash equivalents

Cash and cash equivalents comprise cash, bank balances and short-term investments. Short-term investments are temporary surplus liquidity investments made in accordance with the Group's finance policy and that can be sold or otherwise converted to cash and cash equivalents within a 3-month period. The investments are recognised at market value. Gains and losses are reported in the income statement. The Group had no short-term investments in 2006 and 2007.

Accounting treatment of leases

Where leases infer that the Group, as the lessee, essentially enjoys the economic benefits and bears the economic risks attributable to the leased item, the item is reported as a fixed asset in the consolidated balance sheet. The corresponding obligation to leasing charges in the future is reported as a liability.

Other leases are reported as operating leases and are expensed on a straight-line basis.

Tangible fixed assets

Tangible fixed assets are reported at cost following deductions for accumulated depreciation according to plan and write-down. Repair and maintenance costs are expensed in the period they arise. Additional costs are added to the asset's reported value or reported as a separate asset.

Intangible assets

Acquired trademarks and licences are recognised at cost. Acquired software licences are capitalised on the basis of the costs incurred in commissioning the software. These intangible assets have limited useful lives. Emission allowances are capitalised at market value on the allocation date and are written off as and when they are used up.

Depreciation/amortisation

Depreciation/amortisation according to plan is based on the acquisition cost and estimated economic life of the assets. All types of fixed assets are depreciated using the straight-line method.

The following depreciation/amortisation schedule applies:
Licences	10 years
Software	3–5 years
Buildings and land improvements	20–50 years
Machinery and other technical equipment	10–20 years
Equipment, tools and installations	5–10 years
Computers	3–5 years

The residual value and useful life of the assets are reviewed on each balance day and adjusted if necessary. If there are indications that an asset's value exceeds its estimated recoverable amount, an impairment test is carried out. The recoverable amount is the asset's net realisable value or its value in use, whichever is the higher.

Provisions

A provision is reported 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 a detailed, formal plan of measures exists and expectations have been created on a sound basis among those who will be affected by the measures.

Taxes

Reported income taxes include tax that will be paid or received in respect of the current year, adjustments in respect of previous years' taxes payable, as well as changes in deferred tax.

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

In the case of items reported in the income statement, the associated tax effects are also posted in the income statement. Tax effects of items posted directly to shareholders' equity are also posted to shareholders' equity.

Deferred tax is calculated and reported according to the balance sheet method on all temporary differences arising between the reported value of assets and liabilities and their value for tax purposes and 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 of the closing day and that are expected to apply when the deferred tax receivable or the deferred tax liability is adjusted.

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

Employee benefits

Apart from the ITP plan, the Group only has defined contribution pension plans. The Group's payments for defined contribution plans are reported as costs in the period in which the employees performed the services to which the contribution pertains.

The retirement and family pensions of the salaried office workers in Sweden are secured through an Alecta insurance, an ITP plan which, according to the Swedish Financial Accounting Standard Council's Emerging Issues Task Force, URA 42, is a defined benefit plan covering many employers. Information in accordance with the provisions laid out in IAS 19 section 29 cannot be provided since the insurance provider cannot provide the necessary information. Accordingly, the ITP plan is reported in accordance with IAS 19 section 30, as a defined contribution plan. The year's pension insurance premiums according to ITP that are contracted with Alecta amount to SEK 6m (6). Alecta's surplus can be distributed to policy holders and/or the insured parties. At the end of 2007 Alecta's surplus in the form of the collective consolidation level amounted to 152% (143). The collective consolidation level is determined by the market value of Alecta's assets as a percentage of the insurance undertaking calculated according to Alecta's insurance calculation assumptions, which are not in line with IAS 19.

Rottneros does not provide employees with any share-related benefits.

Government grants

Government grants are reported at fair value if it is reasonably certain that such grants will be obtained and that the Group will satisfy all of the associated conditions. Government grants relating to the acquisition of assets is reported in the balance sheet through a reduction in the reported value of the asset.

Government grants relating to costs are reported as prepaid income and posted at the time the costs that the grant is intended to compensate for arise. Where a grant payment relates neither to acquisitions of assets nor to compensation for costs, the payment is reported as other income.

Research and development expenditures

Development work is an integrated aspect of production and related to measures to improve processes, the costs of which are expensed as incurred.

Borrowing costs

Borrowing costs are charged to earnings for the period to which they pertain.

Cash-flow statement

The cash-flow statement is prepared in accordance with the indirect method. The reported cash flow covers only transactions involving payments in or out. As a result, departures may exist when compared with changes in individual items in the balance sheet.

In addition to cash and bank balances, cash and cash equivalents also include short-term financial investments that carry only insignificant risk of value fluctuation and that mature within three months of the date they were acquired.

Financial assets

Financial assets reported in the balance sheet include derivatives and accounts receivable. Financial assets valued at fair value via the income statement are financial assets held for trading. Derivatives are classified as held for trading unless they are identified as hedges. Financial assets are removed from the balance sheet when the right to receive cash flows from the instrument has expired or been transferred or the Group has transferred virtually all risks and benefits associated with ownership of the asset.

Derivative instruments

Derivative instruments are recognised in the balance sheet on the contract date and are carried at fair value both initially and in subsequent remeasurement. The method for reporting 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 against changes in exchange rates and pulp prices, and to hedge its exposure to changes in the price of electricity. All types of hedges are used to protect the value of future cash flows.

When a transaction is concluded the Group documents the relationship between the hedging instrument and the hedged item as well as the Group's risk management targets and risk management strategy for the hedge. The Group also documents its assessment, at the time of creating the hedge and continuously, of whether the derivative instruments used in hedging transactions are effective in respect of cash flows attributable to the hedged items.

Information about fair value of the various derivatives used for hedging purposes is found in Note 4. Changes in the hedging reserve in equity are shown in Note 21. The full fair value of derivatives used for hedging is classified as a fixed asset or longterm liability when the hedged item has a remaining maturity of more than 12 months, and as a current asset or current liability when the remaining maturity is less than 12 months. Derivatives held for trading are always classified as current assets or current liabilities.

The effective part of changes in fair value of a derivative that has been identified as a cash flow hedge and that meets the conditions for hedge accounting is recognised in equity. The gain or loss attributable to the ineffective part is recognised directly in the income statement under Other income for currency derivatives and pulp derivatives, and under Raw materials and consumables for electricity derivatives.

Loan receivables and accounts receivable

The only balance sheet item that is covered by this category is Accounts receivable. Accounts receivable are non-derivative financial assets where payment inflows can be stipulated. They are included in current assets with the exception of items maturing more than 12 months after the closing day, which are classified as fixed assets.

Accounts receivable are recognised initially at fair value and subsequently at amortised cost less any provisions for decreases in value. Fair value of accounts receivable with short credit periods is the same as nominal value. A provision is made for value reduction when there is objective proof that the Group will not be able to receive all amounts due for payment. The provision is recognised in the income statement in the item Other costs.

Accounts payable

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

Borrowing

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

Borrowing is classified as short-term liabilities unless the Group has an unconditional right to defer payment of the liability for at least 12 months from the balance sheet date.

Interest costs are reported in the period they are incurred.

Important assessments and assumptions

Assessments and assumptions are made on an ongoing basis and are based on historical experience and other factors, including expectations for future events that are deemed reasonable under the existing circumstances.

The Group makes assessments and assumptions regarding the future. The assessments for accounting purposes that result from these will, by definition, seldom represent the actual outcome. The assessments and assumptions where there is a considerable risk that significant adjustments will need to be made to the reported amounts of assets and liabilities over the next financial year are discussed below.

Inventories

38% (80) of inventories have been valued at their net realisable value. Net realisable value has been assessed based on the existing list price for NBSK pulp. If the pulp price changes by USD 30/tonne, the value of the inventory would change by SEK 6 (8) million.

Impairment tests

Each year the Group's assets are tested for impairment under IAS 36. The Group's cash-generating units are represented by the individual mills and their assets. The recoverable amount for each cash-generating unit is normally determined by calculating value in use. The calculations are based on the strategic plans adopted by Group management and weighted average cost of capital (WACC) is used calculating the present value of expected future cash flows. Discounted cash flows are compared with carrying amounts for each cash-generating unit. The tests are made in the fourth quarter of the year. In the 2007 tests the decision to close Utansjö Mill in 2008 led to a different assessment, and the mill and its assets have therefore been valued on the basis of net realisable value. No other impairment was identified.

PARENT COMPANY'S ACCOUNTING PRINCIPLES

The parent company applies the same accounting principles as the Group with the exceptions described below.

Changes in the value of derivative instruments are not reported during the term of the contract, but instead in connection with the actual transaction. Premiums/discounts are distributed over the term of the contract as interest. Where currency hedging is carried out for future budgeted flows, the hedging instrument is not remeasured following exchange rate changes. The entire effect of changes in the exchange rate is reported in the income statement when the hedging instrument matures.

Participations in subsidiaries are reported at cost less any write-downs.

Rottneros complies with the statement issued by the Swedish Financial Accounting Standards Council's Emerging Issues Task Force concerning the accounting treatment of Group contributions. Accordingly Group contributions are stated on the basis of their financial content. Group contributions paid or received for the purpose of minimising the Group's tax cost are stated as decreases and increases in non-restricted equity. An adjustment is made for the tax effect of Group contributions by both the donor and the recipient.

All leases are reported as operating leases. Dividends received are reported 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 reported in the parent company as part of untaxed reserves.

NOTE 1 DISTRIBUTION OF NET TURNOVER AND OPERATING INCOME

The breakdown of net turnover and operating income by operating segment was as follows:

Net turnover refers entirely to the pulp production segment. No separate accounting is made for Packaging, as this segment is currently in a build-up phase.

The breakdown of net sales by geographic market was as follows:

	2007	%	2006	%
Sweden	318	10.9	267	9.9
Other Nordic countries	172	5.9	167	6.2
Italy	431	14.7	344	12.8
Germany	411	14.0	440	16.4
Spain	382	13.1	405	15.1
France	168	5.7	143	5.3
UK	146	5.0	156	5.8
Poland	112	3.8	119	4.4
Austria	61	2.1	37	1.4
Rest of Europe	165	5.6	93	3.5
USA	283	9.7	237	8.8
China	104	3.6	110	4.1
Rest of world	174	5.9	172	6.3
Total	2,927	100.0	2,690	100.0

NOTE 2 OTHER OPERATING INCOME

	Group		Parent company
Other operating income	2007	2006	2007	2006
Sale of by-products	20	20	–	–
Income from commissions	–	–	51	48
Transportation income	4	6	34	28
Currency futures – cash flow hedges	42	44	42	44
Pulp futures – cash flow hedges	-63	-8	-63	-8
Sale of green electricity certificates	22	15	–	–
Emission allowances	1	5	–	–
Valuation of embedded derivatives	12	7	–	–
Exchange rate differences	–	–	36	28
Other	19	8	4	–
Total	57	97	104	140

NOTE 3 RAW MATERIALS AND CONSUMABLES

	Group		Parent company
Raw materials and consumables	2007	2006	2007	2006
Electricity futures – cash flow hedges	-45	73	-45	73
Other costs for raw materials and consumables		-1,814 -1,646	-2,877 -2,669
Total	-1,859 -1,573		-2,922 -2,596

NOTE 4 FINANCIAL INSTRUMENTS

	2007		2006
Derivatives	Assets	Liabili ties	Assets	Liabili ties
Currency futures – cash flow hedges	2	4	20	–
Currency futures – held for trading	–	–	–	–
Pulp futures – cash flow hedges	–	126	–	79
Electricity futures – cash flow hedges	31		29	7
Total	33	130	49	86

Less long-term component:

Currency futures – cash flow hedges	–	–	3	–
Pulp futures – cash flow hedges	–	47	–	37
Electricity futures – cash flow hedges	11	–	17	–
	11	47	20	37
Short-term component	22	83	29	49

Derivatives held for trading are classified as current assets or current liabilities. The full value of a derivative used for hedging is classified as a fixed asset or long-term liability if the hedged item has a remaining maturity of more than 12 months, and as a current asset or current liability if the remaining maturity is less than 12 months.

The ineffective component, which is recognised in the income statement, in respect of cash flow hedges is SEK 0m (0).

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

Market value of hedging derivatives, 31 December 2007

Hedge	Hedged volume	Hedge level	Market value	Reference value Spot rate
Currency, USD	USD 15m	SEK 6.57/ USD	2	SEK 6.43/ USD
Currency, EUR	EUR 25m	SEK 9.28/ EUR	-4	SEK 9.46/ EUR
Pulp price	96,000 tonnes	USD 637 (PIX)	-126	USD 869/SEK 6.43/USD
Electricity	140,400 MWh	SEK 0.264/ kWh	31	SEK 0.398/ kWh
Total market value			-97

Market value of hedging derivatives, 31 December 2006

Hedge	Hedged volume	Hedge level	Market value	Reference value Spot rate
Currency, USD	USD 22m	SEK 7.31/ USD	11	SEK 6.87/ USD
Currency, EUR	EUR 44m	SEK 9.22/ EUR	9	SEK 9.04/ EUR
Pulp price	156,000 tonnes	USD 634 (PIX)	-79	USD 730/SEK 6.87/USD
Electricity	753,700 MWh	SEK 0.313/ kWh	22	SEK 0.217/ kWh
Total market value			-37

The market valuation was made by independent parties and refers to the liquidation value of futures on the balance sheet date. Reference value refers to quoted prices on the balance sheet date.

The most significant opportunities and risks for the Rottneros Group are related to changes in the price of pulp, the USD exchange rate and electricity prices. Rottneros strives to lower the volatility in profit/loss and to create a secure foundation from which to avoid unprofitable periods by hedging these risks. A more detailed description of opportunities and risks, along with a sensitivity analysis, can be found in a separate section, see page 33 ff.

NOTE 5 PERSONNEL

	2007		2006
	Average no. of em ployees	of which, men %	Average no. of em ployees	of which, men %
Parent company	20	65.0	21	71.4
Subsidiaries	698	88.4	733	87.0
Group total	718	87.7	754	86.6

Of which
Sweden	548	88.3	576	87.0
Latvia	9	77.8	13	69.2
Portugal	5	80.0	5	80.0
Spain	156	86.5	160	86.9
	718	87.7	754	86.6

		2007			2006
SEK million	Salaries and other remuneration	Social security contributions	(of which, pension expenses)	Salaries and other remuneration	Social security con¬tributions	(of which, pension expenses)
Parent company	18.1		11.5 (4.4)1)	16.3	6.8	(5.2)1)
Subsidiaries	262.9 101.5		(11.3)	262.8	92.9	(16.4)
Group total		281.0 113.0(15.7)2)		279.1		99.7 (21.6)2)

1) Out of the parent company's pension costs, SEK 3.2m (2.6) refers to the President and other senior executives. There are no pension costs or pension commitments for the Board of Directors.

2) Out of the Group's pension costs, SEK 5.6m (6.4) refers to managing directors and other senior executives.

Salaries and other remuneration divided between Board and managing directors and other employees:

SEKm	directors and other Board, managing executives	2007 (of which, bonuses)	Other employees	(of which, bonuses)	directors and other Board, managing executives	2006 (of which, bonuses)	Other employees	(of which, bonuses)
Parent company
Sweden	11.7	(–)	6.3 (0.4)		10.2	(–)		6.1 (0.9)
Subsi diary
Sweden	11.3		(–) 187.3	(–)	13.9		(–) 189.1	(–)
Latvia	0.7	(–)	1.9	(–)	0.7	(–)	1.9	(–)
Portugal	0.7 (0.1)		1.0	(–)		0.7 (0.1)	1.0	(–)
Spain			7.2 (1.1) 52.9 (0.3)			6.1 (1.1)	51.0 (0.4)
Total Group			31.6 (1.2) 249.4 (0.7)				31.6 (1.2) 249.1 (1.3)

In 2007 the President of the parent company received salary and other remuneration of SEK 2.2m (2.5) and the Chairman of the Board SEK 0.4m (0.3).

Absence due to illness in parent company, %	2007	2006
Absence for a continuous period of 60 days and more	0.0	0.0
Absence due to illness:
Average total absences	0.2	0.4

Detailed information on absences due to illness for various categories of employees is not provided, as no single group of employees comprises more than ten individuals.

NOTE 6 REMUNERATION OF SENIOR EXECUTIVES

Principles

The Chairman and members of the Board, and work in the Board committees, are remunerated in accordance with decisions taken at the Annual General Meeting. For work in addition to ordinary Board work, the Board may in certain cases decide, in accordance with guidelines for remuneration adopted by the AGM, that a separate fee be paid. Employee representatives receive a small fee as determined by the AGM for the time required to read up on material prior to meetings.

Remuneration to the President and other senior executives complies with the guidelines for remuneration of senior executives adopted by the 2007 AGM. See also page 41. It comprises a fixed salary and variable pay, other benefits and pension benefits. Other senior executives refers to the eleven people who, together with the President, make up Group management. See pages 70–71 for the composition of Group management.

Variable pay

There is always an upper limit on variable pay. The balance between basic salary and variable pay must be proportionate to the executive's responsibilities and authority. The President's variable pay is linked entirely to the Group's profit after financial items. No variable pay will be paid to the President for 2007. In the case of other senior executives, variable pay is based on individual targets as well as the Group's earnings after financial items or the earnings of the local unit. For 2007 variable pay will be paid at a maximum of 30% of the basic salary.

Pensions

The retirement age for the Chief Executive Officer is 65 years. The pension premium is 35% of pensionable pay up to 30 base amounts, plus 25% of pensionable pay on salary of between 30 and 50 base amounts. Pensionable pay refers to basic salary plus the average bonus for the last three years. Other senior executives are covered by 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 pay

Over and above the mutual six-month period of notice, the President of the parent company is entitled to annual remuneration for two years at a rate corresponding to the salary paid out during the period of notice. In case of other senior executives, a period of notice of between six months and one year applies in case of termination by the employee. In case of termination by the company, the period of notice is between one and two years.

Decision-making process

Issues relating to remuneration of the President and other senior executives are handled by the Compensation Committee. The President's remuneration is determined by the Board of Directors. Remuneration to other senior executives is determined by the Compensation Committee.

Total	30.9	1.3	0.8	5.6		3.5 42.1
Other senior executives (44 people)	26.7	1.3	0.7	4.9		3.5 37.1
President, Lars Blecko	2.7	0.0	0.1	0.7	0.0	3.5
Former Board member, Lennart Nellbeck	0.1	0.0	0.0	0.0	0.0	0.1
Former Board member, Torsten Körsell	0.1	0.0	0.0	0.0	0.0	0.1
Board member, Ingrid Westin Wallinder	0.2	0.0	0.0	0.0	0.0	0.2
Board member, Kjell Ormegard	0.1	0.0	0.0	0.0	0.0	0.1
Board member, Ingrid Lindquist	0.2	0.0	0.0	0.0	0.0	0.2
Board member, Rune Ingvarsson	0.1	0.0	0.0	0.0	0.0	0.1
Board member, Johan Holmgren	0.2	0.0	0.0	0.0	0.0	0.2
Board member, Per Eiritz	0.1	0.0	0.0	0.0	0.0	0.1
Chairman of the Board, Bengt Nordin	0.4	0.0	0.0	0.0	0.0	0.4
	Directors' fees Basic pay/	Bonus	Other benefits	expenses Pension	remuneration Other	Total

Comments on the table

Bonus refers to the 2006 year of operation that was paid out in 2007.
Other benefits refers to company cars.
The company has purchased legal services on market terms for SEK 0.2 million (0) from the law firm RydinCarlsten Advokatbyrå, which employs the Board member Ingrid Westin Wallinder.
At year-end the group senior executives comprised 52 people, 9 women and 43 men.

NOTE 7 AUDIT EXPENSES

		Group		Parent company
	2007	2006		2006
PricewaterhouseCoopers
– Audit	2.1	2.2	0.4	0.3
– Consultancy	2.2	2.1	1.8	1.7
Total	4.3	4.3	2.2	2.0

NOTE 8 INTRA-GROUP BUYING AND SELLING TRANSACTIONS

Of the parent company's net turnover, 4% (4) consisted of administration costs paid by the subsidiaries, and 92% (97) of its operating costs pertains to goods and services purchased from subsidiaries.

Remuneration and other benefits during the year

	Group		Parent company
	2007	2006	2007	2006
Financial income
– Interest income	5	2	3	–
– Interest income, Group companies	–	–	38	30
– Dividends from Group companies	–	–	–	92
– Exchange rate differences on receivables and liabilities	4	5	4	3
Total	9	7	45	125

NOTE 10 FINANCIAL EXPENSE

	Group		Parent company
	2007	2006	2007	2006
Financial expense
– Interest expense	-33	-23	-30	-28
– Interest expense from Group companies	–		-3	-1
– Write-down of shares in subsidiaries	–	–	-265	-33
Total	-33	-23	-298	-62

NOTE 11 TAXES ON INCOME FOR THE YEAR

		Group		Parent company
	2007	2006	2007	2006
Current tax	-3	-10	13	-14
Deferred tax	86	25	9	5
Total	83	15	22	-9

	Group		Parent company
Deferred tax expenses for the year	2007	2006	2007	2006
Deferred tax, untaxed reserves	24	32	–	–
Deferred tax expenses, other temporary differences	-10	-30	–	–
Deferred tax income, other temporary differences	72	23	9	5
Total	86	25	9	5

	Group		Parent company
Tax relating to items recognised directly in shareholders' equity	2007	2006	2007	2006
Tax effect of Group contributions	–	–	-12	14
Total	–	–	-12	14

Difference between Group tax expense and tax expense based on applicable tax rates	2007	2006	2007	2006
Reported income before tax	-384	-23	-377	122
Tax at applicable tax rate	108	6	106	-34
Tax effect of non-deductible items	-95	-1	-75	–
Tax effect of non-taxable income	74	6	–	25
Tax effect of corrections of temporary differences	-5	–	-9	–
Effect of foreign tax rates	1	4	–	–
Total	83	15	22	-9

Group Parent company

Tax rate

The tax rate is 28 % (28%).

Temporary differences

Temporary differences exist where the reported value of assets or liabilities differs from their tax value. Temporary differences relating to the following items have resulted in deferred tax liabilities and deferred tax assets.

Excess	Deriva
tion	ments	Other	Total
-124	-20	-8	-152
33	-2	8	39
	22		22
			0
-91	0	0	-91
26			26
			0
			0
-65	0	0	-65
	deprecia	tive instru

Group Deferred tax assets	Tax differences in fixed assets	Loss carry-forwards	instruments Derivative	Other	Total
As at 1 January 2006	8	44	0	15	67
Reported in income statement	-6	-12		3	-15
Reported in equity			10		10
As at 31 December 2006	2	32	10	18	62
Reported in income statement	59	7	-3	-3	60
Reported in equity			17		17
As at 31 December 2007	61	39	24	15	139

Note 11 cont. on page 58.

	Group		Parent company
	2007	2006	2007	2006
Deferred tax assets, current	83	10	–	–
Deferred tax assets, long-term	56	52	37	28
Deferred tax liabilities, long-term	-65	-91	–	–
Total	74	-29	37	28

Deferred tax assets and tax liabilities are offset where there is a legal right to do so for the tax assets and liabilities in question, and when deferred taxes refer to the same tax authority. The following amounts resulted from such offset and have been recognised in the balance sheet:

		Group		Parent company
	2007	2006	2007	2006
Deferred tax assets	74	18	37	28
Deferred tax liabilities	–	-47	–	–
Total	74	-29	37	28

NOTE 12 INTANGIBLE FIXED ASSETS

			2007					2006
Group	Software	Trade marks	Emission allowances Licences		Total	Software	Trade marks	Emission allowances Licences		Total
Opening acquisition value	37	25	9	5	76	36	25	12	–	73
Acquisitions during the year	–	–	4	1	5	1	–	12	5	18
Disposals	–	–	-9	–	-9	–	–	-15	–	-15
Closing accumulated acquisition value	37	25	4	6	72	37	25	9	5	76
Opening amortisation	-17	-22	–	-1	-40	-10	-17	–	–	-27
Amortisation for the year	-7	-3	–	–	-10	-7	-5	–	-1	-13
Closing accumulated amortisation	-24	-25	–	-1	-50	-17	-22	–	-1	-40
Closing residual value according to plan	13	–	4	5	22	20	3	9	5	36

Software includes maintenance systems and production control systems.

	2007			2006
Parent company		Software Licences	Total		Software Licences	Total
Opening acquisition value	16	5	21	15	–	15
Acquisitions during the year	–	1	1	1	5	6
Closing accumulated acquisition value	16	6	22	16	5	21
Opening amortisation	-5	-1	-6	-2	–	-2
Amortisation for the year	-3	–	-3	-3	-1	-4
Closing accumulated amortisation	-8	-1	-9	-5	-1	-6
Closing residual value according to plan	8	5	13	11	4	15

				2007							2006
Group	Land	improvements Land	Buildings	Machinery	Equipment	Construction in progress/ advances	Total	Land	improvements Land	Buildings	Machinery	Equipment	Construction in progress/ advances	Total
Opening acquisition value	30	27	306	2,460	115	57	2,995	30	25	303	2,392	114	74	2,938
Translation difference	–	–	–	29	2	-1	30	–	–	-2	-23	-1	-1	-27
Purchases/advances	1	4	7	159	13	49	233	–	2	–	16	5	72	95
Disposals	-1	-5	-15	-187	-13	-6	-227	–	–	–	-3	-8	–	-11
Items transferred during the year	–	–	2	40	8	-50	–	–	–	5	78	5	-88	–
Closing accumulated acquisition value	30	26	300	2,501	125	49	3,031	30	27	306	2,460	115	57	2,995
Opening depreciation	–	-8		-155 -1,395	-85		– -1,643	–	-7	-144	-1,301	-80	–	-1,532
Translation difference	–	–	–	-24	-1	–	-25	–	–	2	20	1	–	23
Sales/disposals	–	3	8	124	9	–	144	–	–	–	2	6	–	8
Reclassifications	–	–	–	–	–	–	–	–	–	–	-1	1	–	–
Depreciation for the year	–	-1	-12	-114	-13	–	-140	–	-1	-13	-115	-13	–	-142
Closing accumulated depreciation	–	-6		-159 -1,409	-90		– -1,664	–	-8		-155 -1,395	-85		– -1,643
Opening write-down	–	–	-7	-61	–	–	-68	–	–	-7	-61	–	–	-68
Write-down for the year 1)	-6	-6	-60	-204	-7	-1	-284	–	–	–	–	–	–	–
Closing accumulated depreciation	-6	-6	-67	-265	-7	-1	-352	–	–	-7	-61	–	–	-68
Closing residual value according to plan	24	14	74	827	28	48	1,015	30	19	144	1,004	30	57	1,284
Tax assessment value	33		607					14		512

1) Refers to depreciation of fixed assets at Utansjö at net realisable value.

The Group did not receive any government grants in 2006 or 2007.


Parent company	Machinery	Equipment	Total	Machinery	Equipment	Total
Opening acquisition value	16	1	17	14	1	15
Purchases	5	1	6	2	–	2
Closing accumulated acquisition value	21	2	23	16	1	17
Opening accumulated depreciation	-1	-1	-2
Depreciation for the year	-2	–	-2	-1	-1	-2
Closing accumulated depreciation	-3	-1	-4	-1	-1	-2
Closing residual value according to plan	18	1	19	15	–	15

NOTE 14 INTEREST-BEARING LIABILITIES

	Group		Parent company
Long-term interest-bearing liabilities	2007 2006		2007	2006
Debenture		150 150	150	150
Liability relating to finance leases	23	27	–	–
Closing balance		173 177	150	150

	Group		Parent company
Current interest-bearing liabilities	2007	2006	2007	2006
Overdraft facility	45	13	28	13
Bank loans	403	285	403	285
Liability relating to finance leases	4	4	–	–
Other	–	2	29	10
Closing balance	452	304	460	308
Total interest-bearing liabilities	625	481	610	458

The debenture matures in 2012 and bears variable interest that is fixed every six months.

Bank loans refers to amounts drawn on the syndicated loan. The loans bear fixed interest and mature in their entirety within 6 months from the balance sheet date.

Interest on the balance sheet date was as follows:

	2007	2006
%	SEK USD EUR	SEK USD EUR
Overdraft facility	5.00	3.90
Bank loans	5.38 6.13 5.25	3.71 6.35 4.20
Debenture	5.12	3.80

Carrying amounts and fair value for long-term borrowing are as follows:

	Carrying amount		Fair value
	2007	2006	2007	2006
Debenture	150	150	118	121

The fair value of short-term borrowing is the same as the carrying amount, as the discount effect is not significant. Fair value is based on discounted cash flows at an interest rate based on the loan rate.

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

	2007	2006
SEK	342	213
USD	87	139
EUR	169	96
	598	448

The Group has the following unused credit:

	2007	2006
Variable interest
– matures within one year	196	269
– matures later than one year	–	310
	196	579

Consolidated tangible fixed assets includes leased items held under finance leases as follows:

	Acquisition values		Accumulated depreciation
	2007 2006		2007	2006
Machinery and other technical equipment	43	43	-17	-13
Equipment, tools and installations	3	3	-3	-3
Total	46	46	-20	-16

Future minimum leasing charges have the following maturities:

	Nominal value		Present value
	2007	2006	2007	2006
Within one year	4	5	4	5
Later than one year but within five years	17	19	15	17
Later than five years	6	10	4	9
Total	27	34	23	31

The present value of future minimum leasing charges is reported as liabilities to credit institutions, partly as current liabilities and partly as long-term liabilities.

Consolidated earnings include variable charges relating to finance leases of SEK 5m (5).

NOTE 15 OPERATING LEASES

The nominal value of future minimum leasing charges relating to non-cancellable leases is due as follows:

	Group		Parent company
	2007	2006	2007	2006
Due within one year	2	2	–	–
Due later than one year but within five years	2	1	–	–
Total	4	3	–	–

Leasing charges and leasing income relating to operating leases during the year are as follows:

	Group		Parent company
	2007	2006	2007	2006
Leasing charges	3	3	–	–
Of which
minimum leasing charges	3	3	–	–

NOTE 16 FINANCIAL FIXED ASSETS

	Group		Parent company
	2007	2006	2007	2006
Shares in Group companies	–	–	481	481
Deferred tax asset	–	–	37	28
Other long-term receivables	1	1	2	1
Closing residual value according to plan	1	1	520	510

The following items are specified below.

Shares in Group companies

Corporate ID no.	Reg. office	No. of shares	Votes/capital, %
					31-12-07 31-12-06
556014-4502	Sunne	2,100,000	100	89	89
556012-7994	Härnösand	500,000	100	79	79
556445-8163	Söderhamn	415,000	100	101	101
556150-8366	Lindesberg	145,000	100	19	19
556307-5356	Lindesberg	1,000	100	–	–
000319171	Latvia	100	100	6	6
	Spain	20,000	100	179	179
CH-170.3.025.640-6	Switzerland	1,000	100	7	7
		615	95	1	1
HRB 89758	Germany		100	–	–
				481	481
		RC-Brussels 660940 Belgium			Book value

Parent company	2007	2006
Opening acquisition value	556	523
Shareholder contributions	210	33
Closing accumulated acquisition value	766	556

Opening write-downs	-75	-42
Write-downs for the year	-210	-33

Closing accumulated write-downs, net	-285	-75
Closing book value	481	481

NOTE 17 INVENTORIES

Group	2007	2006
Raw materials and consumables	172	155
Felling rights	3	5
Pulp in production	3	2
Pulp 1)	315	235
Closing balance	493	397

1) Out of total pulp stocks, 37% (35) has been valued at net realisable value. No write-downs have been made.

Deferred tax asset:

	Parent company
	2007	2006
Deferred tax on temporary differences	37	28
Total	37	28

Other long-term receivables

	Group		Parent company
	2007	2006	2007	2006
Opening acquisition value	1	4	1	-
Acquired during the year	–	–	1	1
Repayment/reversal	–	-3	–	–
Closing residual value according to plan	1	1	2	1

NOTE 18 ACCOUNTS RECEIVABLE

		Group		Parent company
Specification, accounts receivable	2007	2006	2007	2006
Accounts receivable, gross	414	403	396	391
Provision for doubtful receivables	-3	-1	-3	–
Accounts receivable, net	411	402	393	391

	Group		Parent company
Changes in provisions for doubtful receivables are as follows:	2007	2006	2007	2006
Opening balance	-1	-2	–
Provision for doubtful receivables	-3	-1	-3
Receivables written off during the year as uncollectible	–	2	–
Reversal of unused amounts	1	–	–
Closing balance	-3	-1	-3	–

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 2007, accounts receivable included SEK 68m (2006: SEK 55m) that was overdue but for which no impairment was deemed necessary. These refer to a number of independent customers that have previously not had any difficulty in meeting their payment obligations. The age structure of these accounts payable is as follows:

	Group		Parent company
	2007	2006	2007	2006
Less than 3 months from maturity	68	52	–	52
3 to 6 months from maturity	–	–	–	–
	68	52	–	52

Carrying amounts by currency for accounts receivable and other receivables are as follows:

		Group		Parent company
	2007	2006	2007	2006
SEK	59	29	42	20
USD	136	165	136	164
EUR	211	204	210	202
Other currencies	5	4	5	5
	411	402	393	391

NOTE 19 OTHER CURRENT RECEIVABLES

		Group		Parent company
	2007	2006	2007	2006
Receivables from Group companies	–	–	905	665
Other receivables	80	107	35	71
Prepaid expenses and accrued income	40	30	12	8
Closing balance	120	137	952	744

Specification of prepaid expenses and accrued income

	Group		Parent company
	2007	2006	2007	2006
Prepaid insurance premiums	8	8	1	1
Accrued income from hedging	2	–	2	–
Prepaid expenses	16	13	1	–
Accrued income from sale of green electricity	6	2	–	–
Other accrued income	8	7	8	7
Closing balance	40	30	12	8

NOTE 20 LIQUID FUNDS

	Group		Parent company
	2007	2006	2007	2006
Cash and bank balances	121	122	21	35
Closing balance	121	122	21	35

NOTE 21 SHAREHOLDERS' EQUITY

Parent company	2007	2006
Number of shares at beginning of year	180,212,464 180,212,464
Buy-back of treasury shares	–	–
Number of shares at year-end	180,212,464 180,212,464
Average number of shares	180,212,464 180,212,464

During the second quarter of 2003, the company commenced the new buy-back programme acting on a resolution at the Annual General Meeting on 29 April 2003. The aim of the buybacks is partly to optimise the company's capital structure and partly to make it possible to use treasury shares as payment in future acquisitions.

The parent company holds 8,219,641 treasury shares with a nominal value of SEK 4,110,000. Transaction costs for share buy-backs, which totalled SEK 8,000 in 2004, have been recognised directly in equity.

The Swedish Financial Supervisory Authority (Finansinspektionen) has questioned whether a number of notifiable buyback transactions conducted during 2001 were reported to the Financial Supervisory Authority in time. At the end of 2006 the County Administrative Court reduced the late filing fee from SEK 3m to SEK 1m.

Management of capital risk

The Group's objectives in respect of capital structure is to secure the Group's ability 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 as a means of keeping down the cost of capital.

To maintain or adjust its capital structure, the Group may decide to change the dividends paid to the shareholders, repay capital to the 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 the debt/equity ratio. This key ratio is defined as interest-bearing liabilities divided by shareholders' equity.

In 2007 the Group's strategy, which was unchanged compared with 2006, was to maintain a debt/equity ratio of no more than 1.0 times. The debt/equity ratio as at 31 December 2007 and 2006 is shown below:

	2007	2006
Interest-bearing liabilities	625	481
Equity	1,050	1,403
Debt/equity ratio	0.6	0.3

Change in hedging reserve	2007	2006
Opening balance	-26	56

Cash flow hedges:
– fair value gains during the year	-131	-14
– tax on fair value gains	37	4
– transfers to income statement	69	-100
– tax on transfers to income statement	-19	28
Closing balance	-70	-26

NOTE 22 PROVISIONS

		Group		Parent company
	2007	2006	2007	2006
Long-term provisions:
Provisions for deferred tax	–	47	–	–
Short-term provisions:
Provision for future environmental expenses	1	1	–	–
Provision for restructuring costs	10	–	–	–
Total	11	48	–	–

Provision for future environmental expenses refers to costs for the treatment of sludge in Utansjö and environmental improvement measures in Miranda according to a decision taken at the time of the acquisition.

Provision for restructuring costs refers to a provision for staff cuts in connection with the renovation of control rooms in Rottneros, in accordance with a decision taken on 26 July 2007.

	Group		Parent company
Provision for future environmental expenses	2007	2006	2007	2006
Provisions at beginning of year	1	2	–	–
Provisions utilised	–	-1	–	–
Provisions at year-end	1	1	–	–

	Group		Parent company

Provision for restructuring costs	2007	2006	2007	2006
Provisions at beginning of year	–	–	–	–
Provisions during the year	10	–	–	–
Provisions at year-end	10	–	–	–

Specification of provision for deferred tax:

		Group		Parent company
	2007	2006	2007	2006
Deferred tax on untaxed reserves	–	87	–	–
Deferred tax on temporary differences	–	-40	–	–
Total	–	47	–	–

Deferred tax on untaxed reserves is attributable to excess depreciation and is used as depreciation according to plan is carried out.

NOTE 23 APPROVED CREDIT FACILITIES

Approved credit facilities for the parent company amount to SEK 621m (855) and for the Group to SEK 644m (877). Credit facilities utilised at year-end amounted to SEK 448m (31 Dec 2006: 298).

	Group		Parent company
Utilised credit facilities	2007	2006	2007	2006
Maturing within one year	448	298	431	298
Of which:
Overdraft facility	45	13	28	13
Syndicated loan	403	285	403	285
Total	448	298	431	298

The fair value of short-term borrowing is the same as the carrying amount since the discount effect is not significant. Fair value is based on discounted cash flows at an interest rate based on the loan rate of 5.0% (2006: 3.9%).

A new syndicated loan was raised in 2003 amounting to USD 115m. The purpose of this loan was to replace existing credit facilities and to create a general credit base for the Group. The loan is structured in three tranches with a maturity of one, five and seven years respectively with an average interest rate of 5.85% (5.2%) under current circumstances. The loan matures in its entirety in 2008. The overdraft facility has an interest rate of 5.0% (3.9%).

NOTE 24 OTHER NON-INTEREST-BEARING LIABILITIES

	Group		Parent company
	2007	2006	2007	2006
Bills payable	–	1	–	–
Liabilities to Group companies	–	–	519	105
Other liabilities	41	43	1	1
Accrued expenses and prepaid income	171	163	43	40
Closing balance	212	207	563	146

Specification of accrued expenses and prepaid income

	Group		Parent company
	2007	2006	2007	2006
Holiday pay liability	32	34	4	4
Social security contributions	12	14	3	3
Payroll liability	13	15	–	–
Accrued result of pulp hedging	7	3	7	3
Excise duties	1	2	–	–
Property tax	2	2	–	–
Interest expenses	8	7	8	9
Delivery costs	18	24	18	21
Accrued maintenance costs	10	11	–	–
Waste disposal charges	10	12	–	–
Raw material costs
and consumables	31	30	–	–
Other accrued expenses	27	9	3	–
Closing balance	171	163	43	40

NOTE 25 OTHER INFORMATION

For information about events after the end of the financial year, see the Directors' Report, page 41.

For information about risks faced by the company, see the section entitled Opportunities and risks on page 33 and the Directors Report, page 40.

Audit report

To the Annual General Meeting of Rottneros AB (publ.)

Corporate reg. no. 556013-5872

We have examined the annual report, consolidated financial statements and the accounting records as well as the administration by the Board and the President of Rottneros AB for the 2007 financial year. The company's annual accounts are included in the printed version of this document on pages 38–63. These accounts, the administration of the company and the application of the Annual Accounts Act in the preparation of the annual report are the responsibility of the Board of Directors and the President, who are also responsible for ensuring that the International Financial Reporting Standards as adopted by the EU and the Annual Accounts Act are applied in the preparation of the consolidated accounts. Our responsibility is to express an opinion on the annual report, the consolidated financial statements and the administration based on our audit.

Our audit was conducted in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain a high level of but not absolute assurance that the annual accounts and consolidated financial statements are free of significant material misstatement. An audit involves examining a selection of the documentary records supporting the amounts and other disclosures in the accounts. An audit also involves assessing the accounting principles used and their application by the Board and the President, assessment of the significant estimates made by the Board and the President in the preparation of the annual accounts and consolidated financial statements, as well as evaluating the totality of the information in the annual report and consolidated financial statements. As a basis for our opinion concerning liability, we have examined significant decisions, actions taken and circumstances in the company in order to be able to determine the liability, if any, to the company of any member of the Board or the President. We have also examined whether any member of the Board or the President has in any other way acted in contravention of the Swedish Companies Act, the Annual Accounts Act or the company's articles of association. We believe our audit provides a reasonable basis for our opinion set out below.

The annual accounts have been compiled in accordance with the Annual Accounts Act and therefore provide a true and fair picture of the company's results and financial position in accordance with generally accepted accounting standards in Sweden. The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU and the Annual Accounts Act and provide a true and fair picture of the Group's results and financial position. The Directors' report accords with the other parts of the annual report and consolidated financial statements.

We recommend that the income statements and balance sheets for the parent company and the Group be adopted by the Annual General Meeting, that the parent company's profit be dealt with in accordance with the proposal in the Directors' report and that the members of the Board and the President be discharged from liability for the financial year.

Upplands Väsby, 3 March 2008

Öhrlings PricewaterhouseCoopers AB Magnus Brändström Chief Auditor

Corporate governance

Management, leadership and control of Rottneros is divided between the shareholders at the Annual General Meeting, the Board of Directors and the President, in accordance with the Swedish Companies Act and the company's articles of association. Since Rottneros' market capitalisation is less than SEK 3bn, the company is not required to comply with the Swedish Code of Corporate Governance; however, the Code has been used to provide guidelines.

ARTICLES OF ASSOCIATION

The articles of association of Rottneros AB (publ) state that the company's business is to produce and sell paper pulp, paper and similar products and to engage in operations consistent therewith. The Board of Directors shall comprise a minimum of three and a maximum of ten members, with up to six deputy members. The company's registered office is in Sunne.

SHAREHOLDERS

According to the register of shareholders kept by VPC, Rottneros had 17,688 shareholders at the end of 2007. The ten largest shareholders (excluding treasury shares) held a total of 45.9% of the shares.

Swedish legal entities own 46.7% of the capital, foreign investors 18.8 % and Swedish private individuals 34.5%. (For a list of shareholders, please refer to the section on the Rottneros share on page 31.)

ANNUAL GENER AL MEETING IN 2007

The Annual General Meeting is Rottneros' highest decisionmaking body. The AGM was held in Sunne on 25 April 2007. Sune Lund acted as chairman for the AGM.

The following resolutions were passed:

• The Annual General Meeting adopted the income statements and balance sheets, decided on the appropriation of the profit in accordance with the adopted balance sheet, discharged the members of the Board of Directors and the President from liability, and resolved to distribute a dividend of SEK 0.10 per share for 2006 in accordance with the proposal of the Board of Directors.
• The Annual General Meeting resolved, in accordance with the proposals made by the Nominating Committee:
that the number of Board members shall be eight.
that Lars Blecko, Johan Holmgren, Bengt Nordin, Ingrid Lindquist and Ingrid Westin Wallinder be re-elected as Board members and that Per Eiritz, Rune Ingvarsson and Kjell Ormegard be elected as new members. Bengt Nordin was appointed as Board Chairman.
that SEK 300,000 be paid in fees to the Chairman of the Board, and SEK 150,000 to the other Board members. No fee will be paid to Board members employed by the company. Employee representatives are paid a fee of SEK 15,000 for the time required to read up on material prior to meetings. The members of the committees receive a daily fee of SEK 10,000 for each day of committee work.
that the auditors' fees be paid based on invoices approved by the President.
to reappoint the registered accounting firm Öhrlings PriceWaterhouseCoopers AB as auditors for a period of four years until the end of the 2011 AGM. The chief auditor is the authorised public accountant Magnus Brändström.
• The Board was authorised until the next AGM, on one or more occasions, to transfer Rottneros' treasury shares, which were acquired in connection with the company's buyback programme. The company may transfer no more than the amount held by the company at any given time. The shares may be transferred in connection with the acquisition of companies or operations with exceptions and at a price that is within the spread at the time the transfer decision is taken (see also the minutes from the 2007 shareholders' meeting at www.rottneros.com).
• The AGM adopted a set of guidelines for remuneration of senior executives (see the minutes from the 2007 AGM at www.rottneros.com).
• The AGM passed a resolution on the composition and organisation of the Nominating Committee and its work.

THE BOARD OF DIRECTORS AND ITS WORK General

The Board of Directors of Rottneros comprises eight members elected by the Annual General Meeting and two members appointed by the employees. It also has two deputy members appointed by the employees. In 2007 the President was one of the Board members elected by the Annual General Meeting. Lars Blecko stepped down as President and Board member on 31 January 2008. On 1 February 2008 Ole Terland took up the post of President. The company's Chief Financial Officer serves as Board secretary. Other executives in the company have attended Board meetings to present reports. The Board works according to a plan established in advance. Each Board meeting addresses a prepared list of strategic issues.

At its February meeting (held in January in 2008) the Board reviews the year-end release for the preceding year. At this time, the Board decides on its recommendation with respect to the dividend and works on any necessary adjustments/additions to the budget. The company's auditors report their observations made in the audit.

At the meeting at the end of February, the Board reviews the official annual report.

The April meeting is held on the day before and on the day of the Annual General Meeting and is used to discuss the result for the first quarter and to review the Group's strategies, if necessary.

The July meeting deals with the half-yearly result, while the October meeting reviews the third quarter interim report and investment planning for the following financial year.

At the final regular meeting of the year in December preparations for the year-end accounts are discussed and the budget for the following year is approved.

Other business is dealt with as determined by the nature of each individual matter. The Board is given a monthly progress report on the Group's result and liquidity trends.

The Board's work is governed by its formal work plan, which contains stipulations with respect to the division of responsibility between the Board and the President, between the Board committees and within the Board itself.

In 2007 electricity and wood prices and their impact on the Group's operations were a recurring theme. The ongoing costcutting programme was also addressed on several occasions. The plans for establishing a presence in South Africa were another recurring issue.

The President of the company works according to separate written instructions. The Board monitors the President's work and is responsible for ensuring that organisation, leadership and guidelines for the management of the company's resources are structured appropriately. The Board is further responsible for developing and monitoring the company's strategies using plans and targets, decisions on acquisitions and divestments of operations, major investments, management appointments and remuneration, as well as ongoing monitoring of the business during the year. The Board approves the budget and the year-end accounts.

Most of the Board members elected by the AGM and the staff-appointed employee representatives completed a half-day course on the listing agreement, insider trading rules and other issues arranged by the OMX Nordic Exchange Stockholm for the company's Board members and senior executives.

Chairman of the Board

At the AGM of Rottneros AB on 25 April 2007 Bengt Nordin was re-elected as Chairman of the Board for the period up to the next AGM. He leads the work of the Board and monitors the company's business in dialogue with the President and is responsible for the other Board members receiving the information they need to ensure that discussions and decisions are effective and productive. The Chairman is responsible for evaluating the work of the Board and for ensuring that the Nominating Committee is informed of his assessments. The Chairman also participates in appraisals and development matters relating to the Group's senior executives. The Chairman represents the company in matters concerning ownership.

Work of the Board

Thirteen minuted Board meetings were held in 2007, including six ordinary meetings. Three of these were in the form of conference calls. On two occasions the Board meetings were held at locations where the Group has operations and included site visits. The Board also visited South Africa due to the plans to establish a presence there.

IMPORTANT DECISIONS IN 2007

The most important decisions in 2007 relate to releases and include the annual decision on strategy, operating plans and investments for the coming year. In addition, important decisions were made on:

• The signing of a letter of intent with the South African forestry company NCT Forestry Co-operative Ltd to jointly explore the opportunities for establishing a pulp mill for CTMP production at Richards Bay in South Africa.
• The building of a factory for production of SilviPak food packaging next to the pulp mill at Miranda in Spain.
• The appointment of Ole Terland as President and Chief Executive Officer as successor to Lars Blecko.

AT TENDANCE

Average attendance at the Board and committee meetings in 2007 was very good.

CONTACTS WITH AUDITORS

In order to ensure that the Board receives the information it needs, the company's auditors report to the Board every year on their observations made during their audit and their opinion of the company's internal control, in addition to reporting to the Audit Committee. The company's auditor and representatives of the accounting firm attended one Board meeting in 2007. The auditors also attended the meetings of the Audit Committee.

INTERNAL CONTROL

Under the Swedish Companies Act, the Board of Directors must ensure that the company is organised in such a way that there is adequate internal control. The Board has drawn up a number of documents with respect to the company's internal control and governance, including the Board's formal work plan and instructions for the President and the Board's committees, reporting instructions and a financial policy. All of the above documents are intended to ensure a clearly-defined distribution of roles and responsibilities. One prerequisite for good internal control is an effective internal control environment. This is created by having common values, corporate culture, rules and policies, communication and follow-up, and by the way in which the company is organised.

Creating an effective internal control environment and the ongoing work of internal control and risk management is the responsibility of the President and Group management, who report to the Board based on established routines. The managers at different levels within the company are also responsible for their respective areas and in turn report to Group management.

The main task of the staffs and those assigned to them is to implement, develop and maintain the Group's control routines and also introduce internal control measures aimed at business-critical issues.

A separate review of the Group's internal control was made during the year. The Board believes that the Group's scope and complexity does not, at this time, justify the establishment of a separate internal audit department.

COMMIT TEE WORK

The Board has full knowledge of, and responsibility for, all issues on which it must make decisions. However, during the year work was also conducted by the four committees approved by the Annual General Meeting: the Nominating Committee, the Finance Committee, the Audit Committee and the Compensation Committee.

NOMINATING COMMIT TEE

Members of the Board of Rottneros are nominated by a Nominating Committee appointed by the Annual General Meeting. Prior to the 2007 Annual General Meeting, the Committee comprised Olle Grundberg, Nemus Holding AB, Chairman; Torgny Prior, P&N Yield; and Bengt Nordin, Chairman of Rottneros AB. The Committee met on three occasions. The nomination work started with an evaluation of the existing Board. As background, information was also provided on the company's business and strategic development, while the strategic skills, Board work and educational background of the Board members were described and reports were given of the

work carried out by the company's committees and the Board's discussions with the auditors. Rottneros complies with the rules regarding dependence and independence under the Stockholm Stock Exchange listing agreement, as evidenced in the presentation of the members.

At the 2007 AGM the shareholders decided that the Nominating Committee should consist of the Board Chairman and two further Board members and that the Board Chairman should not chair the Committee. One of the independent members shall be a representative of the company's biggest shareholder, and one shall be a representative of one of the company's other four main shareholders. The decision also provides for a deputy arrangement in the event that a member leaves the Committee before the end of his or her term of appointment. The Committee appoints a chairman from among its members, excluding the Chairman of the Board. Information about the composition of the Nominating Committee at any given time is published on the company's website.

The Nominating Committee will present proposals on the following issues to be voted on at the 2008 Annual General Meeting:

1. Chairman for the meeting
1. Number of Board members and deputies
1. Election of Board members and deputies
1. Election of Chairman of the Board
1. Board fees and their distribution among the Chairman and other Board members as well as fees for committee work.
1. Auditors' fees and, where required, a proposal for appointment of auditors.

The Nominating Committee's proposals to the 2008 AGM is presented in the notice of AGM and on the company's website, www.rottneros.com.

FINANCE COMMIT TEE

The Finance Committee consists of two Board members, the Chairman Bengt Nordin and Ingrid Lindquist, the Chief Executive Officer (also a Board member), who chairs the Committee, and the Chief Financial Officer. The Finance Committee's task is to supervise the financial policy and the risk mandate. On several occasions the Committee invited external financial experts to attend meetings. The Finance Committee has been mandated by the Board to manage the application of the Group's financial policy. The Finance Committee held eight minuted meetings and the minutes are forwarded to the Board of Directors.

AUDIT COMMIT TEE

The Audit Committee's tasks include reviewing the extent and focus of auditing assignments, preparing audit decisions, following up and assessing the application of the current accounting principles and adoption of accounting principles, as well as other accounting requirements as stipulated in legislation, generally accepted auditing standards, applicable listing agreements etc. In 2007 the Committee comprised Board Chairman Bengt Nordin and Board members Ingrid Westin Wallinder and Ingrid Lindquist. Ingrid Westin Wallinder was the Committee's Chairman.

The Committee's meetings were attended by the chief auditor and representatives for the accounting firm. Where required, senior executives of the company are also called in to attend meetings. The Audit Committee held six minuted meetings during the year and the minutes were forwarded to the Board of Directors.

COMPENSATION COMMIT TEE

The Committee consists of Board Chairman Bengt Nordin, Board members Johan Holmgren and Kjell Ormegard. The chairman of the committee was Bengt Nordin. The Committee mainly carries out preparatory work for decisions to be made by the Board and the Annual General Meeting in matters relating to guidelines and types of remuneration and the employment terms for the President and other senior executives. The President's remuneration package is determined by the Board of Directors. Remuneration of the other senior executives is determined by the Compensation Committee within the framework established by the Board and the Annual General meeting. The Compensation Committee held four meetings in 2007.

BOARD FEES

The total fees paid to the members of the Board elected by the Annual General Meeting are determined by the Annual General Meeting based on the Nominating Committee's proposal. Total fees in 2007 were SEK 1.4 million. In addition, the committee members are paid fees of SEK 10,000 per day. Employee representatives receive a fee SEK 15,000 for the time required to read up on material prior to meetings.

REPORTING

The Board monitors the quality of financial reporting through the instructions it issues to the President and its work in the Audit Committee. The President and Chief Financial Officer must together review and guarantee all external financial reporting, including year-end financial statements, interim reports, annual reports, press releases with financial content, as well as presentation material used in meetings with the media, shareholders and financial institutions.

CORPOR ATE MANAGEMENT

The President manages the business within the frameworks established by the Board of Directors. He produces the material required for information and decisions at Board meetings, presents matters and justifies proposed decisions. The President leads the work of Group management and makes decisions in consultation with other members of the management team. The management team comprises eleven people in addition to the President. The corporate management team is involved in business reviews led by the President approximately every six weeks, often in conjunction with visits to the various units in the Group. The internal system of reporting and control is based on annual financial planning with monthly reports. The Chairman holds appraisal meetings with the President in accordance with the President's instructions and requirement specifications.

REMUNER ATION

At the 2008 Annual General Meeting the Board will propose that the shareholders' adopt the principles for remuneration and other terms of employment for the company's management. The proposal is described in the Directors' report and also in the notice to attend the AGM. The proposal is identical to the guidelines adopted at the 2007 AGM. For information about remuneration of the President and other senior executives, please see Note 6.

Board of Directors

BENGT NORDIN Born 1936. M.Sc. Engineering. Chairman of the Board. Board member since 1999. No other Board appointments. Number of shares in Rottneros: 40,000. Independent of Rottneros' major shareholders.

LARS-OVE BROLIN Born 1945. Union representative at Vallvik Mill. Employee representative. Deputy Board member since 2005. Number of shares in Rottneros: 0.

PER EIRITZ Born 1951. M.Sc. Engineering. Board member since 2007. Other Board appointments: Chairman of the boards of Kompetenscentrum Stål & Verkstad, ClaraHälsan AB and Svensk PCI AB. Board member of The Packaging Green House AB and KMW-Energi AB. Number of shares in Rottneros: 3,000. Independent of the company and Rottneros' major shareholders.

JOHAN HOLMGREN Born 1944. B.Sc. Board member since 2002. Other Board appointments: Chairman of AB Oscar Wigén, Bo Ohlsson AB and SIA TROLL Nursery. Board member of Nolato AB and Fabege AB. No. of shares in Rottneros: 14,000 (incl. companies). Independent of the company and Rottneros' major shareholders.

Rune Ingvarsson Born 1943. Board member since 2007. Number of shares in Rottneros: 0. Independent of the company and Rottneros' major shareholders.

INGRID LINDQUIST Born 1957. M.Sc. in Business and Economics. Board member since 2004. Other Board appointments: Board member of ActionAid Sverige. Number of shares in Rottneros: 3,000. Independent of the company and Rottneros' major shareholders.

HANS-ÅKE NORDSTRANd Born 1955. Warehouse worker, Utansjö Mill. Employee representative. Board member since 2007. Number of shares in Rottneros: 0.

Kjell Ormegard Born 1949. M.Sc. Business and Economics. Board member since 2007. Other Board appointments: Chairman of Getupdated Internet Marketing AB (publ.) Number of shares in Rottneros: 10,000. Independent of the company and Rottneros' major shareholders.

JAN VIPER Born 1954. Electrical engineer at Rottneros Mill. Employee representative. Board member since 2004. Number of shares in Rottneros: 0.

MATS WENNBORN Born 1951. Process operator at Rockhammar Mill. Employee representative. Deputy Board member since 2005. Number of shares in Rottneros: 0.

INGRID WESTIN WALLINDER Born 1957. Solicitor and partner of Rydin-Carlsten Advokatbyrå AB. Board member since 2006. Other Board appointments: Board member of Uppsala Akademiförvaltnings Styrelse and RydinCarlsten Advokatbyrå AB. Number of shares in Rottneros: 0. Independent of the company and Rottneros' major shareholders.

Lars Blecko Born 1957. President and Chief Executive Officer from 1999 to January 2008. Board member since 2000. Other Board appointments: Swedish Forest Industries Association. Number of shares in Rottneros: 18,000. Lars Blecko stepped down as CEO on 31 January 2008 and left the Board at the same time.

AUDITORS

Öhrlings PricewaterhouseCoopers AB. The chief auditor is Magnus Brändström, appointed until the 2011 AGM.

Senior executives

OLE TERLAND Born 1958. Chief Executive Officer of Rottneros AB. Employed since 2008. Number of shares in Rottneros: 60,000.

Olle Dahlin Born 1954. Managing Director of Rottneros Mill and Utansjö Mill. Head of High-Yield Pulp business area. Employed since 2005. Number of shares in Rottneros: 5,000.

Ingemar Eliasson Born 1956. Wood Procurement Director. Employed since 1987. Number of shares in Rottneros: 40,000.

KARL OVE GRÖNQVIST Born 1954. Chief Financial Officer. Employed since 2006. Number of shares in Rottneros: 0.

JOAKIM STOCKHAUS Born 1965. Head of Rottneros Packaging business area. Employed since 2006. Number of shares in Rottneros: 20,000.

Jan Holm Born 1959. Director of Human Resources. Employed since 1989. Number of shares in Rottneros: 0.

The photos show the end products made from Rottneros' paper pulp: Writing paper, coated printing paper, kitchen paper, book paper, Rottneros' own end product SilviPak, wallpaper samples, liquid packaging board, air filters, wine labels, electrical insulation paper and LWC paper.

ROBERT JENSEN Born 1956. Managing Director of Rockhammar Mill. Employed since 1999. Number of shares in Rottneros: 0.

Ragnar Lundberg Born 1947. Technical Director. Employed since 2000. Number of shares in Rottneros: 2,000.

Gregorio Martin Perez Born 1948. Director General of Rottneros Miranda SA. Employed since 1999. Number of shares in Rottneros: 0.

Hannu Thomasfolk Born 1951. Managing Director of Vallvik Mill. Employed since 1995. Number of shares in Rottneros: 4,000.

Tomas Wiklund Born 1966. Marketing Director. Employed since 2002. Number of shares in Rottneros: 1,000.

ANN OLHEDE Born 1958. Purchasing Director. Employed since 2007. Number of shares in Rottneros: 0.

Six-year review

		2007	2006	2005		2004		2003	2002
				Remaining operations	Total	Remaining operations	Total
Factors affecting turnover
Pulp price, NBSK list price, USD 1)		794	675	611		617		524	463
USD/SEK 2)		6.76	7.37	7.48		7.35		8.09	9.72
Pulp price, NBSK list price, SEK		5,368	4,977	4,565		4,532		4,235	4,500
Rottneros' deliveries, tonnes		714,700	699,500	666,700		625,000		641,100	630,500
Turnover and income, SEKm
Net turnover		2,927	2,690	2,411	2,429	2,272	2,356	2,380	2,494
Income before depreciation		75	148	9	48	129	109	239	171
Depreciation/amortisation/write-downs		-435	-155	-138	-138	-162	-223	-117	-114
Income after depreciation		-360	-7	-129	-90	-33	-114	122	57
Net financial items		-24	-16	-12	-13	-5	-7	-7	29
Income after net financial items		-384	-23	-141	-103	-38	-121	115	86
Income after tax		-301	-8	-91	-63	-31	-91	85	55
Balance sheet items, SEKm
Fixed assets		1,123	1,363	1,435		1,349		1,249	1,197
Inventories		493	397	430		474		388	401
Current receivables		572	570	595		572		443	425
Cash and cash equivalents		121	122	125		157		252	350
Assets in discontinued operations		–	–	26		16		–	–
Equity		1,050	1,403	1,523		1,673		1,717	1,706
Long-term interest-bearing liabilities		173	177	180		186		42	6
Long-term non-interest-bearing liabilities		49	85	118		174		158	143
Current interest-bearing liabilities		452	304	375		56		6	2
Current non-interest-bearing liabilities		585	483	405		472		414	516
Liabilities in discontinued operations		–	–	10		7		–	–
Total assets		2,309	2,452	2,611		2,568		2,332	2,373
Key ratios
Operating margin	%	-12.3	-0.3	-5.3	-3.7	-1.5	-4.9	5.1	2.3
Profit margin	%	-13.1	-0.9	-5.8	-4.2	-1.7	-5.2	4.8	3.5
Return on capital employed	%	Neg.	Neg.	Neg.	Neg.	Neg.	Neg.	7	5
Return on equity after full tax	%	Neg.	Neg.	Neg.	Neg.	Neg.	Neg.	5	3
Equity/assets ratio	%	45	57	58	58	65	65	73	72
Debt/equity ratio	Multiple	0.6	0.3	0.4	0.4	0.2	0.2	0.0	–
Interest coverage ratio	Multiple	Neg.	Neg.	Neg.	Neg.	Neg.	Neg.	18.2	29.4
Other
Capital expenditure	SEKm	163	113	234	234	283	283	193	244
Average number of employees	No.	718	754	804	804	835	835	857	860

1) The source for NBSK list price is PIX, and for older price information, Market Pulse.

2) Source: Bank of Sweden's yearly average.

3) Figures for the years 2000 and 2003 have not been restated in accordance with IAS/IFRS. Adjustments would need to be made for IAS 39.

Glossary

AOX	Absorbable organic halogens.		Mechanical pulp Pulp that is produced by means of a mechanical pro cess for fibre separation and processing. Has higher 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, US, Sweden and Finland.
Bulk	Inverted value for density expressed as cm3 /g.	Nutrient salts	Consist of various phosphorus and nitrogen com pounds that have a fertilising effect in the recipient.
Chemical pulp	Pulp that is produced by cooking pulpwood with chemicals. Has higher brightness and strength than mechanical pulp.	Opacity	Degree of opaqueness.
COD	Chemical Oxygen Demand, a chemical method for measuring oxygen-demanding substances.	Scm ub	Solid cubic metre under bark, used to measure pulpwood.
CTMP	Chemi-Thermo-Mechanical Pulp, development of TMP, where the raw material is impregnated with chemicals. Stronger than TMP.	Shives content	The proportion of unseparated fibres in the pulp.
ECF	Elemental Chlorine Free, sulphate pulp bleached only with chlorine dioxide.	Sulphate	Method for the production of chemical (kraft) pulp.
EPIS	European Pulp Industry Sector.	Sulphite	As sulphate, but using a different cooking techni que, different chemicals and with different chemical recovery.
Grammage	Weight of paper per surface unit; expressed as g/m2	TCF	Totally Chlorine Free, entirely chlorine-free bleached sulphate pulp.
Groundwood pulp (SGP)	Mechanical pulp made from groundwood.	TMP	Thermo-Mechanical Pulp: mechanical pulp that uses a technique in which the chips are preheated with steam.
Latency	The deformed condition of pulp fibre.	UKP	Unbleached Kraft Pulp.
Lignin	Polymer compound consisting mainly of phenylpro pane units; the main binding agent for wood fibre.	ULWC	Ultra Light Weight Coated, like LWC but with a lower grammage.
LWC	Light Weight Coated, a type of coated paper often used for catalogues and magazines.

Key ratio definitions

Equity/assets ratio:	Shareholders' equity including minority as a percentage of balance sheet total.	Capital employed:	Balance sheet total less non-interest-bearing operating liabilities including deferred tax
Debt/equity ratio:	Interest-bearing liabilities divided by share		liabilities.
	holders' equity.	Return on equity:	Net profit as a percentage of average shareholders' equity.
Operating margin:	Operating profit after depreciation as a
	percentage of net turnover.	Interest coverage ratio:	Profit after net financial items, plus interest costs, divided by interest costs.
Profit margin:	Profit after net financial items as a percentage
	of net turnover.	P/E ratio:	Closing listed price in relation to earnings per share after tax.
Net profit/loss:	Profit/loss after tax.
		Direct yield:	Dividend as a percentage of closing listed price.
Earnings per share:	Net profit/loss divided by the average number of shares.
Return on capital employed:	Profit after net financial items, plus interest costs, divided by average capital employed.

Group offices

Rottneros AB

Box 600 SE-194 26 Upplands Väsby Visiting address: Kanalvägen 16 InfraCity (Stockholm) Tel. +46 8-590 010 00 Fax +46 8-590 010 01

e-mail [email protected]

www.rottneros.com

Vallviks Bruk AB SE-820 21 Vallvik

Tel. +46 270-620 00 Fax +46 270-692 10

Utansjö Bruk AB SE-870 15 Utansjö Tel. +46 612-716 200 Fax +46 612-421 18

Rottneros Bruk AB SE-686 94 Rottneros Tel. +46 565-176 00 Fax +46 565-176 80

Rockhammars Bruk AB

SE-718 81 Frövi Tel. +46 581-377 00 Fax +46 581-703 40

SIA Rottneros Baltic Locuiela 1 LV-3601 Ventspils Latvia Tel. +371 362 92 73 Fax +371 362 92 75

Rottneros Miranda, S.A.

Carretera de Logrono s/n P.O.B. 6 ES-09200 Miranda de Ebro (Burgos) Spain Tel. +34 947 31 02 45 Fax +34 947 34 72 44

Rottneros Madeiras, LDA

Avenida 25 de Abril n° 809 –1°dto. PT-2200-299 Abrantes Portugal Tel. +351 241 36 51 21 Fax +351 241 36 52 21

Rottneros SA

Avenue de Kraainem, 33 B-1950 Kraainem Belgium Tel. +32 2 766 16 90 Fax +32 2 766 16 99

Rottneros GmbH

Contact Rottneros SA, see address above

AI assistant

Rottneros — Annual Report 2007

3105_10-k_2013-07-11_c92cdaa6-59c7-41cd-98a6-d03159d9a283.pdf

CONTENTS

24 April

Financial information

ANNUAL GENERAL MEETING

Highlights of 2007

EVENTS AFTER THE END OF THE YEAR

Rottneros in brief

FINANCIAL HEDGING STRATEGY

NET TURNOVER, SEKm PROFIT/LOSS, SEKm

(SilviPak)

ROTTNEROS NICHES

ORGANISATION

Forward-looking projects to reduce vulnerability

TWO MAJOR PROJECTS

FACILITIES IN GOOD CONDITION

THOROUGH REVIEW

INCREASING NET ASSET VALUE

Niche strategy a key part of creating value

BUSINESS CONCEPT

OBJECTIVES AND STRATEGIES

BUSINESS CONCEPT

VISION

Adding value – from wood to end product

Input goods

Pulp products

Markets and end products

Good balance sustained in 2008

SHORTAGE OF WOOD

STRONG MARKETS IN EUROPE AND CHINA

STRONG DEMAND PREDICTED FOR 2008

LONG-FIBRE CHEMICAL PULP THE MARKET

ROTTNEROS' SHARE OF THE GLOBAL MARKET FOR MARKET PULP 2007

DEVELOPMENT OF GLOBAL STOCKS AND NBSK PRICES

PRODUCTS AND APPLICATIONS

OUTLOOK

SHORT-FIBRE CHEMICAL PULP THE MARKET

PRODUCTS AND APPLICATIONS

OUTLOOK

MECHANICAL PULP THE MARKET

PRODUCTS AND APPLICATIONS

OUTLOOK

THE PULP MARKET

High accessibility multiple production records

ROTTNEROS MILL

UTANSJÖ MILL

ROCKHAMMAR MILL

VALLVIK MILL

ROTTNEROS MIRANDA

SIA ROT TNEROS BALTIC AND ROTTNEROS MADEIRAS

SilviPak – new factory to be built in Spain

FROZEN AND CHILLED PORTION TR AYS

MARKET

CAPITAL EXPENDITURE

Plans to invest in South African pulp mill

MULTIPLE BENEFITS

FULL-SCALE TEST PRODUCTION

JOINT-OWNED COMPANY

Purchasing and raw materials supply – strategic functions

NEW PURCHASING DEPARTMENT

WOOD SUPPLY

THE WOOD MARKET

TR ACEABILIT Y CERTIFICATION

ELECTRICIT Y SUPPLY

CHEMICALS

Responsibility – a key part of our corporate culture

EMPLOYEES

SOCIET Y

CUSTOMERS AND SUPPLIERS

ENVIRONMENT

SHAREHOLDERS

Continued focus on leadership skills

SKILLS DEVELOPMENT

ISO CERTIFICATION OF HEAD OFFICE

EMPLOYEE SURVEY

HEALTH AND FITNESS PROGRAMME

EMPLOYEES

CLOSURE OF UTANSJÖ MILL

Rottneros Annual Report 2007