Interim Report January-March 2011

(For table, see attached file)

• Profit after net financial items amounted to SEK 19 (11) million for the first quarter of 2011.Operating profit amounted to SEK 21 (7) million for the period.

• The pulp market is strong and prices in USD for chemical pulp increased during the end of the first quarter, although at the same time the Swedish krona strengthened significantly in relation to the US dollar.Further price increases were announced for the start of the second quarter.

• Cash flow from operating activities amounted to SEK -25 (69) million for the first quarter 2011, corresponding to SEK -0.16 (0.46) per share. A significant increase in working capital of a temporary nature had a negative impact on cash flow at the end of the quarter.

CEO’s statement

The global pulp market experienced a strong start to the year when buyers from China returned to the market in full force.Rottneros has obviously benefited from this.We are reporting a profit before tax of SEK 19 million for the first quarter, which is an improvement of SEK 6 million compared with the previous quarter and an improvement of SEK 8 million compared with the first quarter of last year.

This winter has been particularly severe, which has had a negative impact on the production outcome for all production lines, and energy consumption has also increased considerably.Swedish energy prices have also rocketed this winter and are now noticeably higher than prices in continental Europe. Furthermore, there has been a sharp increase in the price of oil, which has also had an impact on costs at our mills.The cold weather ended in March and our production rate is once again at the level planned.We are very happy to confirm that Vallvik Mill is coping with the higher level of production for long periods, which resulted from the investments made during the autumn.All that is left now is to obtain approval from the public authorities for this increased level of production, which we are counting on following connection of the investments made during the year primarily in biological water purification.

Rottneros and the entire chemical pulp market raised the list price from USD 950 to 980 per tonne in March, which gradually had an impact on the income statement from April.A further USD 30 per tonne was reported for April and has now also been reported for mechanical CTMP pulp.Price trends for CTMP, fuelled by developments in the Chinese market, were particularly disappointing during the autumn and winter.We have never previously seen price differences as large as these in relation to chemical pulp. The explanation for this is not immediately clear, which makes the future difficult to predict even though things appear to be bright for long-fibre sulphate pulp.

We are continuing our preliminary studies into the preconditions for establishing new bioenergy operations at both of our pulp mills.Vehicle fuel based on forest raw materials appears to be of particular interest for us and our mills.We also submitted very extensive EU funding applications for investments in renewable energy during the quarter.A decision on these matters will not be made until 2012.The rigid adherence of Swedish politicians to decisions concerning the taxation of various forms of energy and fuel has had a significant impact on the decision to invest.

Ole Terland

President and CEO

THE PULP MARKET

Markets and products

The pulp market is strong and prices in USD for chemical pulp had risen by 30 USD/tonne by the end of the first quarter.Further price increases of USD 30 per tonne were forewarned for the start of the second quarter.

Statistics for bleached chemical market pulp for the total global market showed that deliveries for the period January to February 2011 amounted to 6.48 (6.46) million tonnes, which was 0.3% higher than the same period in 2010. Eighty-nine per cent (91% for the same period in 2010) of the global supply capacity for bleached chemical pulp was utilised for the period January to February. An estimated 97% (94%) of production capacity was utilised during the same period.

Global producer stocks of bleached chemical pulp amounted to 3.95 million tonnes at the end of February.Stock has consequently risen by 0.1 million tonnes compared with the beginning of the year.Stock levels were 0.9 million tonnes higher compared with the same time of the previous year.

Long-fibre chemical pulp (NBSK) (produced at Vallvik)

The price was USD 949 per tonne at the beginning of the year and USD 977 per tonne at the end of March.The market for long-fibre chemical pulp is good.Producer stock levels of long-fibre chemical pulp are lower than normal levels, corresponding to 28 days’ production.

Delivery capacity utilisation for the period January to February 2011 was 93% (92% for the same period in 2010), and production capacity utilisation was around 96%, which remains unchanged compared with the same period of the previous year. 

Mechanical pulp and CTMP (produced at Rottneros)

The price of short­-fibre CTMP was approximately USD 600-650 per tonne in the Western European market at the beginning of the year.The price subsequently rose by USD 20 to 30 per tonne.Demand for CTMP developed more rapidly than for  chemical pulp at the beginning of 2011. Deliveries during January and February rose by 12 per cent compared with the same period of 2010.

Delivery capacity utilisation for the period January to February 2011 was 96% (86%) and production capacity utilisation was 104% (97%).

(For complete report, including tables, see attached file)