Comments by the CEO

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Lennart Eberleh, CEO and President Rottneros AB

"To sum up, 2017 was a year of definite success in production, sales and the development of the group to meet future requirements. We are especially pleased with the big steps that we have taken towards decreasing our CO2 footprint, for example by putting into service the new biofuel boiler at Rottneros Mill."

YEAR-END REPORT JANUARY-DECEMBER 2017

VOLUME GROWTH CONTINUES

Our targeted efforts and strategic investments have generated a significant increase in production at our mills both during the fourth quarter and the year as a whole. Profit, however, is being held back by increased costs. Prior to 2018, we have had a clear focus on increased profitability through improvements in efficiency.

2017 proved to be eventful with a number of milestones confirming that we are advancing at a good pace. We are now placing considerable emphasis on mapping out how we can make activities more efficient. This is taking place in parallel with the direction of growth in our selected niches. Following a number of years of major capacity-increasing investments, we are now entering a phase of optimisation and consolidation of what has been achieved in order to be able to produce the highest possible return for our shareholders.

The gradual upturns during the year mean that the Group's production for the entire year rose by 7 per cent to over 400,000 tonnes. During the fourth quarter, growth was just over 8 per cent. The annual shutdown at Vallvik took place in October and went according to plan.

Cost trends
Costs during Q4 were affected by both external factors, as well as by certain non-recurring items. The wet and mild weather during the autumn and at the start of winter has resulted in low stocks of pulp wood at our plants at the end of the year and the start of 2018. The weather, combined with high production throughout the forestry industry, has led to increasing wood prices, which had a negative impact on purchasing costs of approximately SEK 5 million compared with the previous quarter.

Focus on increased profitability
When mapping out the efficiency opportunities, we apply a systematic approach similar to what we have used to raise production levels. The new organisation presented during the course of the quarter is an important element of this approach with the creation of a joint group sales organisation and the appointment of site managers for the respective mills. The goal, among others, is to establish clear areas of responsibility and thus create the conditions for increased efficiency throughout the entire line.

Market remains strong
The market continues to have a good balance between supply and demand. The dollar’s weakening against the krona during 2017 has been offset by an increasing pulp price in USD. Demand is partly driven by good growth in the global economy. Rottneros thus has a good springboard for achieving profitable growth during 2018. This is confirmed by our healthy order books and the positive development in our various niches.

The Agenda 500 development programme is running according to plan
During the quarter, the Board decided to make further investments in both mills amounting to a total of almost SEK 120 million. Investment stage 2 at Rottneros Mill will be implemented on the CTMP line. The investment will raise capacity by approximately 18,000 tonnes per year and is expected to come on line in the autumn of 2018. Through this increased capacity, we aim to ensure that Rottneros continues to be a reliable supplier of CTMP and an attractive partner to our customers. Vallvik Mill will invest in a weak gas system in order to meet the requirements linked to the environmental permit for increased production granted in 2016. The investment is expected to be operational towards the end of 2018.

A successful year
To sum up, 2017 was a year of definite success in production, sales and the development of the group to meet future requirements. We are especially pleased with the big steps that we have taken towards decreasing our CO2 footprint, for example by putting into service the new biofuel boiler at Rottneros Mill. The continued strong market and our internal focus on efficiency improvements lay the foundations for taking the Group to the next level in terms of efficiency and profitability.


Lennart Eberleh

February 2018