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2010-07-23, 08:39
 - Regulatory

CEO’s statement

Profit was SEK 50 million in the second quarter, representing a clear improvement on the first quarter (SEK 11 million). Return on capital employed for the quarter amounted to 17% and operating cash flow amounted to SEK 44 million. These are welcome figures after the major redeployment work we were obliged to implement in recent years. As previously reported, we were compelled to stop work at our sulphate factory in Vallvik late May/early June on account of the old part of the evaporation plant – which is being replaced in the autumn – getting clogged up. The cost of this amounted to almost SEK 15 million, primarily owing to production losses.

The strong improvement to our result is of course mainly attributable to the favourable pulp market. However, as is often the case, when the price of pulp increases the price of wood also drifts upwards, restricting the increase in profit. It has been possible to implement successive pulp price increases the price of pulp over the year and we are now at a historically high level. Demand has been strong up until now, both in North America and Europe, with increases of almost 15% compared to the weak start last year. On the other hand, the relatively firm trend in 2009 for supplies to China saw a strong reversal (down approximately 20%). Certain Chinese macro indicators are pointing downwards and importers’ trade prices for pulp in China have fallen over the past few weeks.

We have low sales volumes in China and have not felt any adverse effects of this slowdown. We note that stock levels are low; that customers want to buy more than we can manufacture and all of our price increases during the year, including those for June, have been accepted. We remain optimistic, despite certain warning signals. Both the American and European paper mills have good order books. If the improvement of the business cycle continues, also the weakest part of the paper market, namely printing paper, continues to recover underpinned by the advertising market, in spite of the continual growth of the Internet.

We are in the midst of intensive improvement work at Vallvik Mill and decided investments in the evaporation plant and the recovery boiler will be carried out in conjunction with the October shutdown, which has been extended this year to almost three weeks to allow these investments. This will provide an initial increase in capacity of 10% and facilitates further increases.

Our South Africa Project, which involves a new factory being built together with local partners using some of the equipment from our former mill at Utansjö, has been affected by further delays owing to increased guarantee demands on the part of our cooperating partners. The demands now presented go beyond what we consider to be reasonable, for which reason it now appears less certain that the project will in fact be implemented. We have consequently intensified our work on alternatives to this project, calling for some other use for our equipment and skills to be found.

We also continued during the spring to study our capacity to increase production of bio products. We currently manufacture both tall oil and green electricity at Vallvik Mill in addition to various ‘renewable’ pulp products. The new areas that interest us most and which we believe might be suitable for our mill are the manufacture of, within the range of energy fuels, another more refined form of pellets or alternatively methanol and possibly the production of considerably more green electricity with the aid of new technological developments. This may entail substantial investment and our main approach will be to find suitable cooperating partners.

We see an exciting future ahead of us …

Ole Terland

President and CEO

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

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