Mercer International Inc. · NASDAQ:MERC
Mercer International — Q2 2022 Earnings Presentation
47 slides from Mercer International's earnings presentation, Aug 1, 2022
Slide 1: Exceptional people creating bioproducts for a more sustainable world
Exceptional people creating bioproducts for a more sustainable world 1
Slide 2: Forward-looking Statements
Forward-looking Statements The Private Securities Litigation Reform Act of 1995 provides a “safe For more information regarding harbor” for forward-looking statements. these risks and uncertainties, review Mercer’s filings with the Certain information included in this presentation contains statement
Slide 3: Our 4-element strategy for adding value
The world's tolerance of pollution and carbon emissions is rapidly diminishing. Sustainably sourced biomaterials, including wood fiber and derivatives are part of the solution. However, supply is not boundless, and only the most efficient and innovative producers and products will be capable of meet
Slide 4: Products
Products • NBSK and NBHK from sustainably managed forests are used in the production of tissue, recyclable graphic paper, and packaging alternatives to plastics | One of the largest global producers of market NBSK with deep Pulp expertise and a market reputation as a reliable, efficient and high-qua
Slide 5: Building a Platform for Growth
Building a Platform for Growth 1994: Acquisition of Rosenthal mill Consolidated Revenue ($ millions) (1)(2) 1999: Rebuild of Rosenthal mill 2,250 2004: Stendal greenfield construction Bio-extractives/other 2,000 Wood products 2005: Acquisition of Celgar mill 2007: Celgar “Project Blue Goose” 1,750 G
Slide 6: World-class Assets and Innovation
World-class Assets and Innovation ▪ One of the largest producers of market NBSK in the world ▪ Operating among the most modern NBSK mills in the world ▪ Efficient distribution channels to major pulp consuming markets of ▪ Low cost, energy self-sufficient, net exporters of green Asia, Europe, and Nor
Slide 7: World-class Assets and Innovation: Top Softwood Sawmills
World-class Assets and Innovation Top 20 Softwood Sawmills (MMfbm) (1)(2) Ilim Wismar Canfor Plateau Mercer Timber Products Canfor Houston West Fraser Quesnel North America • Unique flexibility Mercer Friesau (3) Europe to produce metric Binderholz Kösching Other and US dimension Offner Wolfberg gra
Slide 8: World-class Assets and Innovation: Mercer Mass Timber (MMT)
World-class Assets and Innovation Design Precision: High-precision manufacturing for specific end-use Mercer Mass applications with little to no job site waste – MMT can manufacture more than 140,000 cubic metres of CLT per year – more than 1/4 of Timber (MMT) total North American capacity. The near
Slide 9: World-class Assets and Innovation: Bioenergy & Biomaterials
World-class Assets and Innovation Sustainable, Green Energy: All our mills produce enough sustainable, Bioenergy & green energy to not only heat and power our operations but to provide excess electricity to utilities looking to move away from fossil fuel- Biomaterials based energy. The world is tran
Slide 10: Torgau Acquisition
Torgau Acquisition ▪ Integrated sawmill and value-add pallet production facility in Torgau, Germany ▪ Key products include lumber and wood pallets, biofuels, and energy ▪ €270 million ($~275.4 million) purchase price, inclusive of forecasted net working capital of ~€43 million (~$43.9 million) ▪ Tra
Slide 11: Expanding Solid Wood Business
Torgau Product Portfolio Expanding Solid Wood Business Sawn Timber Products: 1,200 Solid Wood Capacity 410 MMfbm capacity 960 900 (MMfbm) +[VALUE] 600 Pallets: The largest producer of EPAL pallets in 300 550 550 the world; 17 million pallets - annually Mercer ProForma Pellets & Briquettes Diversifyi
Slide 12: Torgau Strategic Highlights
Torgau Strategic Highlights Mercer Stendal Grows sawn timber capacity by ~75% to 960 MMfbm and electricity generation capacity by ~15 MW Diversify Mercer's product mix with the HIT Torgau introduction of pallets and biofuels Mercer Timber Products HIT Dahlen Attractive entry point into pallet Mercer
Slide 13: Torgau Financial Highlights
Torgau Financial Highlights • Consideration of €270 million ($~275.4 million), inclusive of forecasted net working capital of ~€43 million (~$43.9 million) • To be funded using our existing cash on hand and/or our revolving credit facilities • HIT generated Net Income of €31 million and Adjusted EBI
Slide 14: Optimization Through Innovation
Optimization Through Innovation Logistics Construction Continuous 1 Innovation 2 Expertise 3 Improvement ▪ Design and construction ▪ Forest waste material ▪ Greenfield and brownfield of dedicated trains and recovery pulp mills truck fleet for shipping ▪ Pulp and lumber wood yield wood and end-produc
Slide 15: Prudent, Agile Capital Structure
Prudent, Agile Capital Structure Liquidity is managed to the global economic conditions: Debt composition is optimized when opportunistic: 2016-2018: Tighter liquidity during stronger economic Weighted average maturity of senior debt is 2028 conditions and expansion period for Mercer Weighted
Slide 16: Balanced Capital Allocation
Balanced Capital Allocation Capital allocation is balanced and consistent with the strategy: ▪ Maintenance of Business (1) capital expenditures to maintain modern, efficient and reliable mills. ▪ Growing the Company through acquisitions and high-return capital expenditures. ▪ Commitment to returning
Slide 17: Carbon Considerations
Carbon Considerations vs Lifecycle Products 0 Years 100 Years Sustainably Managed Forests: Lumber & CLT – Solid Wood Products displaces high carbon • Protect against steel and concrete catastrophic carbon alternatives emissions (fire, insects, etc.) Residuals Packaging – displaces plastic alternativ
Slide 18: Environmental Responsibility
Environmental Responsibility Modern assets and innovation makes our processes sustainable. A continuous improvement culture keeps us advancing. Signatory to Science-based Target Decreased AOX per tonne of pulp by Reduced SO2 emission intensity (kg 86% of energy comes from Initiative (SBTi) with vali
Slide 19: Social Responsibility
Social Responsibility Embracing social responsibility means consciously upholding our commitments. That’s the Mercer way. Partnered with Business for Social Signatory to Canadian Council of High-potential global candidates Global DE&I council workgroups Responsibility (BSR) to develop Aboriginal Bus
Slide 20: Financial Performance
Financial Performance Annual Operating EBITDA (1)(2) $700 1,480 $1,750 • Operating EBITDA (1)(2) Operating EBITDA NBSK Prices $600 $1,500 was historically 1,260 NBSK Price ($/ADMT) 1,170 influenced by global $500 1,030 $1,250 ($ millions) 910 933 910 NBSK pricing, however: $400 798 810 820 $1,000 •
Slide 21: Current Market Conditions
Current Market Conditions Pulp: Near-Term Pulp: Mid-Term No material new near-term NBSK capacity Steady demand growth, principally from the increasing middle class of emerging economies, will support demand for graphics papers, packaging, hygiene, and specialty paper products New hardwood capacity f
Slide 22: Investment Highlights
Investment Highlights Management committed to Compelling growth in spaces where we have core competencies Carbon-forward Products Prudent and agile balance sheet discipline, commitment to the dividend Sustainable, Commitment to sustainability in Long-term our products, operations, and communities Gr
Slide 23: Contact Information
Contact Mercer International inc. Information P: +1 (604) 684 1099 info@mercerint.com Suite 1120, 700 West Pender St Vancouver, B.C. Canada www.mercerint.com V6C 1G8 23
Slide 24: Reconciling Net Income (Loss) to EBITDA
Reconciling Net Income (Loss) to EBITDA Note: For other reconciliations of Net Income (Loss) to Operating EBITDA in periods not shown, please refer to that period’s respective Form 10-Q or 10-K, which can be found on our website (www.mercerint.com) Operating EBITDA is defined as operating income (lo
Slide 25: Reconciling Net Income (Loss) to EBITDA
Reconciling Net Income (Loss) to EBITDA Q2 2022 Consolidated (US$ millions) 2017 2018 (1)(2) 2019 (2) 2020 (2) 2021 (2) LTM (2) Net Income (Loss) Attributable to Common 70.5 128.6 (9.6) (17.2) 171.0 303.9 Shareholders Add: Income Tax Provision (Benefit) 33.5 48.7 19.2 6.1 89.6 134.6 Add: Interest Ex
Slide 26: Reconciling Net Income (Loss) to Adjusted EBITDA - Torgau
Reconciling Net Income (Loss) to Adjusted EBITDA - Torgau Three Months (1)(2) 2021 ended March 31 2022(1)(3) Net Income $ 37 $ 14 Add: Taxes 12 6 Add: Interest 4 1 Add: Depreciation and amortization 23 4 Add: Non-Recurring Items (4) 5 - Adjusted EBITDA $ 81 $ 25 1) Reported pursuant to German GAAP b
Slide 27: Appendix: Market Attributes
Appendix: Market Attributes Sustainable. By Design. 27
Slide 28: Global Wood Fiber Market
Global Wood Fiber Market ▪ The global demand for wood fiber is principally met by the recycling of packaging and graphics paper. ▪ Today, NBSK makes up 3.5% of global fiber demand; it has become a highly specialized niche product used for strength and bonding attributes. It is principally produced i
Slide 29: Global Wood Fiber Market
Global Wood Fiber Market (1) Total global wood fiber consumption – 374 million tonnes Recovered paper – 54% Virgin pulp – 46% Total virgin pulp market – 171 million tonnes Integrated pulp – 60% Market pulp – 40% Total market pulp market – 68 million tonnes UBK, Radiata, Hardwood – 52% NBSK – 23% Mec
Slide 30: Global Bleached Kraft Pulp Market
Global Bleached Kraft Pulp Market (1) Global Bleached Kraft Pulp Demand Global Bleached Kraft Pulp Demand (millions of tonnes) (millions of tonnes) 75.0 37.5 65.4 66.6 37.4 62.7 64.2 35.8 59.9 60.8 35.0 60.0 30.0 45.0 China China 22.5 24.9 25.0 25.4 China China China China 30.0 15.0 15.0 7.5 - - 202
Slide 31: NBSK Demand Drivers
NBSK Demand Drivers 28.0 Global BSK Demand by Region (1) 40% Region 2005 – 2026E CAGR China 6.2% NBSK Demand Changes 21.0 30% millions of tonnes % China of Total ▪ Increased NBSK demand for tissue and specialty W. Europe (2.5%) products continues to rise globally 14.0 20% N. America ▪ In developing
Slide 32: Historical Market Conditions
Historical Market Conditions NBSK Price & BSK Global Inventory $1,650 49 Global NBSK Inventory (# Days) $1,500 42 NBSK Price (USD / tonne) $1,350 35 $1,200 $1,050 28 $900 21 $750 14 $600 $450 7 $300 - 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 BSK Global Inventory NBSK List Price to N. Europe
Slide 33: Pulp Capacity Changes
Pulp Capacity Changes NBSK Hardwood SBSK, Fluff, Radiata ▪ After a period of considerable capacity ▪ Eucalyptus capacity is set to grow over 6 ▪ Continuation of a trend by some producers to expansion in Scandinavia from 2016-2018, million tonnes in the next few years exit these softwood grades in fa
Slide 34: US Lumber Market – Demand Drivers
US Lumber Market – Demand Drivers (1) ▪ Housing starts are rising and still well below ▪ Interest (mortgage) rates are currently historical average prior to the financial crisis supporting new homeownership and upgrading US Housing Starts (million units) Interest Rates (%) 2.0 18 Single Multi Mobile
Slide 35: US Lumber Market – Demand Drivers
US Lumber Market – Demand Drivers (1) ▪ The prime first-time home ownership ▪ Production capacity is growing but is demographic (30-35 year olds) is currently experiencing restrictions; particularly from its highest in a generation Canada where allowable cut levels are falling US Population by Age (
Slide 36: Appendix: Operations Overview
Appendix: Operations Overview Sustainable. By Design. 36
Slide 37: Strategically Located Assets
Strategically Located Assets Mercer Peace River Mercer Holz 475,000 ADMT NBSK/NBHK Wood purchasing, 70 MW energy harvesting, hauling Cariboo Pulp & Paper (1) Mercer Stendal 170,000 ADMT NBSK 740,000 ADMT NBSK 28.5 MW energy 148 MW energy Mercer Celgar Mercer Rosenthal 520,000 ADMT NBSK 100 MW energy
Slide 38: Product Sales Mix
Product Sales Mix (1)(2) 25% 22% 76% 16% 31% 29% 32% 49% 8% 12% Products Pulp Segment Wood Products Segment (3) Pulp Lumber Energy / Bio-extractives US Germany China Other US Germany Other 1) Q2 2022 LTM by revenue 2) Excludes energy sales from 50% owned Cariboo mill 38 3) Includes wood residual sal
Slide 39: Mercer Rosenthal
Mercer Rosenthal ▪ Location: Blankenstein, Germany (~300 km south of Berlin) ▪ Pulp production capacity: 360,000 tonnes per year NBSK ▪ Electricity generating capacity: 57 MW Mercer ▪ Certification: ISO 9001, 14001, and 50001 Rosenthal ▪ 2021 green electricity sales: $5.4 million ▪ 2021 bio-extracti
Slide 40: Mercer Stendal
Mercer Stendal ▪ Location: Stendal, Germany (~130 km west of Berlin) Mercer ▪ Pulp production capacity: 740,000 tonnes per year NBSK Stendal ▪ Electricity generating capacity: 148 MW ▪ Certification: ISO 9001, 14001, and 50001 ▪ 2021 green electricity sales: $65.4 million ▪ 2021 bio-extractives sale
Slide 41: Mercer Celgar
Mercer Celgar ▪ Location: Castlegar, BC, Canada (~600 km east of Vancouver) ▪ Pulp production capacity: 520,000 tonnes per year NBSK ▪ Electricity generating capacity: 100 MW ▪ Certification: ISO 9001 and 14001 ▪ 2021 green electricity sales: $4.8 million ▪ 2021 bio-extractives sales: $0.06 million
Slide 42: Mercer Peace River
Mercer Peace River ▪ Location: Peace River, Alberta (~500 km northwest of Edmonton) ▪ Pulp production capacity: 475,000 tonnes per year NBSK/NBHK ▪ Electricity generating capacity: 70 MW ▪ Certification: ISO 9001 and ISO 14001 ▪ 2021 green electricity sales: $10.7 million Key Features: ▪ Modern, hig
Slide 43: Cariboo Pulp & Paper
Cariboo Pulp & Paper ▪ Location: Quesnel, British Columbia (~650 km north of Vancouver) ▪ Pulp production capacity: 170,000 tonnes per year (1) NBSK ▪ Electricity generating capacity: 28.5 MW (1) ▪ Certification: ISO 9001 and ISO 14001 ▪ 2021 green electricity sales: $5.6 million (2) Key Features: ▪
Slide 44: Mercer Timber Products (Friesau)
Mercer Timber Products (Friesau) ▪ Location: Friesau, Germany (~300 km south of Berlin) ▪ Lumber production capacity: 550,000 Mfbm ▪ Energy generating capacity: 49.5 MW (13 MW electricity) ▪ 2021 lumber sales: $293.2 million ▪ 2021 wood residuals sales: $6.4 million ▪ 2021 green electricity sales: $
Slide 45: Mercer Torgau
Mercer Torgau ▪ Location: Torgau, Germany (~115 km south of Berlin) ▪ Lumber production capacity: 410,000 Mfbm ▪ Electricity generating capacity: 15 MW ▪ Pallet production capacity: 17 million ▪ 2021 sales: €227.1 million (1) Key Features: ▪ Integrated sawmill and value-add pallet production facilit
Slide 46: Mercer Mass Timber
Mercer Mass Timber • Location: Spokane, Washington, United States • CLT production capacity: 140,000 m3 • Factory size: 253,000 ft2 • Product: high-capacity cross-laminated timber Key Features: North American Mass Timber Panel Capacity 2020 (1) Total = Vaagen • Multiple years of CLT experience withi
Slide 47: Contact Information
Contact Mercer International inc. Information P: +1 (604) 684 1099 info@mercerint.com Suite 1120, 700 West Pender St Vancouver, B.C. Canada www.mercerint.com V6C 1G8 47