Mercer International Inc. · NASDAQ:MERC
Mercer International — Non-Deal Roadshow (May 2011)
44 slides from Mercer International's roadshow presentation, May 17, 2011
Slide 1: Investor Discussion Materials TD Securities Investor Roadshow May 2011
Investor Discussion Materials TD Securities Investor Roadshow May 2011
Slide 2: Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this presentation contains statements that are forward-looking, such as statements relating to results of operations and financial conditions and business dev
Slide 3: Overview of the Company
MERCER Overview of the Company
Slide 4: Company Overview
Company Overview Three world-class, large, modern mills that produce 1.5 million tonnes of high-quality northern bleached softwood kraft ("NBSK") pulp, a premium grade of pulp Strategically located mills in British Columbia and Germany Excellent fiber baskets, with ready access to key global markets
Slide 5: Significant Production Capacity with Access to Key Global Markets
Mercer conducts operations through three subsidiaries; two in Germany and one in British Columbia, Canada Mercer operates the only two NBSK market pulp mills in Germany - Europe's largest market for NBSK pulp - and one of the largest, most modern pulp mills in North America Significant Production Ca
Slide 6: Modern and Competitive Assets
Modern and Competitive Assets Mercer's operations are some of the largest and most modern in the world Relative age and production capacity provide a competitive advantage Note: Bubble sizes represent market and integrated pulp productions Source: Jaakko Poyry, July 2010 Low production costs Low mai
Slide 7: Strategic Locations
Strategic Locations Mercer's strategic locations in Germany and Western Canada position the company well to serve customers in Europe, North America and Asia In particular, China - the world's biggest pulp importer and fastest growing pulp import market - and Germany - the largest European pulp impo
Slide 8: Growing Electricity Revenues
Growing Electricity Revenues Mercer has been a leader among paper and forest products companies in embracing the "carbon economy" and in harnessing significant value from its surplus power generation Mercer recognized the opportunity to secure a new revenue stream from its operations, as the market
Slide 9: NBSK Supply/Demand Fundamentals are Positive
NBSK Supply/Demand Fundamentals are Positive Management believes that generally flat supply, overall growing demand and positive exposure to the effects of climate change create an excellent operating environment for Mercer Global demand for NBSK remains strong, as global production of tissue and sp
Slide 10: Favourable NBSK Pricing and Global Supply Environment
Favourable NBSK Pricing and Global Supply Environment NBSK prices improved dramatically in 2010 and management believes the market fundamentals will remain tight overall, even after recent restarts Source: RISI, PPPC
Slide 11: Global Production of Tissue and P&W Is Increasing
Global Production of Tissue and P&W Is Increasing Following the contraction in production after the 2009 economic crisis, production rates of P&W papers are currently projected to steadily increase on an overall global basis Source: RISI
Slide 12: The Widening Price Gap Between BSK and BHK
The Widening Price Gap Between BSK and BHK Source: RISI We believe the substitution of hardwood for softwood is becoming increasingly limited with the passage of time
Slide 13: Overview of Operations
MERCER Overview of Operations
Slide 14: Improving Financial Performance
Operating EBITDA margins compressed starting in the second-half of 2008 and through 2009 given falling pulp prices, a weakening US dollar and increased fiber costs, but in 2010 margins improved materially given strong pulp pricing Improving Financial Performance
Slide 15: Fiber Costs are Stable
The downturn in the US housing market and other factors have decreased the level of lumber production and overall forest harvesting activity in all regions where we operate Celgar's fiber costs are stable at satisfactory levels and are expected to remain at these levels for the short to medium term
Slide 16: Well-diversified and stable sales mix
Mercer has a well-diversified and stable sales mix Sizeable leverage to European markets in particular Germany - Europe's largest NBSK market Significant exposure to China - the world's largest importer of pulp and the fastest growing pulp market Growing exposure to tissue / hygiene end uses which h
Slide 17: Investment Highlights
MERCER Investment Highlights
Slide 18: It's Been a Transitional Year for Mercer
It's Been a Transitional Year for Mercer The financial crisis of 2009 has resulted in the closure of a significant volume of NBSK capacity Celgar's new wood room has reduced its fiber cost by over €100 / Admt from the peak in Q4 2008 Celgar's new turbine was commissioned in September 2010 and will a
Slide 19: Key Investment Highlights
Key Investment Highlights Operates world-class, large, modern mills that produce high-quality NBSK pulp which is a premium grade of kraft pulp Strategically located mills, with excellent fiber baskets, in close proximity to key global markets Strong, long-term forecast supply/demand outlook for NBSK
Slide 20: Dissolving Pulp Production Opportunity
Dissolving Pulp Production Opportunity
Slide 21: Dissolving Pulp - The Opportunity
Dissolving Pulp - The Opportunity Mercer strives to leverage its existing state-of-the-art assets to continuously reduce conversion costs, increase revenues and realize upon our mill's strengths Production of Dissolving Pulp (DP) has been identified as an opportunity to utilize the strengths of our
Slide 22: Dissolving Pulp - Preliminary Feasibility Analysis
Dissolving Pulp - Preliminary Feasibility Analysis The additional capital cost to convert either Celgar or Stendal to swing production would be in the range of $30 to $40 million There is a potential technical limitation identified at Celgar and work is being done to overcome it We remain dedicated
Slide 23: Financial Review
Financial Review 23
Slide 24: Corporate Structure and Long Term Debt
Corporate Structure and Long Term Debt Rosenthal (Germany) Celgar (British Columbia) Stendal (Germany) 74.9% As at March 31, 2011 US$300 million senior unsecured notes due December 2017 US$37.1 million convertible notes due January 2012 (1) US$4.6 million Rosenthal equipment loan €486 million term l
Slide 25: Selected Historical Financial Data - Consolidated
Selected Historical Financial Data - Consolidated (€ 000s unless otherwise indicated) * Reflects Rosenthal's turbine shut of approximately 60 days for maintenance. Celgar's Green Energy Project became operational Sept. 28, 2010 ** Includes gains (losses) on Stendal's interest rate swaps and foreign
Slide 26: Balance Sheet
Balance Sheet ‘As at March 31, 2011 (in €000s) assers ‘ash and cash equivatens Inventories Prepaid expenses and other Deferred income tax Total curentassets tong termassets Propet, plantand equipment Deferred note issuance and other Due rom unrest eroup ‘Accounts payable and accrued expenses Pension
Slide 27: Capital Structure
Capital Structure "Restricted Group" structure was used to protect Mercer from the high leverage of the Stendal project The Restricted Group - created at the time of issuing US$310 million Notes - is supported by the Celgar and Rosenthal operations (recently replaced by a US$300 million issue due De
Slide 28: Appendix A
MERGER Appendix A
Slide 29: Current Industry Environment
Current Industry Environment
Slide 30: NBSK is Needed for Strength
NBSK is Needed for Strength Management believes demand for NBSK will remain strong over the long term Reinforcing properties needed by modern production technology make NBSK an essential component in a wide range of paper, tissue and hygiene products Producers have generally substituted as much lowe
Slide 31: Tissue is the Highest Growth Segment
Tissue is the Highest Growth Segment Since 2000, global tissue output has grown at an average annual rate of 3.9% As populations age, global standards of living improve, and health and hygiene become larger concerns, demand for tissue - and thus NBSK - should continue to grow Source: TerraChoice Mar
Slide 32: Growth in Demand Could Accelerate
Growth in Demand Could Accelerate The better off the developing world's populations are financially, the greater their demand for tissue and hygiene products should be Source: TerraChoice Market Services Inc. If living standards improve as forecasted in markets such as China, management believes dem
Slide 33: PPPC Flash Report - March 2011 Permanently Shut NBSK Capacity
1 PPPC Flash Report - March 2011 Permanently Shut NBSK Capacity Despite recent restarts caused by record high pulp pricing, softwood pulp markets remain tight due to steady demand growth and the permanent closure of high cost capacity. Global softwood inventories at the end of March total 24 days of
Slide 34: Global Supply of BSK
Global Supply of BSK Source: TerraChoice Markets Services Inc. Most of the announced new pulp capacity that is coming online is hardwood pulp capacity. Total global softwood pulp capacity is currently expected to remain flat as only one new softwood mill is expected in the next few years
Slide 35: Climate Change Presents Mercer with Opportunities
Climate Change Presents Mercer with Opportunities Climate change has emerged as a very significant issue and Mercer is well positioned to benefit from the changes that are expected to result Both Canadian and German governments provide support and incentives for green initiatives and energy producti
Slide 36: Climate Change Presents Mercer with Opportunities
Management believes the scale and technical age of our mills will be a significant advantage as the carbon economy and associated legislation develops and matures As the cost of emitting carbon continues to rise, carbon costs should have a large negative impact for producers with high green house ga
Slide 37: Operations
MER R Operations 37
Slide 38: Restricted Group - Rosenthal Mill
Restricted Group - Rosenthal Mill Location: Blankenstein, Germany, approximately 300 km south of Berlin Pulp Production Capacity: 330,000 ADMT / year Electricity Generating Capacity: 57 MW Key Features: Built in 1999, the mill is modern, efficient, and ISO 9001 and ISO 14001 certified Strategically
Slide 39: Restricted Group - Celgar Mill
Restricted Group - Celgar Mill Location: Castlegar, BC, Canada, approximately 600 km east of Vancouver Pulp Production Capacity: 520,000 ADMT / year Electricity Generating Capacity: 100 MW Key Features: A modern and efficient mill that is ISO 9001 certified Fiber costs are expected to continue to im
Slide 40: Unrestricted Group - Stendal Mill
Unrestricted Group - Stendal Mill Location: Stendal, Germany, approximately 130 km west of Berlin Pulp Production Capacity: 645,000 ADMT / year Electricity Generating Capacity: 102 MW Key Features: Completed in 2004, it's one of the newest and largest pulp mills in the world ~75% Mercer owned Debt i
Slide 41: Appendix B
MEE RIGIEIA Appendix B
Slide 42: Dissolving Pulp Production Opportunity
Dissolving Pulp Production Opportunity
Slide 43: Dissolving Pulp What is it?
Dissolving Pulp What is it? Dissolving Pulp is a wood pulp that has a much higher cellulose content than NBSK To achieve the required high cellulose purity, the woods hemicellulose also needs to be removed in addition to the removal of virtually all of the lignin DP can be produced using two process
Slide 44: Dissolving Pulp Market Analysis
Dissolving Pulp Market Analysis Global textile fiber demand has grown 3.1% year over the last 15 years and its 2010 production totaled 66 million tonnes * In 2010, viscose staple (a common end use for DP) accounted for 4%, or approximately 2.64 million tonnes, of that total Global viscose demand is