Mercer International Inc. · NASDAQ:MERC
Mercer International — Jefferies 2011 Global Industrial and A&D Conference
38 slides from Mercer International's conference presentation, Aug 8, 2011
Slide 1: Jefferies 2011 Global Industrial and A&D Conference Investor Discussion Materials
Jefferies 2011 Global Industrial and A&D Conference Investor Discussion Materials August 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
MEREER 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: Company Overview: Equity and Debt Structure
Company Overview as at June 30/2011 Equity Structure Common shares outstanding: 45.8 million Diluted shares outstanding* : 57.2 million 30 day average trading volume: 343,000 shares / day ** * The majority of the company's convertible debt was converted to equity on July 14. The balance of debt that
Slide 6: 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 7: 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 8: 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 9: 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 10: 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 11: 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 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 improved in 2010 given strong pulp pricing, but margins have compressed in 2011 given a weakening US dollar 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 While Celgar's fiber costs have been stable at satisfactory levels, we are expecting some modest upward pressure as sawmills in
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
MEREER Investment Highlights
Slide 18: Share Repurchase Program
Share Repurchase Program Mercer has authorized a share repurchase program for up to $25 million of the Company's outstanding stock over the next 12 months The program calls for an equivalent reduction in long-term indebtedness over the same period Delevering Strategy: All revolvers are paid to zero
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 Opportunity
Dissolving Pulp Opportunity Mercer is not committing to a dissolving pulp project at this time, but will continue monitoring the dissolving pulp (DP) market and the related technological developments Mercer has completed feasibility and engineering studies that envisioned converting Celgar and Stend
Slide 21: Financial Review
Financial Review 21
Slide 22: Corporate Structure and Long Term Debt
Corporate Structure and Long Term Debt Rosenthal (Germany) Celgar (British Columbia) Stendal (Germany) 74.9% As at June 30, 2011 US$300 million senior unsecured notes due December 2017 US$36.2 million convertible notes due January 2012 (1) US$4.6 million Rosenthal equipment loan €486 million term lo
Slide 23: 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 24: Balance Sheet
Balance Sheet ‘As at June 30, 2011 (in € 0005) ‘Cath and cach equate aoe 4954 151705 Recohablos 51854 S281 104235, ete Recavable,curent potion 4.997 3 ‘ser Inertones 98586 arr 104316 Propo expenses ad ater 4708 300 aon Defend tax see unt 24998 A 24.908 “ou curent assets ain Tea asset Long Term Asots
Slide 25: 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 26: Appendix A
MERCER Appendix A
Slide 27: Current Industry Environment
Current Industry Environment
Slide 28: 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 29: 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 30: 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 31: PPPC Flash Report - Permanently Shut NBSK Capacity
1 PPPC Flash Report - June 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 June total 28 days of s
Slide 32: 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 33: 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 34: 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 35: Operations
MERCER Operations 35
Slide 36: 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 37: 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 and ISO 14001 certified Fiber costs are expected to
Slide 38: 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 ISO 9001 and ISO 14001 c
Mercer International — Jefferies 2011 Global Industrial and A&D Conference on 6ix