Mercer International Inc. · NASDAQ:MERC
Mercer International — Investor Presentation (September 2007)
29 slides from Mercer International's investor presentation, Sep 11, 2007
Slide 1: 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 2: Company Overview
Company Overview Mercer is the largest publicly traded NBSK(1) market pulp producer in the world Operates three pulp mills with 1.38 million ADMT(2) of capacity _________ (1) NBSK = northern bleached softwood kraft. (2) ADMT = air dried metric tonnes. Rosenthal (Germany) Stendal (Germany) Celgar (BC
Slide 3: By Capacity
By Capacity Mercer is the largest publicly traded NBSK market pulp producer in the world NBSK Market Pulp Capacity By Producer
Slide 4: Our Strategy
Focus on NBSK market pulp Premium grade kraft pulp that generally obtains the highest price Operate modern, world-class NBSK pulp production facilities Target profitability in all market conditions Limit ongoing capital requirements Improve efficiency and reduce production costs Focused on continuou
Slide 5: Financial Growth
Mercer is a rapidly growing company Quarterly revenue growth of over 250% over the last few years Management expects growth to continue as a result of pulp price increases, volume gains and the benefits of a global marketing initiative Financial Growth
Slide 6: World Class Assets
World Class Assets 3Q05 Mercer versus other top 20 NBSK producers (includes integrated capacity) Large, modern facilities - low capital requirements, high runability State-of-the-art environmental compliance Energy - net producers 900 Technical Age, Years UPM Botnia Mercer Sodra Ilim Heinzel SCA Bil
Slide 7: Canadian Mill Size by Capacity - NBSK
Canadian Mill Size by Capacity - NBSK <300K 300-500K >500K Celgar 2007 000s metric tonnes/year
Slide 8: LTM Milestones
Continued efficiency improvement's at Mercer's modern pulp mills Focused exclusively on Pulp Divested all paper assets Acquired a further 7% interest in the Stendal Mill Total cost was 8.1 million EUR of which 6.7 million EUR was paid by note which at Mercer's election can be satisfied with common s
Slide 9: Mercer in Brief
Mercer in Brief I n M illions of EUR (unless otherwise stated) LTM Ended June 30, 2007 For Year Ended 2006 For Year Ended 2005 Pulp Production 1,349,656 Admt 1,302,260 Admt 1,184,619 Admt Net Sales 644.3 624.0 452.4 Operating EBITDA 150.4 148.3 69.8 I n M illions of EUR (unless otherwise stated) Jun
Slide 10: NBSK pulp is a premium product
NBSK pulp is a premium product Longer and stronger fibres Generally obtains highest price Primarily produced in Canada and Western Europe Over 90% of worldwide NBSK production comes from these regions Total Chemical Paper Grade Market Pulp demand in 2006 was 48.25 million tonnes, bleached softwood k
Slide 11: NBSK pulp adds strength to a wide range of paper products
NBSK pulp adds strength to a wide range of paper products Growing demand driven by technological evolution of industry NBSK demand growth driven by demand for lower basis weight papers and higher quality tissues. NBSK End Uses (2006) Source: Poyry Uncoated Mechanical (catalogs & inserts) Tissues Spe
Slide 12: NBSK End Uses (2003 versus 2006)
Uncoated Mechanical (catalogs & inserts) Tissues Specialties Printing & Writing Papers Coated Mechanical (magazines) NBSK End Uses (2003 versus 2006) Substitution Discussion: Substitution has been occurring as less demanding end uses have shifted away from NBSK, this trend has been occurring for wel
Slide 13: Gap between supply and demand has flattened in 2006
Gap between supply and demand has flattened in 2006 We had expected in 2006 the supply / demand spread to narrow to zero with the 1 million tonnes in capacity closures but swing capacity offset the closures. Based upon species mix in forests we believe capacity that has swung to NBSK can't be sustai
Slide 14: Substitution (Western Europe)
Softwood selling at a premium for 20 months no sign of this differential decreasing. Evidence suggests over short term ability to substitute nearly exhausted as further reductions would impede reliability of paper machines Substitution (Western Europe) Source: Hawkins Wright
Slide 15: Substitution
We believe the current price spread between Hardwood pulp and Softwood pulp is not changing the rate at which substitution is occurring. Conclusions: Substitution is occurring but demand for softwood continues to grow NBSK end uses are becoming more focused on end use segments that require and can p
Slide 16: Mercer is positioned to take advantage of substantial demand growth
Mercer is positioned to take advantage of substantial demand growth Demand growth in Eastern Europe & China higher than global average Significant investments in paper making capacity in China will increase the need for softwood imports China will account for 25% of all market pulp demand by 2020 Gl
Slide 17: Locations
Vi Ee oe Ee Locations 17
Slide 18: Germany Fiber Outlook
Germany Fiber Outlook: Sawmill industry - capacity growth forecast 2009/2010 Capacity in m3 current softwood capacity softwood - capacity enlargement new softwood sawmill new hardwood sawmill Stendal Rosenthal German fiber prices are trending down. Chip inventory levels across the country are at a v
Slide 19: BC Mountain Pine Beetle
BC Mountain Pine Beetle: Canfor Pulp Cariboo Pulp Kamloops Pulp Tembec Celgar The situation is still evolving Modelling predicts 50% of the BC Lodgepole pine inventory will be dead by 2008 with 77% dead by 2014. Pine is approximately 20-30% of BC timber base and up to 50% of the Central Interior tim
Slide 20: EU & US energy strategies
"EU & US energy strategies are the same in that they both are focused on achieving a secure, affordable and environmentally friendly supply" "Although each have a different approach to implement these strategies, the potential world wide impact on agricultural crops and forest biomass is similarly d
Slide 21: Bio-energy technology discussion
Fire wood - (heating) Pellets - (heating/electricity) Biomass Electricity Syngas Ethanol / Bio-diesel Bio-energy Present 2020 Technology Discussion: Usage is generally regionalized due to transportation costs. Pellets have greater mobility but economics significantly impacted by transportation. Calo
Slide 22: German Pellet Prices
German Pellet Prices Prices for wood pellets 2007 (€/to) (delivery of 5 tons to a distance max. 50 km, all inclusive*) Average Max. price Min. price Average 2006 Source: C.A.R.M.E.N. Pellet prices are off the 2006 peak prices Most of the speculators who drove prices upwards over the short term have
Slide 23: Bio-Energy In Europe
EU member states agreed to a binding target for renewable energy to achieve a 20% share of total EU energy output by 2020. In 2005 renewable sources accounted for 6% of total EU energy output Biomass was expected to account for 40% of target Objectives versus Reality Mismatch between European object
Slide 24: Renewable & Bio-energy Impact
Biomass electricity projects should be a major benefit to Northern Hemisphere Pulp mills if there is a level playing field with other players for green electricity pricing. Pulp mills are the natural location for expanded biomass electricity production. Environmental footprint already exists with po
Slide 25: Pulp Price History
Pulp Price History Quarterly Average RISI Price Delivered to Northern Europe CAD USD EURO 2000 2002 2001 2004 2003 2005 2006 2007
Slide 26: Leverage to Pulp
Leverage to Pulp Tonnes of Pulp per Share oo60 050 odo 0030 020 oto Tonnes of Capacity per Share Outstanding ME on Sam Ee ES 2006 EBITDA (USD) Per Share Outstanding Mercer Aracruz CanforPulp FK Pope and Talbot EBITDA per Share Mercer Aracriz CanforPulp SFK Pope and Talbot 26
Slide 27: Currency and Interest Rate Sensitivities
Currency Sensitivity: High Yield & Convertible Debt: 1 cent change in US/EUR FX results in approximately 2 million EUR mark to market change. Sensitivities: Interest Rate Sensitivity: Stendal Debt: Due to expiry of swaps to match the annual principal repayments the sensitivity of the interest rate s
Slide 28: Mercer Summary
New Assets Expanding Margins NBSK market continues to grow Declining fiber costs Mills are positioned globally adjacent to key markets Freight logical supplier Reduced currency risk Globally diversified market mix Growth Focused Mercer Summary
Slide 29: Restricted Group Overview
Restricted Group Overview Income Statement (In Millions of EUR) LTM Ended June 30, 2007 Revenue 395.6 Operating EBITDA 79.3 % Margin 20% Restricted Group Ratios LTM Ended June 30, 2007 LTM Ended June 30, 2006 Fixed Charge Coverage1 2.696 1.026 Senior Debt / EBITDA 3.52 9.90 Balance Sheet (In Million
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