Mercer International Inc. · NASDAQ:MERC
Mercer International — CIBC Whistler Conference 2010
42 slides from Mercer International's conference presentation, Jan 21, 2010
Slide 1: CIBC Whistler Conference Discussion Materials January 2010
CIBC Whistler Conference Discussion Materials January 2010
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: Introduction
Introduction
Slide 4: Company Overview
Company Overview Mercer is one of the largest northern bleached softwood kraft ("NBSK") market pulp producers in the world Produces pulp for sale on the open market to customers who manufacture a wide range of premium paper and tissue-based products Operates three world-class pulp mills with approxi
Slide 5: 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 6: Overview of the Company
MERCER Overview of the Company
Slide 7: Corporate Overview
Mercer conducts operations through three subsidiaries; two in Germany and one in Canada Mercer operates the only two NBSK pulp mills in Germany, Europe's largest market for NBSK pulp, and one of the largest, most modern pulp mills in North America Corporate Overview Rosenthal (Germany) Celgar (Briti
Slide 8: Second largest NBSK market pulp producer in the world
Mercer is the second largest NBSK market pulp producer in the world and the largest publicly traded producer NBSK Market Pulp Capacity By Producer (1) In 2008, Stora permanently closed 550,000 tonnes of NBSK capacity. It is not clear how this volume is attributed to Stora's integrated and market pul
Slide 9: World Class Assets
World Class Assets Mercer operates world-class mills which 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 Low production costs Low maint
Slide 10: 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 and Germany - the world's fastest growing pulp import market and largest pulp import market, in Europe, respectively Celg
Slide 11: Growing Electricity Revenues
Growing Electricity Revenues The sale of electricity is a significant and growing part of Mercer's operations Mercer has been amongst the first paper and forest products companies to embrace the "carbon economy" and has been an industry leader in harnessing significant value from its surplus power g
Slide 12: Growing Electricity Revenues (cont'd)
Growing Electricity Revenues (cont'd) Mercer successfully ensured its German operations now receive "green" rates for surplus electricity Became effective in 2009 Entered into long-term contracts to sell surplus energy from its Celgar mill, also at "green" rates Installing a new 48 MW turbine to cap
Slide 13: Current Industry Environment
Current Industry Environment
Slide 14: Largest markets for pulp: Western Europe, North America, China
The largest markets for pulp are Western Europe, North America and China Demand growth in China and Eastern Europe is higher than the global average Significant investments in paper making capacity in China will increase the need for softwood imports China expected to account for 27% of global marke
Slide 15: Global Supply of Bleached Softwood Kraft
Global Supply of Bleached Softwood Kraft With the financial crisis and economic slowdown, global inventories of bleached softwood kraft grew to 43 days in January 2009 With strong buying patterns, primarily from China, and reduced production, 'days inventory' has fallen to an uncommonly low level of
Slide 16: NBSK Pulpstocks at European Ports
NBSK Pulpstocks at European Ports NBSK pulp inventories at European ports are at their lowest levels in over five years Further evidence that inventory levels are low throughout the supply chain Source: Europulp
Slide 17: Overview of Operations
Overview of Operations
Slide 18: Rosenthal Mill
Rosenthal Mill Modern, efficient ISO 9002 certified NBSK pulp mill Capacity of 325,000 ADMT per year Converted to kraft pulp production in 1999 Efficient mill with strong cost position One of the lowest delivered costs to Europe Maintained strong conversion cost position, despite rising input costs
Slide 19: Stendal Mill
Stendal Mill State-of-the-art, single-line NBSK pulp mill which is one of the newest and largest mills in the world Capacity of 635,000 ADMT per year Constructed by Mercer in 2004 for approximately €1 billion ~75% Mercer owned Economies of scale have allowed for very low conversion costs Maintained
Slide 20: German Government Support for Renewable Energy
German Government Support for Renewable Energy Since 2005 Mercer's German mills have benefited from the sale of emission allowances under the European Union carbon emissions trading scheme Beginning January 2009, Mercer's Rosenthal and Stendal mills also began participating in a program established
Slide 21: Germany Green Electricity Environment
Germany Green Electricity Environment Mercer successfully lobbied for access to the preferential green tariff structure for its German operations As such, since January 1, 2009 the company has enjoyed far superior tariff rates than if it had it been forced to sell its surplus electricity on the spot
Slide 22: Celgar Mill
Celgar Mill Modern, efficient ISO 9001 certified NBSK pulp mill Capacity of 495,000 ADMT per year Continuous investment since the mill was completely rebuilt in 1993 for C$850 million In 2007, became a net exporter of electricity In 2009, completed C$10 million upgrade to the mill's chipping facilit
Slide 23: Celgar's Green Energy Project
Celgar's Green Energy Project The Green Energy Project consists of the installation of a new 48 MW turbine which will increase the production and revenues the mill generates from renewable electricity The project will turn Celgar into one of the largest biomass electricity generating facilities in C
Slide 24: Canadian Government Support for Renewable Energy
Canadian Government Support for Renewable Energy In October 2009, Celgar was awarded approximately C$58 million from the Canadian government under the Pulp and Paper Green Transformation Program Up to C$40 million of Celgar's credits will be used to finance Celgar's Green Energy Project The remainin
Slide 25: Financial Review
Financial Review 25
Slide 26: Operating Performance
Operating Performance Celgar Pulp Production Total Pulp Production Rosenthal Pulp Production Stendal Pulp Production Notes: Celgar acquisition closed in February 2005, Stendal start up was September 2004, production includes pulp produced from those dates
Slide 27: Steady Decreases in Non-Fiber Conversion Costs
Steady Decreases in Non-Fiber Conversion Costs Since 2005, Mercer has managed to reduce non-fiber conversion costs - despite escalating input costs - through strategic capital investment and operational best practices
Slide 28: Financial Performance
Financial Performance EBITDA margins compressed in 2008 and through 2009 given the rapid weakening of the US dollar and increased fibre costs due to reduced saw milling activity In recent quarters, margins are beginning to strengthen given pulp price increases and new fibre contracts that have eased
Slide 29: Mercer Performance Focus
Mercer Performance Focus Continuous improvement initiatives EBITDA 30+ A program created to focus the workforce on the goal of increasing EBITDA margins The program identifies and implements improvement opportunities designed to enable the mills to reach minimum 30% EBITDA margins Key areas include:
Slide 30: Well-diversified and stable sales mix
Mercer has a well-diversified and stable sales mix Sizeable leverage to European markets in particular Germany - world's largest NBSK market Significant exposure to China - the world's fastest growing pulp market Growing exposure to tissue / hygiene end uses which have a higher growth rate for NBSK
Slide 31: Recent Financial Initiatives
Recent Financial Initiatives In response to the financial crisis and economic downturn, management implemented several initiatives to strengthen the company's liquidity and financial flexibility ? Reduced working capital from €110 million in Q1 2009 to €80 in Q2 2009 ? Initiated discussions with len
Slide 32: Government Grants & Corporate Structure
The German government provided Mercer with approximately €375 million in grants for the construction of the Rosenthal and Stendal mills The grants were credited against fixed assets and translated into €375 million in equity or debt that the company did not have to raise As the project debt at Stend
Slide 33: Balance Sheet
Balance Sheet Restricted Unrestricted Consolidated As at September 30, 2009 (in €000s) Group ___ Subsidiaries Eliminations Group ASSETS Cash and cash equivalents 25,294 25,981 51,275 Receivables 32,382 40,751 73,133, Inventories 51,395 17,064 68,459 Prepaid expenses and other 3.377 2.235 : 5612 112,
Slide 34: Current Liquidity Position
Current Liquidity Position Restricted Group Restricted Group Restricted Group (€mm) Q3 2009 Comments Cash €51.3 Includes no restricted cash amounts Undrawn Celgar Revolver - Drawn by C$22 million; additional draws subject to borrowing base limits; renewed in Q4 2009 Undrawn Rosenthal Revolver 25.0 U
Slide 35: Investment Highlights
MERCER Investment Highlights
Slide 36: 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 37: Appendix
MERCER Appendix
Slide 38: Market related downtime in pulp capacity in 2009
Significant downturn in demand and pulp pricing in late 2008 has led to market related downtime of approximately 1.6 million ADMT in 2009 Source: TerraChoice Market Services Inc. Note: The list is not exhaustive as a growing number of companies have policies of not reporting downtime information Com
Slide 39: Permanent NBSK capacity shutdowns
Approximately 2.0 million tonnes of NBSK market pulp capacity has permanently shut down Represents approximately 15% of total global NBSK pulp capacity(1) Permanent NBSK Capacity Reductions Company Location Closure - Quarter Pulp Type Total Closed Volume (000 ADMT) Buchanan Forest Products Ltd. Terr
Slide 40: British Columbia Fiber Profile
British Columbia Fiber Profile Celgar proximal fiber- basket unimpacted by the mountain pine beetle This will be a competitive advantage in the medium term Recently entered into a new long-term fiber agreement with large- scale lumber producer Vancouver Seattle Kamloops Calgary Cranbrook Castlegar B
Slide 41: German Fiber Profile
German Fiber Profile There is a significant amount of high-quality fiber within a close radius of each of Mercer's German mills High quality, well-managed fiber supply Sustainable forest supply exceeds German harvest rates Large number of world class sawmills Diversified supply over a large geograph
Slide 42: Long-Term Debt Profile
Long-Term Debt Profile (€mm) Pro Forma Q3 2009 Maturity Stendal Loan Facility €514.6 September 2017 Senior Notes 211.9 February 2013 Subordinated Convertible Notes 16.4 October 2010 Subordinated Convertible Notes 29.5 January 2012 Celgar Revolver (C$40mm) 14.0 May 2013 Rosenthal Revolver (€25mm) - D