Mercer International Inc. · NASDAQ:MERC
Mercer International — Jefferies 6th Annual Global Industrial and A&D Conference 2010
43 slides from Mercer International's conference presentation, Aug 9, 2010
Slide 1: Jefferies 6th Annual Global Industrial and A&D Conference
Jefferies 6th Annual Global Industrial and A&D Conference August 10 - 12, 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: Company Investment Overview
Company Investment Overview Mercer operates three world-class, large, modern mills that produce 1.5 million tonnes of high-quality NBSK pulp, a premium grade of kraft pulp U.S. domiciled corporation listed on both the NASDAQ (MERC) and the TSX (MRI.U) Three strategically located mills in BC and Germ
Slide 4: Articulating the Vision
Articulating the Vision - Two Parts: Vision Statement "Provider of fibers, renewable energy and chemicals from sustainable sources, for essential human needs" Strategic Direction & Vision Core Values (Mercer Spirit) Trust Boldness Striving for World Class Accountable Individuality / Responsible Part
Slide 5: Overview of the Company
MERCER Overview of the Company
Slide 6: 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 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 fastest growing pulp import market - and Germany - the largest European pulp import market Celgar (B.C., Ca
Slide 8: 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 9: The Outlook for NBSK has Rarely Looked Better
The Outlook for NBSK has Rarely Looked Better 1 Hawkins Wright - Defining the China Market (October 2009) Flat supply, growing demand and positive exposure to the effects of climate change create an excellent operating environment for Mercer for the foreseeable future NBSK is a great business to be
Slide 10: NBSK Pricing and Global Supply
NBSK Pricing and Global Supply After having dropped to well below $600 in Q1-2009, NBSK prices have improved dramatically and we believe the market fundamentals will remain tight for the foreseeable future, despite recent announced price decreases in China Source: RISI tables, PPPC
Slide 11: Overview of Operations
MERCER Overview of Operations
Slide 12: Corporate Overview: three subsidiaries
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 (Bri
Slide 13: Corporate Structure and Debt
Corporate Structure and Debt Rosenthal (Germany) Celgar (British Columbia) Stendal (Germany) 74.9% US$310 million senior secured notes due February 2013 US$2.3 million convertible notes due October 2010 US$66 million convertible notes due January 2012 €506 million term loan due September 2017 Loan i
Slide 14: 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 15: Improving 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 strengthening given pulp price increases and new fibre contracts that have eased fibre costs Improving Financial
Slide 16: Celgar Fibre Challenges and Resolution
Up until 2006, Celgar relied almost exclusively on sawmill residual chips from a robust group of suppliers Sawmilling downturn caused spike in fibre costs Late 2006 through 2007, "stay open" premiums were paid to sawmills to slow loss of residual chip supply and facilitate transition to whole tree c
Slide 17: Mercer's Favourable Capital Structure
Having the largest market pulp capacity and a relatively small number of common shares outstanding allows for greater leverage to improvements in the pulp cycle for Mercer's investors Mercer's Favourable Capital Structure The results of Mercer and its mills are converted to CAD using CAD/EUR fx rate
Slide 18: Mercer's Favourable Capital Structure
Mercer's large production capacity and favourable equity structure means that, given current conditions, for every $50 increase in pulp prices, Mercer's shareholders will receive the greatest benefit compared to potential investments in other pulp companies Mercer's Favourable Capital Structure Sour
Slide 19: 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 20: Selected Financial Data
Selected Financial Data * Includes gains (losses) on Stendal's interest rate swaps and foreign exchange gains (losses) on Mercer's US denominated intercompany debt, which are non-cash mark-to-market valuation adjustments occurring every quarter. In Q2 2010, the effect of these losses on EPS was €0.3
Slide 21: Balance Sheet
MES Rese Balance Sheet Unrestricted Consolidated {As at June 30, 2010 (in €000s) ae poate pe eres aes ‘cash and cash equivalents 39485 22,660 24s Receivables 64676 55,029 120,605, Note Receivable, current portion 11695, 14695, Inventories 58.250 31332 89,582 Prepaid expenses and other 3057 21596 575
Slide 22: Mercer's Share Price is Significantly Discounted
Mercer's Share Price is Significantly Discounted Mercer's Adjusted Book Value Per Share Mercer's Adjusted Book Value Per Share Mercer's Adjusted Book Value Per Share Shareholder's Equity (1) €131.2 Add: Government Grants Received (2) €284.0 "Adjusted" Book Value €415.2 Adjusted Book Value Per Share
Slide 23: Investment Highlights
MIE RIGSEIA Investment Highlights
Slide 24: 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 fibre baskets, in close proximity to key global markets Strong, long-term forecast supply/demand outlook for NBSK
Slide 25: Appendix
MER R Appendix 25
Slide 26: Current Industry Environment
Current Industry Environment
Slide 27: NBSK Is Needed for Strength
NBSK Is Needed for Strength Demand for NBSK will remain strong into the long term Its reinforcing properties ensure it is needed to provide the strength required by modern production technology Producers have substituted as much lower cost hardwood and recycled pulp into their furnish as their machi
Slide 28: 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% and shows no signs of slowing down As populations age, global standards of living improve, and health and hygiene become larger concerns, demand for tissue - and thus NBSK - will continu
Slide 29: 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 will be Source: TerraChoice Market Services Inc. As the improvement in living standards is forecasted to accelerate in markets such as China,
Slide 30: Permanently Shut NBSK Capacity
Source: TerraChoice Markets Services Inc., company press releases 1 PPPC Flash Report - June 2010 Permanently Shut NBSK Capacity Despite recent restarts caused by record high pulp pricing, softwood pulp markets remain extremely tight due to steady demand growth and the permanent closure of high cost
Slide 31: Shrinking Global Supply of BSK
Shrinking Global Supply of BSK Source: TerraChoice Markets Services Inc. Most of the new pulp capacity that is coming online is hardwood pulp capacity. Total global softwood pulp capacity will remain flat as there is only one new softwood mill being built (Ilim) to replace the old, high cost softwoo
Slide 32: Climate Change Presents Mercer with Opportunities
Climate Change Presents Mercer with Opportunities Climate change has emerged as one of the largest issues of our time and Mercer is well positioned to benefit from the changes that will likely result Both Canadian and German governments provide support and incentives for green initiatives and energy
Slide 33: Climate Change Presents Mercer with Opportunities
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 will have a large negative impact for producers with high GHG intensities GHG intensity will s
Slide 34: Stendal Mill Historical Perspective - 2005
Stendal Mill Historical Perspective - 2005 Greenfield mill constructed by Mercer, completed in Q3-2004 Project had a €1 Billion capital cost Was 63.6% Mercer owned Built with € 275 million in German government grants 80% of debt guaranteed by government Expected to achieve 80% of its 552,000 ADMT de
Slide 35: Stendal Mill Year Review
Stendal Mill 5 Year Review: Ownership position has grown to ~75% Production capacity has increased to 645,000 ADMT Stendal project debt has been reduced by €91 million since Q4-2005 Over the 2009 fiscal year, Stendal's net production costs were EUR 15 / ADMT lower than Rosenthal's Economies of scale
Slide 36: Stendal Mill upside potential
Stendal has the potential to add another 40 MW of generating capacity, bringing total installed generating capacity to 140 MW Stendal Mill Stendal continues to demonstrate considerable upside potential May 2010, Stendal achieved an average monthly production record of 1,914 ADMT / day This could all
Slide 37: Restricted Group - Rosenthal Mill
Restricted Group - Rosenthal Mill Built in 1999, the mill is modern, efficient, and ISO 9002 certified NBSK pulp capacity of 330,000 ADMT / year 2nd largest biomass power plant in Germany (next to Stendal) with electricity generating capacity of 57 MW € 14.5 million in revenue from electricity sales
Slide 38: Restricted Group - Rosenthal Mill
As a "World Class" operation Rosenthal has continuously: Increased pulp and electricity production Reduced the amount of natural gas, chemicals, electricity and wood needed to make a unit of pulp The operation has a best in class workforce that continues to take operating performance to new levels I
Slide 39: Restricted Group - Celgar Mill Historical Perspective - 2005
Restricted Group - Celgar Mill Historical Perspective - 2005 Celgar acquired by Mercer for US $210 million plus US$ 16 million acquired working capital Celgar at the time: Was a modern mill built in 1993 for C$850 million Had a capacity of 430,000 ADMT Operated by KPMG (trustee) in bankruptcy since
Slide 40: Restricted Group - Celgar Mill Historical Perspective - 2005
Restricted Group - Celgar Mill Historical Perspective - 2005 Mercer targeted US$20 million EBITDA improvements within three years to be achieved through: Improve pulp price realizations 2003 pulp price realizations were approx. US$27/ADMT (C$38) below BC average Opportunities included enhancing sale
Slide 41: Celgar Post Acquisition Review
Restricted Group - Celgar Post Acquisition Review Targeted US$20 million of annual EBITDA improvements within 3 years was greatly exceeded Pulp capacity had been increased to 500,000 ADMTs Pulp price realizations were significantly improved In 2007, became a net exporter of electricity Natural gas u
Slide 42: Celgar significant positive impact in 2010
Celgar will have a significant positive impact on the restricted group performance in 2010 Restricted Group - Celgar Post Acquisition Review Fibre costs will continue to improve Continued through further optimization Significant potential of upside incremental improvements if saw mill activity impro
Slide 43: Operating Performance
Operating Performance Notes: Celgar acquisition closed in February 2005, Stendal start up was September 2004, production includes pulp produced from those dates. In 2009, Rosenthal underwent an extended maintenance shut-down, lowering total production. Also in 2009, Celgar was forced to curtail prod
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