Mercer International Inc. · NASDAQ:MERC
Mercer International — Jefferies 2012 Global Industrial and A&D Conference
39 slides from Mercer International's conference presentation, Aug 6, 2012
Slide 1: Jefferies 2012 Global Industrial and A&D Conference
Jefferies 2012 Global Industrial and A&D Conference August 7 - 9, 2012
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 1.51 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 market
Slide 5: Company Overview: Equity and Debt Structure
Company Overview as at June 30/2012 Equity Structure (3 month averages) WACSO*: 55.6 million shares Diluted shares outstanding : 55.9 million Average daily trading volume: 142,000 shares / day ** * WACSO = Weighted Average Common Shares Outstanding ** Source: FactSet, average daily volume traded dur
Slide 6: Three subsidiaries in Germany and British Columbia
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 Source: Poyry, August 2012 Low production costs Low maintenance capital requirements High runability / efficiency Strong record
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: L-T NBSK Supply/Demand Fundamentals are Positive
L-T NBSK Supply/Demand Fundamentals are Positive Management believes that, given the underperforming global economy, the generally flat supply, overall growing demand and positive exposure to the effects of climate change create an attractive operating environment for Mercer Management believes that
Slide 11: NBSK Pricing and Global Supply Environment
NBSK Pricing and Global Supply Environment Despite recent low pulp prices, management is confident Mercer will remain profitable during the current slow down and is well positioned to benefit from the eventual market rebound Source: RISI, PPPC
Slide 12: The Price Gap Between Hardwood and Softwood Pulp is Narrowing
The Price Gap Between Hardwood and Softwood Pulp is Narrowing Source: RISI Management believes the narrowing price gap between hardwood and softwood, particularly in China where NBSK and BEK are currently similarly priced, is creating opportunities for producers to substitute more softwood pulp into
Slide 13: Overview of Operations
MER R Overview of Operations
Slide 14: Improving Financial Performance
Operating EBITDA margins have improved from Q4-2011 despite weak pulp pricing due to strong mill performance and steady energy and chemical revenues Improving Financial Performance We believe that we are approaching the bottom of the pulp pricing cycle and we currently expect pricing to improve foll
Slide 15: Fiber Costs are Stable
The continued absence of a recovery in the US housing market and other factors have left lumber production at low levels and have decreased the overall forest harvesting activity in all regions where we operate Strong production from Celgar's woodroom is helping keep Celgar's fiber costs stable at s
Slide 16: Mercer's Regional Sales Closely Matches Demand
Mercer's Regional Sales Closely Matches Demand Mercer has a well-diversified and stable sales mix Sizeable player in 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
Slide 17: Financial Review
MER R Financial Review
Slide 18: 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, 2012 €224.5 (US$284.4)* million senior unsecured notes due December 2017 Note: To date, Mercer repurchased $15.6 million in outstanding 2017 Notes €2.2 million Rosenthal equipm
Slide 19: Selected Historical Financial Data - Consolidated
Selected Historical Financial Data - Consolidated (€ 000s unless otherwise indicated) * Includes gains (losses) on Stendal's interest rate swaps, pulp price swaps, and foreign exchange gains (losses) on Mercer's US denominated intercompany debt, which are non-cash mark-to-market valuation adjustment
Slide 20: Balance Sheet
Balance Sheet June 30, 2012 (in MEGS REGS ESE Teal samo aut ct nares ee) 3.095 ans 212.900 e « G « «
Slide 21: 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 in 2005 - is supported by the Celgar and Rosenthal operations (replaced by a US$300 million issue in Nove
Slide 22: Investment Highlights
MERCER Investment Highlights
Slide 23: 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 24: Appendix A
MERCER Appendix A
Slide 25: Current Industry Environment
Current Industry Environment
Slide 26: NBSK is Needed for Strength
NBSK is Needed for Strength Despite the current supply/demand imbalance, 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 Prod
Slide 27: Global NBSK End Uses
Global NBSK End Uses *Hawkins Wright - End Use Markets for Bleached Kraft Market Pulp, April 2009 & September 2011 CAGR = - 6% CAGR = +24% CAGR = +8% 2008 Total NBSK Demand: 10.5 million tonnes 2010 Total NBSK Demand: 12.3 million tonnes With the exception of the "Other P&W" segment, which includes
Slide 28: Developments in Global NBSK Demand
Developments in Global NBSK Demand *Hawkins Wright - Outlook for Market Pulp, July 2011 CAGR: 0.6%
Slide 29: NBSK Producers Face a Steep Cost Curve
Note: As at Q1-2012. Does not include energy revenue netted from cost Total Cash Cost and Cumulative Production The steepness of the NBSK production curve implies that when market conditions deteriorate, as it is believed they are currently doing, the high cost producers in the 4th quartile will be
Slide 30: Permanently Shut NBSK Capacity
1 PPPC Flash Report - July 2012 Permanently Shut NBSK Capacity Softwood pulp markets remain tight due to demand growth and the permanent closure of high cost capacity. Global softwood inventories at the end of June total 29 days of supply, a level generally indicative of a balanced market1 Source: T
Slide 31: 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. Total global softwood pulp capacity is currently expected to remain flat, as there is only one sizeable softwood mill capacity expansion expected in the next
Slide 32: Tissue Furnish is Using Less Recovered Fiber
Tissue Furnish is Using Less Recovered Fiber Tissue is expected to use an increasing percentage of virgin fiber and a decreasing percentage of recovered fiber, going forward Source: Poyry, Europulp - UTIpulp Seminar, Sept. 2011, "The future development of the European and Global Tissue Industry and
Slide 33: Tissue Products Require NBSK for Quality
Tissue Products Require NBSK for Quality NBSK provides the formation and strength that is required to produce tissue on modern machines and contributes to the softness and absorbency that end users demand from their tissue products Source: Poyry, Europulp - UTIpulp Seminar, Sept. 2011, "The future d
Slide 34: 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 35: 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 currently forecasted in markets such as China, management be
Slide 36: Operations
MER R Operations
Slide 37: Restricted Group - Rosenthal Mill
Restricted Group - Rosenthal Mill Location: Blankenstein, Germany, approximately 300 km south of Berlin Pulp Production Capacity: 345,000 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 38: 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 Continued optimization of th
Slide 39: 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, and continues to set pu
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