Mercer International Inc. · NASDAQ:MERC
Mercer International — Debt Investor Presentation (September 2010)
45 slides from Mercer International's debt investor presentation, Sep 13, 2010
Slide 1: High Yield Presentation Credit Suisse September 2010
High Yield Presentation Credit Suisse September 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: Overview of the Company
MERCER Overview of the Company
Slide 5: 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, July 2010 Low production cost
Slide 6: 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 7: Growing Electricity Revenues
Growing Electricity Revenues The sale of electricity is a significant and growing part of Mercer's operations 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 t
Slide 8: 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 overall 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 busines
Slide 9: 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 overall for the currently foreseeable future, despite recent announced price decreases in China Source: RISI tables, PPPC
Slide 10: Overview of Operations
MERCER Overview of Operations
Slide 11: Corporate Overview: three subsidiaries
Mercer conducts operations through three subsidiaries; two in Germany and one in 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 Corporate Overview Rosenthal (Germany) Celg
Slide 12: Corporate Structure and Debt
Corporate Structure and Debt Rosenthal (Germany) Celgar (British Columbia) Stendal (Germany) 74.9% US$310 million senior unsecured notes due February 2013 US$2.3 million convertible notes due October 2010 US$48 million convertible notes due January 2012 €506 million term loan due September 2017 Prin
Slide 13: 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 14: 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 15: Celgar Fibre Challenges and Responses
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, premiums were paid to sawmills to slow loss of residual chip supply and facilitate transition to whole tree chips Further
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 - 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 17: Financial Review
MER R Financial Review
Slide 18: Balance Sheet
Balance Sheet ‘As at June 30, 2010 fin 6000s) ‘ces Prepaid expenses and other Deferred incometax Due from unrestcted eas ote Ree ess cuteat potion incrity shareholders eta restricted group Unrelied derivative loss Peasion (long term) Capital leases and other Deferred tax payable TOTAL LABLES ‘Torat
Slide 19: Capital Structure
Capital Structure Mercer's "Restricted / Unrestricted Group" structure was used to effectively carve out the high leverage of the Stendal project company The Restricted group - created for the purpose of issuing $310 million in senior unsecured notes - is supported by the Celgar and Rosenthal operat
Slide 20: Selected Financial Data - Consolidated
Selected Financial Data - Consolidated * 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
Slide 21: Selected Historical Financial Data - Restricted Group
Selected Historical Financial Data - Restricted Group * Includes foreign exchange gains (losses) on Mercer's US denominated intercompany debt, which are non-cash mark to market valuation adjustments occuring every quarter
Slide 22: Current Liquidity Position - Restricted Group
Current Liquidity Position - Restricted Group (€ millions) Q2 2010 Comments Cash €39.5 Restricted group cash balance Undrawn Celgar Revolver 3.8 Drawn by C$25.4 million; additional draws subject to borrowing base limits; renewed in Q4 2009; matures May 2013 Undrawn Rosenthal Facilities 26.4 Undrawn;
Slide 23: Credit Ratios - Restricted Group
Credit Ratios - Restricted Group
Slide 24: Investment Highlights
MERCER Investment Highlights 24
Slide 25: 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 26: Appendix
MERCER Appendix 26
Slide 27: Current Industry Environment
Current Industry Environment
Slide 28: 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 generally substituted as much lower cost hardwood and recycled pulp into their furnish as t
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% 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 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 will be Source: TerraChoice Market Services Inc. As the improvement in living standards is forecasted to accelerate in markets such as China,
Slide 31: 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 32: 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 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 will likely result Both Canadian and German governments provide support and incentives for green initiatives and energy production O
Slide 34: 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 green house gas (GHG) intensity GHG
Slide 35: Operations
MERCER Operations
Slide 36: 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 37: 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 38: 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
Slide 39: 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 40: 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 41: 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 bankruptcy trustee since 1998 Opera
Slide 42: 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 43: Restricted Group - 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 44: Celgar Post Acquisition Review: 2010 impact
Celgar will have a significant positive impact on the restricted group performance in 2010 Restricted Group - Celgar Post Acquisition Review Fibre costs are expected to continue to improve Continued through further optimization Significant potential of upside incremental improvements if saw mill act
Slide 45: 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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