Mercer International Inc. · NASDAQ:MERC
Mercer International — Credit Suisse Paper & Packaging Conference 2011
45 slides from Mercer International's conference presentation, Feb 22, 2011
Slide 1: Investor Presentation - Credit Suisse Paper & Packaging Conference
Investor Presentation Credit Suisse Paper & Packaging Conference February 23 - 24, 2011
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
MER Overview of the Company
Slide 4: Company Overview
Company Overview Three world-class, large, modern mills that produce 1.5 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 markets
Slide 5: Significant Production Capacity with Access to Key Global Markets
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 6: 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 Note: Bubble sizes represent market and integrated pulp productions Source: Jaakko Poyry, July 2010 Low production costs Low mai
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 biggest pulp importer and fastest growing pulp import market - and Germany - the largest European pulp impo
Slide 8: 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 9: NBSK Supply/Demand Fundamentals are Positive
NBSK Supply/Demand Fundamentals are Positive Management believes that generally flat supply, overall growing demand and positive exposure to the effects of climate change create an excellent operating environment for Mercer Global demand for NBSK remains strong, as global production of tissue and sp
Slide 10: Favourable NBSK Pricing and Global Supply Environment
Favourable NBSK Pricing and Global Supply Environment NBSK prices improved dramatically in 2010 and management believes the market fundamentals will remain tight overall, even after the restarts Source: RISI, PPPC
Slide 11: Overview of Operations
Overview of Operations "
Slide 12: Improving Financial Performance
Operating EBITDA margins compressed starting in the second-half of 2008 and through 2009 given falling pulp prices, a weakening US dollar and increased fiber costs, but in 2010 margins improved materially given strong pulp pricing Improving Financial Performance
Slide 13: Celgar Has Addressed its Fiber Challenge
Until 2006, Celgar was largely reliant on a broad group of sawmills for their residual chips US housing downturn caused spike in fiber costs From the peak in Q4 2008, Celgar has been able to reduce its per tonne fiber costs by over €100/ADMT, or approximately 38%, on an annualized basis Celgar Has A
Slide 14: Well-Diversified and Stable Sales Mix
Mercer has a well-diversified and stable sales mix Sizeable leverage to 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 exposure to tissue / hygiene end uses which h
Slide 15: Financial Review
MER Financial Review 15
Slide 16: Corporate Structure and Long Term Debt
Corporate Structure and Long Term Debt Rosenthal (Germany) Celgar (British Columbia) Stendal (Germany) 74.9% As at December 31, 2010 US$300 million senior unsecured notes due December 2017 US$21 million senior unsecured notes due February 2013 (redeemed Feb 15, 2011) US$42.5 million convertible note
Slide 17: Selected Historical Financial Data - Consolidated
Selected Historical Financial Data - Consolidated (€ 000s unless otherwise indicated) * Reflects Rosenthal's turbine shut of approximately 60 days for maintenance. Celgar's Green Energy Project became operational Sept. 28, 2010 ** Includes gains (losses) on Stendal's interest rate swaps and foreign
Slide 18: Selected Historical Financial Data - Restricted Group
Selected Historical Financial Data - Restricted Group (€ 000s unless otherwise indicated) * Reflects Rosenthal's turbine shut of approximately 60 days for maintenance. Celgar's Green Energy Project became operational Sept. 28, 2010 ** Includes foreign exchange gains (losses) on Mercer's US denominat
Slide 19: Balance Sheet
Balance Sheet ‘As at December 31, 2010 i €0005) Rea Goup ESTEE TCETTS Besse es as ee oe ae ee ee or ‘TOTAL LASTS AND SHAREHOLDERS EQUITY ____—ganSe SSRN seaS 19
Slide 20: 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 - is supported by the Celgar and Rosenthal operations (recently replaced by a US$300 million issue due De
Slide 21: Liquidity Position - Restricted Group
Liquidity Position - Restricted Group (€ millions) As at Dec. 31, 2010 Comments Cash €50.7 Celgar Revolver Availability 13.5 Drawn by C$20.0 million; additional draws subject to borrowing base limits; matures May 2013 Rosenthal Facilities Availability 26.4 Undrawn; matures December 2012 Restricted G
Slide 22: Investment Highlights
MERCER Investment Highlights
Slide 23: It's Been a Transitional Year for Mercer
It's Been a Transitional Year for Mercer The financial crisis of 2009 has resulted in the closure of a significant volume of NBSK capacity Celgar's new wood room has reduced its fiber cost by over €100 / Admt from the peak in Q4 2008 Celgar's new turbine was commissioned in September 2010 and will a
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 fiber baskets, in close proximity to key global markets Strong, long-term forecast supply/demand outlook for NBSK
Slide 25: Dissolving Pulp Production Opportunity
Dissolving Pulp Production Opportunity
Slide 26: Dissolving Pulp - The Opportunity
Dissolving Pulp - The Opportunity Mercer strives to leverage its existing state-of-the-art assets to continuously reduce conversion costs, increase revenues and realize upon our mill's strengths Production of Dissolving Pulp (DP) has been identified as an opportunity to utilize the strengths of our
Slide 27: Dissolving Pulp - Preliminary Feasibility Analysis
Dissolving Pulp - Preliminary Feasibility Analysis The additional capital cost to convert either Celgar or Stendal to swing production would be in the range of $25 to $35 million There is a potential technical limitation identified at Celgar and work is being done to overcome it We remain dedicated
Slide 28: Other Current Dissolving Pulp Related Market Opportunities
Other Current Dissolving Pulp Related Market Opportunities Mercer has completed trial production with rayon staple producers and is preparing to introduce a refined grade of NBSK with a higher cellulose content that can be a lower cost substitute production input Up to 15% of the DP used in rayon pr
Slide 29: Appendix A
MER Appendix A
Slide 30: Current Industry Environment
Current Industry Environment
Slide 31: NBSK is Needed for Strength
NBSK is Needed for Strength 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 Producers have generally substituted as much lowe
Slide 32: 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 33: 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 forecasted in markets such as China, management believes dem
Slide 34: PPPC Flash Report - December 2010 Permanently Shut NBSK Capacity
1 PPPC Flash Report - December 2010 Permanently Shut NBSK Capacity Despite recent restarts caused by record high pulp pricing, softwood pulp markets remain tight due to steady demand growth and the permanent closure of high cost capacity. Global softwood inventories at the end of December total 25 d
Slide 35: Global Supply of BSK
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 is expected to remain flat as only one new softwood mill is expected in the next few years
Slide 36: 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 are expected to result Both Canadian and German governments provide support and incentives for green initiatives and energy producti
Slide 37: Climate Change Presents Mercer with Opportunities
Management believes 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 should have a large negative impact for producers with high green house ga
Slide 38: Operations
Operations
Slide 39: Restricted Group - Rosenthal Mill
Restricted Group - Rosenthal Mill Location: Blankenstein, Germany, approximately 300 km south of Berlin Pulp Production Capacity: 330,000 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 40: 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 certified Fiber costs are expected to continue to im
Slide 41: 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 ~75% Mercer owned Debt i
Slide 42: Appendix B
MERCER Appendix B 42
Slide 43: Dissolving Pulp Production Opportunity
Dissolving Pulp Production Opportunity
Slide 44: Dissolving Pulp - What is it?
Dissolving Pulp - What is it? Dissolving Pulp is a wood pulp that has a much higher cellulose content than NBSK To achieve the required high cellulose purity, the wood's hemicellulose also needs to be removed in addition to the removal of virtually all of the lignin DP can be produced using two proc
Slide 45: Dissolving Pulp - Market Analysis
Global textile fiber demand has grown 3.1% / year over the last 15 years and its 2010 production totaled 66 million tonnes * In 2010, viscose staple (a common end use for DP) accounted for 4%, or approximately 2.64 million tonnes, of that total Global viscose demand is expected to grow at a rate of
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