Exhibit 99.1
Deutsche Bank |
Investor Presentation June 2008 |
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 development activities, as well as capital spending and financing sources. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ materially from those expressed in any forward-looking statements made by or on behalf of Mercer. For more information regarding these risks and uncertainties, review Mercer’s filings with the Securities and Exchange Commission. |
Company Overview |
Mercer is the largest publicly traded NBSK(1)market pulp producer in the worldOperates three pulp mills with 1.43 million Admt(2)of capacity |
Rosenthal Stendal (3) Celgar (Germany) (Germany) (BC, Canada) 325,000 ADMT 620,000 ADMT 480,000 ADMT |
___(1)NBSK = northern bleached softwood kraft.(2)Admt = air dried metric tonnes.(3)Stendal is a 70% owned facility |
Our Strategy |
Focus on NBSK market pulpPremium grade kraft pulp that generally obtains the highest price Operate modern, world-class NBSK pulp production facilitiesTarget profitability in all market conditionsLimit ongoing capital requirements |
Improve efficiency and reduce production costsFocus on continuous improvement Focus on energy production Grow assets and earningsOrganically and through acquisitions |
Mercer’s impressive financial performance |
Quarterly Revenue Growth |
200 175 |
Revenue Growth 20052006 2007 150 |
125 Revenues (EUR) 452,437 623,977 704,391 100 |
75 50 |
Revenues (USD)1563,103 783,715 965,720 25 |
Revenue (Millions of EUR) 0 |
Q1’04 Q3’04 Q1’05 Q3’05 Q1’06 Q3’06 Q1’07 Q3’07 Q1’08 |
Mercer has experienced exceptional growth, with a 71% increase in revenue and a 100% increase in EBITDA from 2005’s performance in USD |
In 2007, Mercer’s revenues have grown to approximately $1 billion USD |
Rolling LTM EBITDA |
160 140 120 |
EBITDA Growth 200520062007 100 80 EBITDA (EUR) 69,810 148,338 126,744 60 40 EBITDA (USD)186,886 186,313 173,766 EBITDA (Millions of EUR 20 0 Q1’04 Q3’04 Q1’05 Q 3’05 Q1’06 Q3’06 Q 1’07 Q3’07 5 Q1’08 1 Indicative results using EUR/USD FX rate of 1.245, 1.256, 1.371 in 2005, 2006 and 2007, respectively. |
Mercer in Brief — Consolidated Financials As at Dec. 31, 2007 and 1stQuarter, 2008 |
In Millions of EUR Restricted Unrestricted Total Total (unless otherwise stated) Dec. 31, 2007 Dec. 31, 2007 Dec. 31, 2007 Q1 2008 Pulp Production 803,081 Admt 601,592 Admt 1,404,673 Admt 360,881 Admt Net Sales 401.3 303.1 704.4 179.1 Operating EBITDA 65.6 60.6 126.2 32.8 In Millions of EUR Restricted Unrestricted Total Total (unless otherwise stated) Dec. 31, 2007 Dec. 31, 2007 Dec. 31, 2007 Q1 2008 Cash 59.4 58.4 117.8 102.7 Total Assets 627.9 655.6 1,283.5 1,232.1 Total Employees 878 612 1,490 1,505 |
NBSK Market Pulp Capacity By Producer |
By capacity, Mercer is the largest publicly traded NBSK market pulp producer in the world |
Sodra Cell |
Mercer |
Capacity Canfor Pulp Trust |
Pope and Talbot |
Ilim Pulp |
Total |
Weyerhaeuser (1) by Tembec |
Producers |
New Domtar(1)Stora Enso West Fraser Metsa-Botnia SFK Pulp |
0 250 500 750 1,000 1,250 1,500 000’s Tonnes of NBSK Market Pulp Capacity |
(1)Adjusted for the merger of Weyerhaeuser’s fine paper business with Domtar, excluding idled mills in Prince Albert, SK and Lebel-sur-Quevillon, Que. 7 |
Source: Public filings of individual companies |
World Class Assets |
Mercer versus other top 20 NBSK producers as of Q4 2007 (includes integrated capacity) |
Large, modern facilities — low capital requirements, high runabilityState-of-the-art environmental complianceEnergy — net producers |
Weighted average PM capacity 4Q07 |
750 (1,000 t/a) STRONG 600 Potlatch Weighted Average Weyerhaeuser Botnia Technical Age 19 Terrace Bay Ilim Mercer years 1,000 t/a 450 Södra UPM SCA Canfor Capacity, SFK Heinzel 300 P&T Stora Enso Mill Domtar West Fraser Weighted Average Billerud Capacity 380,000 |
150 Boise t/a |
Cataly Mondi st |
WEAK |
30 25 20 15 10 5 0 Note: Bubble sizes represent market and integrated pulp productions. Technical Age, Years 8 |
Source: Jaakko Pöyry |
Mercer’s Pulp Production Growth Annual Pulp Production — by Mill and Cumulative Rosenthal Celgar Stendal Mercer 1,600 1,400 1,200 1,405 Project 1,302 (000’s ADMT) 1,000 “Blue Goose” 1,185 Production Celgar Spring 2006 800 Acquisition Feb. 2005 600 Stendal completed Sept. 2004 400 557 602 485 479 439 476 200 314 317 389 327 310 310 306 Annual — - — 171 |
2003 2004* 2005 2006 2007 |
Mercer has experienced tremendous production growth, with further organic growth potential of 200,000 Admt / year |
· Celgar is increasing annual production to 480,000 Admt with further potential to increase to 600,000; Stendal is increasing annual production to 620,000 Admt, with further potential to achieve 700,000 Admt in production annually |
* Stendal was completed in September 2004; its 2004 total production includes pre and post completion production of 143 days |
World class assets — Celgar Modern and efficient mill |
Capacity of 480,000 Admt per year16.6% reduction in non-fiber conversion costs from 2006Mercer’s Blue Goose capital project has exceeded expectations, delivering greater savings per tonne of production |
In 2007, became a net exporter of electricityRecently announced the approval of the Celgar Green Energy Project, which will double the mill’s generating capacityCelgar’s energy opportunities fit well with the BC Government’s focus on securing large amounts of green renewable electricity |
Excellent location with proximity to fiber basket and ability to service growing Asian and North American Markets |
World class assets — Rosenthal |
Converted to kraft pulp production in 1999Capacity has increased from 160,000 to 325,000 AdmtSets new standards for world class mill availability at 98.8% |
Efficient mill with strong cost positionOne of the lowest delivered costs to EuropeAchieved a 10.1% reduction in non-fiber conversion costs from previous yearContinued its drive for excellence with another year of record production volume |
Location has strong lumber supply and is near a central transportation hub, positioning the mill to service important European markets |
World class assets — Stendal |
One of the newest and largest NBSK mills in the world71% Mercer ownedCapacity of 620,000 Admt per yearAchieved world class mill availability of 94.0% in 2007 |
Economies of scale have allowed for lower conversion costs than RosenthalAchieved a 26.4% reduction in non-fiber conversion costs in 2007Non-fiber conversion costs were€96 (USD$132) per Admt |
667,000 MWh of electricity generated in 2007273,000 MWh of green renewable energy was exported, generating revenues of€13.8 million (USD$18.9 million) in 2007 |
Location has strong forest base and is well positioned to service European and off-shore markets |
Premium Pulp Commands Premium Price |
Mercer’s NBSK pulp uses high quality softwood fibers, which are recognized as some of the strongest fibers in the world. The long, slender softwood fibers provide better strength and softness, producing higher quality products that command premium prices |
Typical Fiber Qualities |
0.275 Hardwood Fibers Softwood Fibers |
0.225 |
Radiata Pine |
BC Coastal Douglas-fir |
(FR, mg / m ) BC Hemlock |
0.175 Coarseness BC Interior Spruce / |
Pine / Fir Softer Aspen White Birch BC Cedar |
0.125 Eucalyptus Grandis 0.075 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 2.75 3.00 Source: Paprican Fiber Length (LW, millimeters) |
Stronger |
Softwood Kraft Market Pulp |
There are three categories of softwood kraft market pulp, as defined by end-use requirements |
Pulp Category End Uses |
Premium Lightweight publication papers, premium tissue |
Heavier weight publication papers, value |
Standard tissues, lighter uncoated woodfree papers Coarse |
Uncoated woodfree papers, packaging products (Includes SBSK) |
Premium and Standard grades of softwood pulp that offer reinforcement qualities are moving into a structural supply / demand dynamic that favours the producer |
Source: Jaakko Pöyry |
NBSK End Uses (2003 versus 2006) 2003 2006 |
Specialties Printing and Specialties Printing & Writing Writing Paper 19% 17% Papers 17% 27% 18% Tissues 21% 26% |
Tissues 15% 23% |
Coated Mechanical (magazines) |
Uncoated |
Coated 17% Mechanical Mechanical (Newspaper (Magazines) Inserts) Uncoated Mechanical |
Source: Jaakko Pöyry |
(catalogs & inserts) |
Substitution Discussion: |
Substitution has been occurring as less demanding end uses have shifted away from NBSK, this trend has been occurring for well over a decade |
For certain end uses, paper makers have reduced the percentage of NBSK used but when one factors in the growth of the end use segment, NBSK consumption has grown on a net tonnes basis. |
NBSK Experiencing Steady Growth in Demand |
Demand for NBSK pulp is growing at 1-2% per year, and is expected to continue doing so in the medium termMovement towards higher production speeds, lower basis weights, and growing demand in key segments (such as tissues and printing and writing papers) ensures healthy outlook for NBSK demand |
Historic NBSK Demand versus Practical Maximum Capacity |
Capacity (tonnes) Demand (tonnes) Demand Capacity Spread (%) |
16,000 35% 14,000 30% 12,000 25% 10,000 20% 8,000 15% 6,000 10% Demand 000’s of tonnes 4,000 5% Supply exceed |
2,000 0% 0 -5% 9 0 9 8 0 4 0 5 0 6 0 7 |
199 0 199 5 199 6 199 7 19 1 99 2 00 2 00 1 200 2 200 3 20 20 20 20 Source: Pulp & Paper Products Council Year |
Increased NBSK pulp demand in key segments will more than offset the reduced NBSK pulp usage in some furnishes |
NBSK Capacity Reductions |
Recently announced closures and expected shutdowns will reduce supplyApproximately 1.2 million mt of NBSK market pulp capacity already shut down with another 1 million mt expected to close in the next yearRepresents approximately 15% of total global NBSK market pulp capacity * |
World NBSK Pulp Closures |
Size Market Pulp Company Location Date (000’s mt) (000’s mt) |
NBSK Pulp Mill Closures |
Stora Enso Norrsundet, Sweden1 Q2 2009 300 300 Pope & Talbot Nanaimo, Mackenzie, Halsey2Q2 2008 600 600 Stora Enso Kemijarvi, Finland Q2 2008 250 120 Weyerhaeuser USA Q1 2008 60 60 West Fraser Hinton, AB Q4 2006 70 70 Tembec Smooth Rock Falls, ON Q3 2006 200 200 Cascades Jonquiere, PQ Q3 2006 82 0 Bowater Thunder Bay, ON Q2 2006 100 100 Korsnas Gavle, Sweden Q2 2006 70 70 Weyerhaeuser Prince Albert, SK Q2 2006 260 130 Western Forest Products Squamish, BC Q1 2006 275 275 Domtar Lebel-sur-Quevillon Q4 2005 300 300 2567 2225 |
Total NBSK Capacity Closures 2567 Total Market Pulp Closures (approx.) 2225 Source: NLK Pulp Monitor, company filings 1 Tentative plan to close in the future 2 Mills are for sale and it is not expected that P&T will find a buyer for the Nanaimo mill 17 |
* Total global NBSK market pulp capacity = 14, 475, 000 tonnes ( Source: Pulp and Paper Products Council ) |
NBSK Capacity Expansions Recently announced expansions have not offset capacity reductions |
World NBSK Pulp Expansions |
Size Market Pulp Company Location Date (000’s mt) (000’s) |
NBSK Pulp Mill Expansions |
Mercer - Stendal Germany Q4 2007 20 20 Metsa-Rauma Finland Q2 2007 45 45 Jilin Chenming China Q2 2007 100 100 Stora Enso Finland Q2 2007 65 65 Mercer - Celgar Canada Q2 2007 50 50 Munksjo Sweden Q2 2007 20 20 Weyerhaeuser Canada Q1 2007 30 30 APRIL China Q4 2006 40 40 SCA Sweden Q4 2006 20 20 Ilim Russia Q2 2006 100 100 Stora Enso Finland Q1 2006 125 125 Mercer - Stendal Germany Q4 2005 50 50 665 665 |
Total NBSK Capacity Expansions 665 Total Market Pulp Expansions (approx.) 665 Source: NLK Pulp Monitor, company filings |
Pulp Price History Quarterly Average RISI Price Delivered to N. Europe |
USD CAD EURO |
1200 1100 |
Tonne |
1000 |
Per 900 Price |
800 |
CAD |
NBSK 700 |
USD 600 |
500 EURO 400 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2000 2001 20022003 2004 2005 20062007 |
Source: RISI tables 19 |
Germany Fiber Outlook Sawmill industry - current capacity and Significant capacity enlargement in the growth forecast 2009/2010 German sawmill industry during the last few years Klausner Nordic Timber |
Total capacity was 38 mill. scm in 2005 Robeta vs. 44 mill. scm in 2007 (+16%) Heggenstaller |
Stendal |
In addition, further investments of new sawmill capacities are planned (+3 mill. Klausner Holz Sachsen scm until 2010) HIT holz |
Sawmill activity at lower levels due to Klausner Holz Thüringen |
Rosenthal |
slowing housing market |
Longer term, significant growth in world class sawmill’s will provide additional |
Ladenburger |
residual chip sourcing opportunities for both Stendal and Rosenthal |
Capacity in m3 |
Increased residual chip supply should put downward pressure on fiber prices |
LEGEND current softwood capacity new softwood sawmill new hardwood sawmill 20 |
BC Mountain Pine Beetle |
The situation is still evolving |
Modelling predicts 50% of the BC Lodgepole pine inventory will be dead by 2008 with 77% dead by 2014 Pine is approximately 20-30% of BC timber base and up to 50% of the Central Interior timber base is Lodgepole pine Canfor Pulp Over run regions in general are regions that have extensive volumes of pine Dead trees are beginning to have an impact on lumber Cariboo Pulp processing efficiency. Debate is underway on how long sawmill’s will be able to process the dead pine. It is estimated there will be a rapid drop beginning 2016 |
Situation is proving to be a short term opportunity — harvesting the dead/dying trees in Central BC is LEGEND allowing stands close to Celgar to |
SEVERITY OF ATTACK grow |
High Kamloops Pulp Proximity to higher growth Severe Southern BC stands will be a Very Severe competitive advantage in the Over run medium term |
Tembec |
Pulp Mill Celgar 21 Location |
Transition to Bio-energy Economics |
Pulp in a Carbon World |
Unless there is a change in how customers value forest or wood based products, the industry will not continue in its current state, creating capacity decline which will continue to affect supply and demand fundamentals until prices rise high enough to reflect the energy value of wood |
Over time, a levelling of the playing field on wood cost will occur between Northern and Southern mills as the cost of land for plantations is driven up by competing higher value products |
On a global basis, wood will reflect and possibly exceed its fossil fuel energy value, reflecting the carbon neutrality of wood |
Mercer’s position as a large net exporter of bio-energy puts it in a unique position to benefit from this opportunity |
Mercer’s Consolidated Balance Sheet As at March 31, 2008 ASSETS LIABILITIES |
Current Liabilities Current Assets Accounts payable and accrued expenses€ 74,331 Cash and cash equivalents€ 69,735 Pension and other benefit obligations, current portion 438 |
Receivables 91,241 |
Debt, current portion 35,042 |
Note receivable, current portion 5,167 |
Total Current Liabilities 109,811 |
Inventories (Note 4) 97,181 |
Prepaid expenses and other 5,019 Long-Term Liabilities |
Total Current Assets 268,343 Debt, less current portion 773,972 Unrealized interest rate derivative losses 29,735 Long-Term Assets Pension and other benefit obligations 17,310 Cash, restricted 33,000 Capital leases and other 10,754 |
Property, plant and equipment 903,402 Deferred income tax 20,971 Investments 72 852,742 |
Total Liabilities 962,553 |
Deferred note issuance and other costs 4,955 |
Deferred income tax 18,746 SHAREHOLDERS’ EQUITY Note receivable, less current portion 3,536 Share capital (Note 7) 202,844 |
963,711 Additional paid-in capital 233 |
Total Assets€ 1,232,054 Retained earnings 40,288 Accumulated other comprehensive income 26,136 Total Shareholders’ Equity 269,501 |
Total Liabilities and Shareholders’ Equity€ 1,232,054 |
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Advantageous financial structure |
Mercer’s capital structure provides high leverage to pulp cycles |
German Government provided Mercer€ 375 million in grants for the construction of the Rosenthal and Stendal mills. This amount is credited against fixed assets and translates into€ 375 million in equity or debt that the company did not have to raiseMercer’s€ 565 million Stendal debt is 80% guaranteed by the German Government, is fixed at an interest rate, including associated fees, of approximately 5.3% plus margins and costs, and is secured by the mill’s own assetsThe debt has provisions for cross-currency swaps with no required marginsIt is an amortizing debt with no immediate balloon paymentsOur principal payments are effectively made in pre-tax dollars due to Mercer’s tax shieldsUnsecured convertible debt of USD $67.5 million at 8.5% with a conversion factor of US$7.75; redeemable by the company starting Oct. 15, 2008, maturing Oct. 15, 2010Unsecured senior notes of USD $310 million at 9.25%, maturing Feb. 15th, 2013EBITDA from Celgar and Rosenthal for the fiscal year ending Dec. 31, 2007 was |
€ 69,347,000 or US$ 95,074,000 * |
Debt service costs for the unsecured Senior Notes and the Convertible Debentures was US$ 34,391,675 or€ 25,085,102 for the same period |
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* Indicative results using EUR/USD FX rate of 1.3710 |
Mercer’s key investment highlights |
Future supply/demand outlook for NBSK has never looked better |
World class mills that have low delivered costs and are located in excellent fiber basketsInsulated from risk of rising energy prices due to excess electricity generating capacityIncremental production capacity available at low capital costUnique financial structure offering shareholders very high leverage to the pulp cycleStrong shareholder focused management team and board |
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