Exhibit 99.1
Exhibit 99.1
Barclays High Yield Bond and Syndicated Loan Conference
May 14, 2014
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 United States Securities and Exchange Commission. Unless required by law, we do not assume any obligation to update forward-looking statements based on unanticipated events or changed expectations.
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com
2
Mercer International Inc.
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 3
Corporate Structure
Mercer conducts operations through three subsidiaries:
Rosenthal – Germany
the only two NBSK market pulp mills in Germany, which is Europe’s largest market for NBSK pulp
Stendal – Germany
Celgar – BC, Canada one of the largest, most modern pulp mills in North America
The Corporation is divided into the “Restricted Group” and the “Unrestricted Group” – a structure created to facilitate the acquisition of Celgar through the issue of senior notes (1)
The Restricted Group is supported by the Celgar and Rosenthal operations The Unrestricted Group is supported by the Stendal operation
Debt is 80% guaranteed by the German government Non-recourse to the Restricted Group
Restricted Group
100% 100% 83%
Rosenthal - Germany Celgar - BC, Canada Stendal - Germany
360,000 ADMT + 57 MW 520,000 ADMT + 100 MW 660,000 ADMT + 148 MW
(1) Pursuant to the terms of its 2017 Senior Notes
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Strategically Located Mills with Access to Global Markets
Mercer’s three mills have a combined annual capacity of 1.54 million air dried metric tonnes (“ADMT”) of NBSK pulp production and 305 MW of electrical generation
The mills’ strategic locations position the company well to serve customers in Europe, North America and Asia
- China – the world’s largest and fastest growing pulp import market
- Germany – the largest European pulp import market
Stendal
(Germany)
660,000 ADMT Celgar
Rosenthal (B.C., Canada)
(Germany) 520,000 ADMT
Europe
360,000 ADMT
Japan
Middle United East China States
Thailand 2013 Sales by Region
North
America Germany
3% 31%
Italy
Indonesia Other 7%
Asia
5% Other
European China Union 31% 23%
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Growing Energy and Chemical By-Product Revenues
Mercer has been a leader among paper and forest products companies in embracing the “bio-economy” and in harnessing significant value from the generation of surplus power, as well as its production of bio-chemicals Mercer recognized the opportunity to secure new revenue streams from its operations, as the market place turned to biomass for carbon neutral power and renewable chemical by-products Since energy and chemical production is a by-product of our pulping process, our production is highly efficient and our energy and chemical sales are highly profitable
Stendal’s Project Blue Mill was completed in Q4 2013 (46 MW capacity addition)
Mercer’s Electricity Production and Sales
2.0
Production Exports 1.70 1.71 1.75 CAGR:
1.64 4.6%
1.6 1.45 1.44
(mm) 1.2
MWh 0.71 0.70 0.73 CAGR:
0.8 0.65 10.3%
0.48 0.52
0.4
-
2009 2010 2011 2012 2013 Q1-2014
TTM
Mercer’s Energy and Chemical Revenue
$110.0
Chemical $94.8 $93.0 $92.2 $95.4 CAGR:
Energy 10.1%
$88.0
mm) $63.5 $65.4
$ $66.0
(US
Revenue $44.0
$22.0
-
2009 2010 2011 2012 2013 Q1-2014
TTM
Green electricity and chemical by-product revenue… a significant and growing part of Mercer’s business
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Globally Cost Competitive, Modern Mill Operations
Mercer’s operations are some of the largest and most modern NBSK facilities in the world
n Low production costs n Strong record of environmental performance n Low maintenance capital requirements n All facilities are net energy producers n High runability / efficiency
NBSK Producer Competitiveness
600 Average Technical Age: 600 28.4 years Newer,
Larger
International
500 Mercer
Nanaimo Paper NBSK Pulp 500
(Ilim) Mills
(ktpa) Södra
Metsä Board
Cell SCA
400 Weyer- West 400 haeuser Catalyst Fraser
Capacity Heinzel
Canfor
300 Resolute Metsä 300
Mill Domtar Fibre Average Market Pulp Capacity per Mill:
Aditya Birla UPM 306,559 tpa Stora
Average 200 Enso 200
Older, Daishowa-Asia Pulp and Paper Marubeni
Smaller (Paper Excellence)
100 Billerud- 100 NBSK Korsnas
Pulp Mills
0 -60.0 50.0 40.0 30.0 20.0 10.0 -
Source: FisherSolve Q1 2014 data Note: NBSK market pulp only
Average Technical Age (years)
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The NBSK Market
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Introduction to the Major Themes in NBSK
Current themes surrounding the NBSK market include:
The effect of China and other emerging economies’ continuing growth
The impact of digital media on paper demand
The potential supply impact of integrated players selling their pulp on the market
The net supply impact of mill closures, starts/restarts, and facility conversions
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 9
Global Pulp Market
Components of the Pulp Market (1)
Bleached Softwood Kraft Chemical Pulp Demand Pulp Demand
Other 14%
Bleached Bleached
NBSK SBSK
Hardwood Softwood
60% 26% Kraft Kraft 52% 44%
Sulphite Unbleached
1% Kraft 3%
Northern Bleached Softwood Kraft (NBSK)
Produced From:
n Spruce/ Pine / Fir / Cedar
Core Production Areas:
n North America, Northern Europe
Characteristics:
n Long, slender, thin-walled fibersn Better softness and strengthn Better structure
Major Uses for Softwood Pulp
Tissue Specialty Paper Laminates
NBSK a commands higher premium relative to other kraft pulps
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Demand Fundamentals – Changes to NBSK End Use Markets
Changes to Papermakers’ Demand for NBSK
n The increased NBSK demand for use in tissue / specialty products has outpaced the decrease NBSK demand for printing & writing grades
- From 2003 to 2012, a period very effected by “digital substitution” of traditional paper grades, total NBSK demand grew by over 11% (1) n Significant growth in tissue capacity is a major contributing factor and is expected to continue globally
NBSK Demand by End Use (1)(2)
15.0 CAGR 2003 - 2012 Total: Others +1%
12.0 Others
Printing & Writing
P&W: 33%
9.0 tonnes (5%)
Printing & of Writing
60%
6.0 Tissue millions 37%
Tissue: +10%
3.0 Tissue
18%
Specialty: Specialty
Specialty 25%
+7%
15%
-
2003 2012E
Annual Tissue Capacity Growth by Region (3)
3.5
Rest of World
3.1
3.0 China
2.5 1.3
2.0 tonnes 2.0 1.8 of 1.7
0.4
1.5 0.9 millions 0.6
1.0
1.8
1.4
0.5 1.1 1.1
0.0
2012A 2013E 2014E 2015E
NBSK’s strength attributes make it a necessary input for tissue and specialty products
(1) | | Source: PPPC (November 2013) for NBSK demand |
(2) Source: Brian McClay (December 2012) for NBSK end use breakdown; Note that it is believed that current NBSK demand by end use is generally consistent with 2012 data (3) Source: Brian McClay
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Demand Fundamentals – China’s Growing Demand
BSK Deliveries to China (1)
6.0 12 Month Rolling (2001 – Present)
4.8 tonnes 3.6 of
2.4
Millions 1.2 -
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Global BSK Demand by Region (1)
China’s Chemical Pulp Demand (1)
28.0 40% 15.0 CAGR:
Region: 1995-2015E CAGR 2004 – 2012*
P&W: Woodfree
China: 14.9%
Paper Board Kraft & Spec.:
W. Europe: (0.4%)
Tissue 11.0%
Tissue 14.7%
9.9%
N. America: (0.4%) 12.0
21.0 30% Fluff
Other: 2.0%
% China Kraft & Specialty P&W: Mechanical tonnes 9.0 tonnes of 14.0 20% of Paper Board:
9.6%
millions millions 6.0
7.0 10%
3.0 P&W Woodfree:
9.9%
- - -
1995 2000 2005 2010 2015E 2004 2007 2010 2012E (2)
(1) Source: PPPC
(2) 2012E assumes same breakdown of grades as in 2010, for illustrative purposes
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 12
Demand Fundamentals – China’s Growing Demand (Cont'd)
China’s demand is growing rapidly…
China’s 12th Five-Year Plan should increase demand for NBSK
n Growth in Chinese per capita tissue, wood-free, and specialty paper grade consumption is due to:n Rising living standardsn Growing disposable incomen Increased demand for hygiene products
Tissue Demand & Income in China (1)
6.00 Avg 10 Year $8.0
Tissue Demand per Capita
Income per Capita Growth
5.25 $7.0
Rate: 10%
4.50 $6.0 3.75 $5.0 000’s
Over time, the market will easily US person absorb new tissue capacity
/ 3.00 $4.0$ kg Avg 10 Year / Growth
2.25 $3.0
Rate: 8% person
1.50 $2.0
0.75 $1.0
- -1990 1994 1998 2002 2006 2010
… and its pulp supply isn’t currently keeping pace
n Shutting of “Old China” pulp / paper capacityn Significant closures to date and more to come (see RISI data below)n Implementing pollution and water / energy constraints to stay operatingn Modern assets require greater volumes of NBSK to run machines at optimal ratesn Focus on wood-based pulps, but limited domestic wood fiber supply, means large pulp import volumesn We believe that there is healthy demand for virgin fiber as paper recovery is nearing feasible maximums in most markets
Chinese Government Mandated
Closure of “Old China” Capacity mm tonnes per year over 5 years
2005—2009: 6.5
8.8 closed 8.31 mm tonnes
2012E: targeted 9.95 mm tonnes for closure
2013E: targeting 7.42 mm tonnes for closure
Source: RISI “China to close more than 6.21 million tonnes…” (30-Jul-13);
RISI “China’s capacity closure campaign …” (3-Dec-13)
(1) Source: PPPC – Trends in P&W Papers and Tissues (Emanuele Bono, November 2012)
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 13
Supply Fundamentals – Minimal Global BSK Additions
Global Bleached Softwood Kraft Market Pulp Capacity (1)
2014E-2018E
28 CAGR: +0.8%
26
1995-2013 CAGR: +1.8% tonnes 24 of 22 millions 20 18
16
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Forecast
2012–2013 BSK / NBSK Pulp Mill Closures and Conversions
Date Company Grade Mill Capacity (kt)
Q2 2012 Yueyang Paper BSK Hunan, China (400) June 2012 Stora Enso NBSK Uimaharju, Finland (200) Q4 2012 Ngodwana BSK Ngodwana, South Africa (215) Nov 2012 Resolute Forest NBSK Fort Frances, ON, Canada (115) March 2013 Domtar Corporation NBSK Kamloops, BC, Canada (120) March 2013 Georgia-Pacific (Buckeye) Fluff-BSK Perry, FL, USA (40) June 2013 Rayonier Fluff-BSK Jesup, GA, USA (260) August 2013 Sodra Cell NBSK Tofte, Norway (400)
Total Closures (1,750)
Total global softwood pulp capacity is expected to remain generally flat with only one new softwood mill added in the 2011-2014 period
(1) Source: PPPC (May 2014)
Note: Sodra has announced a $610 million investment at Varo mill in Sweden to increase capacity by 275k tonnes by Q3 2016
Note: Metsä Fibre announced plans to build a 1.3 million tpa softwood pulp mill at Äänekoski for 2017 (the mill is currently 520,000 tpa, producing both hardwood and softwood and is partially integrated)
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Strong Long-Term NBSK Fundamentals
Demand Fundamentals
Demand for NBSK is still growing globally
Improving economic conditions for emerging countries
- Tissue in China: 10% p.a. growth through 2017 (1)
- Printing & writing paper in China: 4% p.a. growth through 2017 (1)
Strengthening agent
Digital substitution
Supply Fundamentals
Supply growth potential for NBSK is limited
Minimal NBSK new capacity increases
- Only one new mill globally in 2011–2014
- Limited new capacity expected in the near-term
Meaningful capacity shutdowns of old, uneconomical mills
With strong demand and generally flat supply, we believe the NBSK market looks very attractive
(1) | | Source: Hawkins Wright – Defining the China Market (December 2013) |
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Financial Performance and Recent Developments
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Putting NBSK’s History into Perspective
NBSK History: Price & Global Inventory (1)
$1,100 ?Supply, ?Prices: 64
Days of Global BSK Inventory
NBSK Price Stocks are low, prices increasing
$1,000 56
$900 48
/t) $
(US $800 40 Global BSK
Price Shortage!
$700 32
price
NBSK surge Inventory $600 24 -
# $500 16Days $400 8
$300 -1996 1998 2000 2002 2004 2006 2008 2010 2012
After undergoing significant changes over the past 20+ years, the market for NBSK is trending from balanced to tight, with the meaningful substitution of NBSK for other pulps largely completed
(1) Sources: Factset FOEX PIX Pulp NBSK (prices) / PPPC (inventories)
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Significant Earnings Potential
Annual Consolidated Operating EBITDA (1)(2)
$360 40% $297 $297 mm) $270 $233 30% $186 $194 $173 EBITDA (US$ $180 25% $138 $137 20% 23% $101 19% $110
17% $57
$90 10% Margin EBITDA 13% 12%
10% 10% 7%
- -2006 2007 2008 2009 2010 2011 2012 2013 Q1-2014 2010-13 2010-13 TTM Average Peak
Energy & Chemical
$33 $35 $51 $63 $65 $95 $93 $92 $95 $86 $65
Revenue (US$mm)
Does not include: Project Blue Mill annual ene
rgy sales of Quarterly Consolidated Ope
rating EBITDA (1)(2) US$10 mm and increased pulp
capacity of 30,000 ADMTs
$100 $85 $87 $87 40% $81
$73 $69 mm) $75 $69 $59 30% EBITDA
$44 $49
$50 28% $40 $42 20%
(US$ 26% 26%
22% 24% $21 $28 $28 $32 $33 $27
23% $18 19%
$25 18% 16% 10%
14% Margin
11% 12% 12% EBITDA 7% 10% 7% 10%
- -Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2010- 2010-
13 13
2010 2011 2012 2013 2014 Avg. Peak
Pulp pricing recently rising – currently under some pressure in China due to market uncertainty regarding new hardwood capacity but is expected to further improve in 2014
(1) For a reconciliation of Net Income to Operating EBITDA, please refer to Appendix. Operating EBITDA is defined as operating income (loss) plus depreciation and amortization and non-recurring capital asset impairment charges. It does not reflect the impact of a number of items that affect net income. It is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income or income from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity.
(2) The company’s reporting currency was the Euro up until October 1, 2013. Figures prior to this date have been converted to US dollars at the average foreign exchange rates in effect during the period.
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 18
Recent NBSK Pricing Momentum
Historical “Upcycle” NBSK Price Increase Trends (1)
150%
129%
120%
Period 104% over Increase 90%
64%
Price 60% Median 54%
45% 43%
Cumulative 30% 24%
-
Jan-86 Dec-93 Mar-99 Sep-05 May-09 Sep-12 to to to to to to Jun-90 Oct-95 Jan-01 Aug-08 Jul-11 Apr-14 (Current)
NBSK List Price Increases Since Q3 2013
NBSK List Price Increases (US$/tonne)
Date US Europe China
Aug-13 $945 $860 $680 Sep-13 $945 $880 $695 Oct-13 $970 $895 $720 Nov-13 $990 $905 $740 Dec-13 $990 $905 $750 Jan-14 $1,010 $915 $750 Feb-14 $1,010 $920 $750 Mar-14 $1,030 $925 $770 Apr-14 $1,030 $925 $750
+$85 +$65 +$70 Change since Aug-13 +9% +8% +10%
We believe there is significant room for further price increases in the current cycle
Source: RISI
Note: Producer realized prices are net of discounts, rebates and commissions (1) Calculations based on North American NBSK list prices
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 19
Mercer’s Recent Developments
Capital Projects
n Completed Stendal’s Project Blue Mill on schedule and on budgetn Enhanced pulp production capacity (30,000 ADMT per year) and added new electrical generating capacity (46 MW)
Celgar Workforce Reduction
n Expected annual cost savings of US$8 to US$10 million; 80% of which are expected to be realized in 2014n Incurred pre-tax charges of ~US$5 million for severance and other personnel related expenses in 2013
Stendal Credit Facilities
n Amortizing loan, supported by guarantees from the German Federal and State governmentsn EBITDA based covenants pinch at the bottom of the pulp cyclen The credit facilities were successfully amended in September 2013 to provide greater flexibilityn Mercer simultaneously injected US$20 million of capital and increased mill ownership from 74.9% to 83.0%n Stendal received a waiver under its credit facility in March 2014n Extended date by which a portion of the proceeds for the 2014 equity offering (described next) may be contributed to Stendal to November 17, 2014
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Mercer’s Recent Developments (Continued)
Working Capital Revolvers
n Rosenthal and Celgar’s revolvers were extended to October 2016 and June 2016, respectively, on attractive terms
Capital Raises
n Issued US$50 million in “tack-on” Senior Notes at a 104.5% premium to face in July 2013n Closed equity offering of 8.05 million shares at US$7.15 / share for net proceeds of US$53.6 million in April 2014n The over allotment was exercised in full
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 21
Mercer – Summary
The largest “pure-play” NBSK market pulp producer
Globally cost competitive, modern mill operations
Strategically located mills with excellent access to key markets
Stable and growing revenue from high-margin energy & bio-chemical by-product sales Strong long-term NBSK fundamentals Significant leverage to the NBSK pulp cycle Experienced management team
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Appendix A
Additional Information on Mercer International Inc.
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Mercer Balance Sheet – March 31, 2014
in US$ millions Restricted Unrestricted Adjustments Consolidated
ASSETS
Cash, Cash Equivalents $108.0 $64.1 - $172.1 Receivables $73.8 $75.3 - $149.1 Inventories $93.2 $56.7 - $149.9 Other Current Assets $18.3 $5.8 - $24.1
Total Current Assets $293.4 $201.8 - $495.1
Property, Plant and Equipment $404.6 $609.9 - $1,014.5 Due from Unrestricted Group $155.0 - ($155.0) - Other Long-Term Assets $20.6 $16.5 - $37.0
Total Long-Term Assets $580.2 $626.3 ($155.0) $1,051.6
TOTAL ASSETS $873.6 $828.1 ($155.0) $1,546.7
LIABILITIES & EQUITY
Payables $62.8 $58.2 - $121.0 Current Debt - $62.6 - $62.6 Other Current Liabilities $1.3 - - $1.3
Total Current Liabilities $64.1 $120.7 - $184.8
Debt $336.3 $549.7 - $886.0 Due to Restricted Group - $155.0 ($155.0) - Other Liabilities $59.5 $54.2 - $113.7
Total Long-Term Liabilities $395.8 $758.9 ($155.0) $999.7
Total Shareholders' Equity (Deficit) $413.7 ($43.0) - $370.8 Non-Controlling Interest (Deficit) - ($8.6) - ($8.6)
Total Equity $413.7 ($51.6) - $362.1
TOTAL LIABILITIES AND EQUITY $873.6 $828.1 ($155.0) $1,546.7
Note: Restricted Group consists of Celgar and Rosenthal; Unrestricted Group consists of Stendal (see Corporate Structure slide for more details) Note: Some numbers may not add due to rounding
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 24
Mercer Selected Historical Financial Data (Consolidated)
in US$ millions, except for per share data 2011 2012 2013 Q1-2013 Q1-2014
Pulp Revenue $1,157.2 $979.8 $996.2 $237.8 $278.5 Energy and Chemical Revenue $94.8 $93.0 $92.2 $24.0 $27.2
Total Revenue $1,252.0 $1,072.7 $1,088.4 $261.8 $305.7
Operating Income (Loss) $154.7 $63.0 $31.7 $12.6 $39.2
Interest Expense $82.1 $71.8 $69.2 $17.4 $17.5 Gain (Loss) on Derivative Instruments (1) ($2.0) $4.8 $19.7 $6.4 $3.2 Other Income (Expense) $3.6 ($0.2) $1.2 ($0.1) -
Net Income (Loss) attributable to common shareholders $69.7 ($15.7) ($26.4) ($0.6) $21.0
Operating EBITDA (2) $232.6 $137.7 $110.3 $32.1 $59.0
Earnings Per Share (Basic) $1.39 ($0.28) ($0.47) ($0.01) $0.38
Note: Quarterly data represents 3 months ended March 31 Note: Some numbers may not add due to rounding
(1) Gains (losses) on Stendal’s interest rate swap and pulp price swaps (subject to quarterly non-cash mark-to-market valuation adjustments)
(2) Refer to Appendix C for Reconciliation of Net Income to Operating EBITDA. Operating EBITDA is defined as operating income (loss) plus depreciation and amortization and non-recurring capital asset impairment charges. It does not reflect the impact of a number of items that affect net income. It is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income or income from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 25
Mercer – Corporate Overview
Mercer International Inc. (NASDAQ:MERC, TSX:MRI.U) is the world’s largest Northern Bleached Softwood Kraft (“NBSK”) market pulp producer
n Mercer owns three large, modern pulp mills – one located in BC, Canada and two in Germanyn The assets have a combined annual capacity of over 1.5 million ADMT per year of NBSK, a premium grade of pulp with excellent strength propertiesn A significant and growing portion of revenue is from the sale of excess renewable, carbon-neutral electricity and chemical byproductsn The company has ~1,460 employees and generated revenue of over US$1 billion in fiscal 2013n The current financial structure offers very high leverage to the pulp cycle
Management believes the long term supply-demand outlook for NBSK is strong
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 26
History of Mercer’s Debt Structure
The Restricted Group structure was created to facilitate the acquisition of Celgar through the issue of senior notes
The Restricted Group
n Supported by the Celgar and Rosenthal mills: combined capacities of 880,000 tpa of pulp and 157 MW of energyn In 2013, together they generated US$33.8 million in by-product electricity revenuen The Restricted Group was created in 2005 by issuing US$310.0 million in notesn In November 2010, the notes were replaced by a US$300.0 million senior note issue due December 2017n Subsequently, US$15.6 million were repurchased and cancelledn In July 2013, US$50.0 million in additional aggregate principle amount of senior notes was issuedn At March 31, 2014, the Restricted Group’s debt was US$336.3 million, with cash and equivalents of US$108.0 million and US$73.7 million was available under revolving credit facilities
The Unrestricted Group
n Supported by the Stendal mill: 660,000 tpa of pulp production, plus highly profitable by-products
n Complicated by deeply subordinated shareholder loans and a quarterly mark-to-market, non-cash valuation adjustment relating to its fixed interest rate swapsn Greenfield construction was completed in September 2004, initially the facility was sized at €827.9 millionn 80% guaranteed by the German governmentn Non-recourse to the Restricted Groupn Amortizing and has a sinking fund account to support debt amortization and interest payments during weaker periodsn At March 31, 2014, the Unrestricted Group’s bank debt was US$560.2 million, with cash and equivalents of US$64.1 million
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 27
Appendix B
Detailed Overview of Operations
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 28
Rosenthal Mill
n Mercer International Group: Restricted Group
n Location: Blankenstein, Germany (~300 km south of Berlin)
n Pulp Production Capacity: 360,000 ADMT per yearn Electricity Generating Capacity: 57 MW
n Certification: ISO 9001, 14001, and 50001
n 2013 Green Electricity Sales: US$21.5 million
Key Features:
n Built in 1999 – modern and efficientn Strategically located in central Europe
n Close proximity to stable fiber supply and nearby sawmillsn Allows customers to operate using just in time inventory process, lowering their costs and making Rosenthal a preferred suppliern In 2013, the sold nearly 180,000 MWh of green electricityn One of the largest biomass power plants in Germanyn Regularly setting new pulp and energy production records
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 29
Celgar Mill
n Mercer International Group: Restricted Group
n Location: Castlegar, BC, Canada (~600 km east of Vancouver)
n Pulp Production Capacity: 520,000 ADMT per yearn Electricity Generating Capacity: 100 MW
n Certification: ISO 9001 and ISO 14001
n 2013 Green Electricity Sales: US$12.3 million
Key Features:
n Modern and efficient
n Abundant and low fiber costs by global standardsn Green Energy Project was completed in September 2010n In 2013, the mill sold over 127,000 MWh of green electricityn Secured C$57.7 million in non-repayable capital funding from government of Canada for green capital investmentsn Majority used to fund Green Energy Projectn Continues to demonstrate significant upside potentialn Regularly setting production records and increasing the amount of bio-energy generated
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 30
Stendal Mill
n Mercer International Group: Unrestricted Group
n Location: Stendal, Germany (~130 km west of Berlin)
n Pulp Production Capacity: 660,000 ADMT per yearn Electricity Generating Capacity: 148 MW
n Certification: ISO 9001 and ISO 14001 certified
n 2013 Green Electricity Sales: US$45.6 millionn 2013 Chemical Sales: US$12.8 million
Key Features:
n Completed in 2004, it’s one of the newest and largest pulp mills in the worldn 83% Mercer ownedn Debt is 80% government guaranteed, low interest and non-recourse to the Restricted Groupn One of the largest biomass power plants in Germanyn In 2013, exported over 390,000 MWhn Project Blue Mill was completed in Q4 2013 (on time and on budget) and has increased this mill’s annual pulp production capacity by 30,000 ADMT and electricity generation by 109,000 MWhn Regularly setting new performance records
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 31
Appendix C
Reconciliation of Net Income to Operating EBITDA
NASDAQ:MERC | TSX:MRI.U | www.mercerint.com 32
Reconciling Net Income (Loss) to Operating EBITDA
in US $ millions 2012 2013 Q1-2013 Q1-2014
Net Income (Loss) Attributable to Common Shareholders ($15.7) ($26.4) ($0.6) $21.0
Add: Net Income Attributable to Non-Controlling Interest $2.2 $0.6 $0.9 $2.1 Add: Income Tax Provision (Benefit) $9.4 $9.2 $1.1 $1.9 Add: Interest Expense $71.8 $69.2 $17.4 $17.5 Add: Loss (Gain) on Derivative Instruments ($4.8) ($19.7) ($6.4) ($3.2) Add: Other Expense (Income) $0.2 ($1.2) $0.1 ($0.0)
Operating Income (Loss) $63.0 $31.7 $12.6 $39.2
Add: Depreciation and Amortization $74.7 $78.6 $19.5 $19.8
Operating EBITDA $137.7 $110.3 $32.1 $59.0
Note: For other reconciliations of Net Income (Loss) to Operating EBITDA in periods not shown here, please refer to that period’s respective Form 10-Q or 10-K, which can be found on our website (www.mercerint.com)
Note: Some numbers may not add due to rounding
Operating EBITDA is defined as operating income (loss) plus depreciation and amortization and non-recurring capital asset impairment charges. Management uses Operating EBITDA as a benchmark measurement of its own operating results, and as a benchmark relative to its competitors. Management considers it to be a meaningful supplement to operating income (loss) as a performance measure primarily because depreciation expense and non-recurring capital asset impairment charges are not an actual cash cost, and depreciation expense varies widely from company to company in a manner that management considers largely independent of the underlying cost efficiency of their operating facilities. In addition, we believe Operating EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.
Operating EBITDA does not reflect the impact of a number of items that affect our net income (loss) attributable to common shareholders, including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under the accounting principles generally accepted in the United States of America (“GAAP”), and should not be considered as an alternative to net income (loss) or income (loss) from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity.
Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Operating EBITDA should only be considered as a supplemental performance measure and should not be considered as a measure of liquidity or cash available to us to invest in the growth of our business. Because all companies do not calculate Operating EBITDA in the same manner, Operating EBITDA as calculated by us may differ from Operating EBITDA or EBITDA as calculated by other companies. We compensate for these limitations by using Operating EBITDA as a supplemental measure of our performance and by relying primarily on our GAAP financial statements.
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