Mercer Investor Presentation

Transcription

1 Mercer Investor Presentation January 2019

2 The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forwardlooking statements. Certain information included in this presentation contains statements that are forwardlooking, such as statements relating to results of operations and financial conditions and The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forwardlooking statements. Certain information business included development in this presentation activities, contains as statements well as that capital are forwardlooking, spending and such as statements financing relating sources. to results of Such operations forwardlooking and financial conditions information and business involves development important activities, as well as capital spending and financing sources. Such forwardlooking information involves important risks and risks and uncertainties that could significantly affect anticipated results uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may in the future and, accordingly, such results may differ materially from differ materially from those expressed in any forwardlooking statements made by or on behalf of Mercer. For those expressed in any forwardlooking statements made by or on more information regarding these risks and uncertainties, review Mercer s filings with the United States behalf of Mercer. For more information regarding these risks and Securities and Exchange Commission. Unless required by law, we do not assume any obligation to update forwardlooking uncertainties, statements review based on Mercer s unanticipated filings events with or changed the United expectations. States Securities and Exchange Commission. Unless required by law, we do not assume any obligation to update forwardlooking statements based on unanticipated events or changed expectations

3 Building a Platform for Growth A history of execution Brownfield rebuild of Rosenthal mill Acquisition of Celgar mill Celgar Green Energy Project Stendal minority interest buyout and refinancing Rosenthal tall oil plant Santanol acquisition Acquisition of Rosenthal mill Greenfield construction of Stendal mill Celgar Project Blue Goose Stendal Blue Mill expansion and green energy project Friesau sawmill DMI acquisition acquisition to create a foundation for growth Balance sheet: 1.9x net debt to EBITDA (1) Corporate credit rating: BB / Ba2 Core strategic focus: Asset optimization and growth in adjacent businesses Trailing 12Month EBITDA: $454 million as at September 30, 2018 (2) Annual dividend: $0.50 per share, an increase of $0.03 per share from 2017 (3) 1) Net debt, LTM EBITDA Pro Forma DMI acquisition as at September 30, ) Pro Forma DMI acquisition 3) LTM as at September 30, 2018 versus fiscal year

4 A Diverse & Complimentary Growth Business Peace River 475,000 tonnes NBSK/NBHK 65 MW energy Cariboo 170,000 tonnes NBSK (1) 28.5 MW energy (1) Celgar 520,000 tonnes NBSK 100 MW energy Rosenthal 360,000 tonnes NBSK 57 MW energy $2 million bioextractives (2) Stendal 660,000 tonnes NBSK 148 MW energy $13 million bioextractives (2) Friesau 550,000 Mfbm lumber 13 MW energy Santanol 2,500 hectares of Indian Sandalwood NBSK Pulp $1,375 million (2)(3) NBHK Pulp $160 million (2)(4) Sales Mix (2) Wood Products $172 million (2) Energy & BioExtractives $82 million fixed rate energy (2)(5) $15 million bioextractives (2) EU 54% Other 18% China 28% Japan 28% Other 18% US 18% China 36% EU 63% Other 12% US 25% EU 80% Canada 20% 1) Represents Mercer s 50% share of operations 2) Trailing 12 months September 30, 2018 by revenue, 3) Pro forma DMI acquisition, includes Peace River transition pulp and product specific transportation and harvesting revenue 4) Pro forma DMI acquisition, includes product specific transportation and harvesting revenue 5) Pro forma DMI acquisition 4

5 Continuously Improving, Competitive Pulp Mills Our pulp operations are some of the largest and most modern facilities in the world Average Mill Capacity (000 tonnes) 1, Low production cost Low maintenance capital requirements NBSK Producer Competitiveness (1)(2) Aditya Birla Nanaimo Catalyst APP (Paper Excellence) Metsä Board Canfor Pulp Domtar BillerudKorsnäs Mercer West Fraser Resolute IP International Paper (Ilim) Södra Cell UPM Mondi Average Technical Age (years) 20 SCA Metsä Fibre Heinzel Stora Enso Revenue ($ millions) $125 $100 $75 $50 $25 Strong environmental performance Net energy exporters Energy & BioChemical Revenue BioChemicals $95 $93 $92 $101 Energy $87 $84 Pro forma DMI $108 $97 (3) (4) Q3 TTM 1) Source: FisherSolve Q Mercer includes Peace River, excludes 50% interest in Cariboo. SCA, Metsa Fibre reflect completion of rampup of Östrand and Äänekoski 2) NBSK market pulp only 3) Year ended December 31, 2017, pro forma full year of Friesau and DMI operations, excluding synergies 4) Trailing 12 months September 30, 2018, pro forma DMI operations 5

6 Expanding our Pulp Mill Platform Acquisition of DMI advances our long term strategy of growing in four broad sectors Expands product offering to include NBHK Further solidifies our position as a top global NBSK producer Improves exposure to growing markets in Asia New forest tenures strengthens raw material supply at times of constrained global supply Significant low cost synergy opportunities Top NBSK Market Pulp Producers by Annual Capacity (000 s) (1) Metsa Fibre Mercer International Paper Södra Cell Paper Excellence Stora Enso Canfor Pulp SCA Domtar UPM Resolute Forest West Fraser (2) (2) ,210 1,560 1,685 1,885 1, ,000 1,500 2,000 2,500 1) Capacities for nonmercer mills sourced from Brian McClay, as at October 10, ) International Paper includes Ilim Group 6

7 Friesau Sawmill: Building on Success Friesau a strong entry into the global softwood lumber market Comparable size to some of the largest sawmills in North America Capable of producing green, kilndried and planed lumber for all global markets Lumber production capacity to increase to ~750 Mfbm following phase 2 expansion and optimization, making Friesau one of the largest softwood sawmills in the world Top 20 Largest Softwood Sawmills (1) North America Europe Other Mfbm Ilim Wismar Canfor Plateau Canfor Houston West Fraser Quesnel Mercer Friesau Binderholz Kösching Offner Wolfberg Ilim Landsberg Dunkley Conifex Mackenzie Baur Holz Poststraße WY Longview Schweighofer Sebes Schweighofer Radauti AnteHolz Rottleberode AnteHolz Somplar WY Cottage Grove Ilim UstIlimsk Chugoku Hiroshima Chugoku Kashima Note: Converted from m 3 to board feet at a rate of 1.6 m 3 per board foot 1) Source: Sawmill capacities as per 7

8 Core Competencies Innovation Wood logistics Wood merchandising Waste wood utilization Continuous Improvement Energy and bioextractives growth Wood costs reduction Productivity improvements Excellence in Execution Second turbine at Celgar Tall oil plant Rosenthal Friesau restart and rampup Second turbine at Stendal Railcar fleet Germany Railway reload Celgar Chip reclaim Rosenthal Phase I expansion Friesau 8

9 Executing Mercer s 5Element Strategy World class assets Driving Celgar to its full potential with digester upgrade and pulp machine speed up Continued debottlenecking at Stendal, Rosenthal and Celgar Chip screening and bleach plant upgrades at Rosenthal Sawline upgrades, sorter expansion and new planer mill at Friesau Seize growth opportunities leveraging core competencies Growth in areas of core competence: Acquisition of DMI and Santanol in 2018 Diversify operating EBITDA (1) Ramp up of Friesau sawmill to capitalize on highreturn opportunities and alternative market capability Optimization of bioextractives production Further growth in nonnbsk businesses, through the acquisition of Peace River Pulp and Santanol Manage balance sheet to maintain dividend and enable growth Maintain prudent net leverage level, with flexibility to temporarily increase for acquisitions and high return capex Committed to quarterly dividend Target Growth Areas NBSK Bioextractives / wood derivatives Wood products Specialty pulp and paper products Energy 5 Growth built on a platform of sustainability best practices Deep engagement with communities in which we operate Innovative forest utilization initiatives CEOled Road to Zero health and safety culture 1) Operating PEFC EBITDA and is FSC a nongaap certified measure. products For a Reconciliation of Net Income to Operating EBITDA, please refer to Appendix C 9

10 LongTerm Strategy Generates Results EBITDA ($,millions) $500 $375 $250 $125 Improving EBITDA Performance Electricity / BioChemicals Pulp Wood Products $454 $300 $240 $234 $186 (1)(3) Q3 (3) TTM Net Debt / EBITDA (2) 3.6x 2.7x 1.8x 0.9x Solid Balance Sheet Foundation 3.1x 2.6x 2.6x 2.3x 1.9x Q3 (3) TTM (3) Outstanding debt ($,millions) $400 $300 $200 $100 Senior Debt Composition (3) Credit Ratings: S&P Moody s $350 Corporate: BB Ba2 $300 Senior notes: BB Ba3 $250 $ Share Price (US$ /share) Mercer Share Price Growth $24 Total Return Close Price $21 $18 $15 $12 $9 $6 $3 Jan16 Jul16 Jan17 Jul17 Jan18 Jul18 Jan19 Note: Some numbers may not add due to rounding 1) Friesau reflects annualized pro forma EBITDA based on fullyramped up operating quarters, excluding synergies 2) Net debt includes restricted cash 3) Pro forma DMI acquisition 10

11 Longterm Market Opportunities Demand Pulp Despite recent negative sentiment in China, long term fundamentals are, in our view, very appealing Steady growth from emerging economies, including China, across spectrum of grades New environmental policies reshaping fibre supplydemand fundamentals in China (agricultural pulps, recycled paper) Stable demand in western economies Lumber Despite recent softness in US lumber markets, the medium and long term fundamentals are, in our view, very appealing Recovering Eurozone economies supporting modest demand growth Slowly recovering US housing starts Storm damage rebuilding Supply Limited new, nearterm capacity expected after three years of considerable growth Russian producers cycling from softwood to hardwood Many old, high cost NBSK mills still running but beginning to experience unplanned maintenance downtime Conversions of softwood to other grades Pine Beetle and historic overcutting resulting in annual cut reviews / reductions across Canada Recent forest fires in Canada and Scandinavia Transportation bottlenecks 11

12 Mercer: Sustainable, Profitable Growth Attractive longterm fundamentals in key markets Management committed to growth, in spaces where we have clear competencies Consistent investor return, commitment to the dividend Strong balance sheet discipline, within solid parameters Commitment to best practices in sustainability and operational excellence, a strong foundation for long term value creation 12

13 Appendix A Market Primer

14 NBSK, NBHK Market Primer Overview Northern Bleached Hardwood Kraft ( NBHK ) is produced from aspen, maple, balsam, birch and beech grown primarily in Southern Canada, Russia and Northern Europe Chemical Pulp Demand (1) (62 million tonnes) Northern Bleached Softwood Kraft ( NBSK ) is produced from spruce, pine, fir and cedar grown primarily in Canada, Northern Europe and NorthCentral Russia Bleached Hardwood Kraft Pulp Demand (1) (34 million tonnes) BEK 68% Asian HW 17% NBHK Characteristics Short fiber length yielding low tensile strength NBHK 9% (2) SBHK 3% Birch 3% Strong optical, opacity and bulk qualities High cell wall thickness yielding low flexibility Hardwood Kraft 55% Softwood Kraft 42% Other 3% NBSK and NBHK Key End Uses Tissue, printing and writing paper and specialties Bleached Softwood Kraft Pulp Demand (1) (26 million tonnes) NBSK 58% (3) Radiata 14% NBSK Characteristics SBSK / Fluff 28% Long fiber length yielding high tensile strength High fiber diameter yielding good bonding surface Low cell wall thickness yielding high flexibility 1) Source: Hawkins Wright (August 2018) for 2017A 2) 2017A NBHK demand ~3.2 million tonnes 3) 2017A NBSK demand ~15.0 million tonnes 14

15 Global Bleached Kraft Pulp Market From 2017, global BKP demand is forecast to grow by 5.1 million tonnes through 2022, at an average growth rate of 1.7% per year China accounted for 65% of entire global demand growth throughout 2017, increasing demand by 1.3 million tonnes (6.8%) since 2016; this trend is expected to continue Overall BKP demand is increasing, with BHK demand expected to increase by 3.8 million tonnes by 2022, outpacing the demand growth of BSK. 75,000 Global Bleached Kraft Pulp Demand 37,500 Global Bleached Kraft Pulp Demand 60,000 56,180 58,130 59,255 60,105 61,180 62,225 63,210 30,000 30,860 32,310 33,625 Thousands of Tonnes 45,000 30,000 China China China China China China China Thousands of Tonnes 22,500 15,000 25,155 25,695 25,510 15,000 7, North America Nordic West Europe East Europe Latin Americas Oceania Japan China Asia/Africa Total BSK Demand Total BHK Demand 1) Source: Hawkins Wright Outlook for Market Pulp (December, 2018) 15

16 Pulp Capacity Changes 000's tonnes 000's tonnes 000's tonnes 1,500 1, (500) 500 (500) (1,000) 6,000 4,000 2,000 (2,000) NBSK Market Pulp Net Capacity Changes (1) 1, (15) (330) SBSK/Fluff/Radiata Market Pulp Net Capacity Changes (1) 45 (190) (90) (20) (910) Hardwood Market Pulp Net Capacity Changes (1) 3,850 1,290 1,480 1,580 1, (55) (110) Pulp Price ($/tonne) $1,400 $1,200 $1,000 $800 $600 $400 $200 Price Impact of New Capacity (2) Capacity NBSK cif Europe BEKP cif China (3) Capacity additions have been displacing Chinese domestic agriculturalbased, high polluting pulp and deteriorating availability and quality of recycled fiber Pulp price changes in the past were more heavily influenced by global economic conditions than capacity additions ) Source: PPPC (November 2018) 2) Source: Hawkins Wright (December 23, 2018 prepared for Mercer International) 3) BEKP is used as a benchmark for NBHK 16

17 NBSK Demand Drivers NBSK Demand Changes Increased NBSK demand for tissue and specialty products continues to rise globally In developing countries, demand for NBSK across all end uses is growing Increasing income levels, rapid urbanization of populations and rising living standards are creating strong demand for fiber of all grades millions of tonnes Global BSK Demand by Region (1) E 2022E 40% 30% 20% 10% % China of Total Region E CAGR China 10.8% W. Europe (1.5%) N. America (0.6%) Other 1.8% % China Demand for NBSK in printing and writing grades, while stabilizing in recent years, has fallen in the developed economies of North America and Western Europe due to the digitalization of print media Despite declines in developed countries, the global compounded annual growth rate of NBSK demand was ~1.6% between 2011 and 2016, or an average of ~230 thousand tonnes per year (1) millions of tonnes NBSK Demand by End Use (1)(2) Printing & Writing 61% Tissue 17% Specialties & Others 22% Printing & Writing 22% Tissue 47% Specialties & Others 31% End Use CAGR P&W: (6%) Tissue: +9% Specialties & Others: +4% ) Source: PPPC (November 2018, May 2018, November 2017 and November 2016) for NBSK Demand 2) Source: Brian McClay (July 2018) for NBSK End Uses 17

18 NBSK The Chinese Market China is the leader of demand growth in developing economies Tissue Demand (kg / person) In China, demand for NBSK grew on average by 9.3% between 2010 and 2017 on a compounded basis (1) Growth has been driven by higher living standards which is driving growth across all end uses, but is most pronounced in high NBSKcontaining tissue and specialties products Tissue Demand & Income in China (2)(3) % 45% $16 Income (000 s US$ / person) millions of tonnes millions of tonnes China s BSK Pulp Demand by End Use (4) End Use CAGR Other 7.5% 7.5% (5) P&W Papers 5.7% Specialty Papers 8.9% Paperboard 14.5% Tissue 16.6% Fastest Growth Tissue Capacity Growth by Region (6) 6.0 $ China Rest of World Income per Capita CAGR: +7.7% $ % $ Tissue Demand per Capita CAGR: +7.8% ) Source: PPPC (May 2018) for NBSK demand ) Source: PPPC (February 9, 2018, prepared for Mercer International) 3) Note: Income measured at purchasing power parity in constant 2011 US dollars 4) Source: PPPC (May 2018) for BSK demand and PPPC (September 2018) for end uses 5) Other includes fluffbased products, kraft papers, mechanical printing & writing grades and newsprint 18 6) Source: Brian McClay (September 9, 2018), some numbers may not add due to rounding

19 NBSK Pricing Trend $1,650 NBSK Price & BSK Global Inventory 49 NBSK Price (noted currency / tonne) $1,500 $1,350 $1,200 $1,050 $900 $750 $600 $ Global NBSK Inventory (# Days) $ (1) (2) (2)(3) (2)(3) BSK Global Inventory NBSK List Price (in US$) NBSK List Price (in CAD) NBSK List Price (in ) Most NBSK is produced in euro and Canadian dollar zones, so the U.S. dollar NBSK price can be influenced by changing exchange rates, as was the case in 2015 NBSK was, until the early 2000 s, the global benchmark pulp grade used in most paper applications With the introduction of southern eucalyptus hardwood plantations and mills, hardwood pushed NBSK out of many lowstrength paper grades During this time the global NBSK capacity rationalized to supply customers seeking high strength and bonding characteristics 1) Source: PPPC monthly World Chemical Market Pulp Flash reports for inventories 2) Source: Brian McClay Market Pulp Monthly reports for pricing 3) Source: FactSet for exchange rates 19

20 NBHK Demand Overview The BHK market has grown on average 3.3% per year since 2007, in contrast to NBSK which has grown by 1.5% during the same period BHK consists of many species with unique attributes suitable for various applications BEK dominates the BHK market due to its high fibre density, accounting for 68% of global BHK capacity and 68% of global BHK demand (1) Tonnes,000 s 40,000 36,000 32,000 28,000 Forecast BHK Demand Supply Gap Demand Supply 24,000 Aspen NBHK Peace River Pulp produces Aspen NBHK a niche product ideal for applications requiring a smooth surface (eg. gravure, cigarette papers) Aspen NBHK is included within the NBHK pulp category Demand for NBHK is forecast to grow 10.74% by 2022, while capacity is forecast to grow by 3.50% over the same period (1) Similar to NBSK this supply demand imbalance for NBHK is expected to be favourable for Aspen NBHK pricing Tonnes,000 s 40,000 30,000 20,000 10,000 Global BHK Demand by Species 32,310 33,625 34,160 34,810 35,435 36, Species E CAGR SBHK (2.9%) NBHK 2.2% Asian HW (1.0%) BEKP 3.1% 1) Source: Hawkins Wright Outlook for Market Pulp (August, 2018) 20

21 NBHK Pricing Trend $1,650 NBHK Price & BHK Global Inventory 72 NBSK Price (noted currency / tonne) $1,500 $1,350 $1,200 $1,050 $900 $750 $600 $450 $ (2) BHK Global Inventory NBHK List Price (in US$) NBHK List Price (in CAD) NBHK List Price (in ) (1) (2)(3) BEK List Price (in US$) (2) (2)(3) Most NBHK is produced in euro and Canadian dollar zones, so the U.S. dollar NBHK price can be influenced by changing exchange rates, as was the case in 2015 With the introduction of eucalyptus hardwood plantations and mills, hardwood pushed NBSK out of many lowstrength paper grades 1) Source: PPPC monthly World Chemical Market Pulp Flash reports for inventories 2) Source: RISI delivered to Europe list price reports for pricing 3) Source: FactSet for exchange rates 21

22 Appendix B Overview of Operations

23 Rosenthal Mill Location: Blankenstein, Germany (~300 km south of Berlin) Pulp production capacity: 360,000 tonnes per year NBSK Electricity generating capacity: 57 MW Certification: ISO 9001, 14001, and green electricity sales: $17.1 million 2017 bioextractives sales: $2.3 million Key Features: Built in 1999 modern and efficient Strategically located in central Europe Close proximity to stable fiber supply and nearby sawmills Allows customers to operate using justintime inventory process, lowering their costs and making Rosenthal a preferred supplier One of the largest biomass power plants in Germany In 2017, the mill sold 166,093 MWh of green electricity Regularly setting new pulp and energy production records 6,000 tonne per year tall oil plant became operational in Q

24 Stendal Mill Location: Stendal, Germany (~130 km west of Berlin) Pulp production capacity: 660,000 tonnes per year NBSK Electricity generating capacity: 148 MW Certification: ISO 9001 and green electricity sales: $48.3 million 2017 bioextractives sales: $11.9 million Key Features: Completed in 2004, it s one of the newest and largest pulp mills in the world In September 2014, we completed the acquisition of the minority interest and other rights in the Stendal mill One of the largest biomass power plants in Germany In 2017, exported 508,733 MWh of green electricity Project Blue Mill was completed in Q and, among other things, increased the mill s annual pulp production capacity by 30,000 tonnes and electricity generation by 109,000 MWh Regularly setting new performance records 24

25 Celgar Mill Location: Castlegar, BC, Canada (~600 km east of Vancouver) Pulp production capacity: 520,000 tonnes per year NBSK Electricity generating capacity: 100 MW Certification: ISO 9001 and green electricity sales: $12.4 million Key Features: Modern and efficient Abundant and low cost fiber, by global standards Green Energy Project was completed in September 2010 One of the largest biomass power plants in Canada In 2017, the mill sold 147,294 MWh of green electricity Continues to demonstrate significant upside potential 25

26 Peace River Mill Location: Peace River, Alberta (~500 km northwest of Edmonton) Pulp production capacity: 475,000 tonnes per year NBSK/NBHK Energy generating capacity: 65 MW Certification: ISO 9001 and ISO green electricity sales: C$0.92 million Key Features: Modern, high performing kraft mill Abundant and low cost fiber, by global standards NBSK / NBHK swing mill 20 year term forest tenure including annually 400,000 m 3 of softwood and 2.4 million m 3 of hardwood Biomass fueled cogeneration power plant with two turbines; a 40 MW back pressure turbine to power pulp production and a 25 MW condensing turbine generator to generate electricity for sale to the Alberta grid In 2017, the mill sold 39,839 MWh of green electricity 26

27 Cariboo Mill Location: Quesnel, British Columbia (~650 km north of Vancouver) Pulp production capacity: 170,000 tonnes per year (1) NBSK Energy generating capacity: 28.5 MW (2) Certification: ISO 9001 and ISO green electricity sales: C$3.4 million (3) Key Features: 50% joint venture stake in reliable NBSK mill Reliable wood supply sourced from large local sawmilling industry Biomass fueled cogeneration power plant with two turbines; a 32 MW back pressure turbine to power pulp production and a 25 MW condensing turbine generator to generate electricity for sale to BC Hydro In 2017, the mill exported 65,841 MWh of green electricity 1) Represents Mercer s 50% stake of total pulp production capacity 2) Represents Mercer s 50% stake of total energy generating capacity 3) Represents Mercer s 50% share of total 2017 green electricity sales 27

28 Friesau Sawmill & Power Plant Location: Friesau, Germany (~300 km south of Berlin) Lumber production capacity: 550,000 Mfbm Energy generating capacity: 49.5 MW (13 MW electricity) 2017 annualized lumber sales: $147.8 million (1) 2017 annualized green electricity sales: $12.5 million (1) Key Features: High quality logs from surrounding fiber basket Sawmill built in 1992 Two highvolume Linck sawlines Ability to produce both rough and planed products European metric and specialty lumber; USdimensional lumber; Jgrade Power plant built in 2008 Plant can be fueled by bark, chips, sawdust and recycled wood At input feed of 1.6 million m 3 of logs, power plant can be fueled entirely by residual bark EEG feedin tariff extends to ) Reflects annualized pro forma sales based on fullyramped up operating quarters, excluding synergies 28

29 Appendix C Financial Highlights

30 Stabilizing EBITDA Operating EBITDA ($,millions) Operating EBITDA Margin $475 $300 $125 ($50) 40% 30% 20% 10% 0% Annual Operating EBITDA by Product (1)(2) (3) (4) Electricity / BioChemicals Pulp Wood Products Pro forma DMI $297 $300 $233 $240 $234 $12 $186 $359 $232 $138 $138 $110 $138 $190 $147 $57 $45 $101 $18 $63 $65 $95 $93 $92 $101 $87 $84 $98 $83 ($6) $454 $ Q3 TTM 6.6% 24.7% Annual Operating EBITDA Margin by Product (1)(2)(6) 18.6% Pulp Segment Margin 12.8% 10.1% Wood Products Segment Margin 20.4% 22.6% 19.9% 21.1% Q3 TTM 9.9% (5) Pro forma DMI 27.8% 8.0% Note: Some numbers may not add due to rounding 1) For a Reconciliation of Net Income to Operating EBITDA, please refer to slide 34 2) Our reporting currency was the euro up until October 1, Prior figures have been converted to US dollars at the average FX rates in effect during the period 3) Excludes EBITDA from energy and bioextractives. Includes corporate costs & eliminations 4) Excludes EBITDA from energy and bioextractives 5) Friesau reflects annualized pro forma EBITDA based on fullyramped up operating quarters, excluding synergies 6) Operating EBITDA Margin is Operating EBITDA expressed as a percentage of revenues 30

31 Credit Profile Restructured balance sheet 2014 Acquired the minority interest in Stendal Restricted / unrestricted group structure eliminated Debt reduction $400 $350 $300 Senior Debt Composition (1) % Senior Notes % Senior Notes Balance sheet recapitalized with lower cost debt 2015 Commenced quarterly dividend of $0.115 per share Senior Notes replaced with lower cost 2024 Senior Notes Outstanding debt ($million) $250 $200 $150 $100 $ % Senior Notes % Senior Notes $100 $250 $350 $300 $300 million of 2022 Senior Notes replaced with lower cost 2026 Senior Notes Increased dividend to $0.125 per share 2018 $350 million of 2025 Senior Notes issued to partially finance DMI acquisition Credit ratings Corporate rating S&P BB / Moody s Ba2 Senior notes rating S&P BB / Moody s Ba3 1) Pro forma DMI acquisition 31

32 Reconciling Net Income to EBITDA in US$ millions Q18 TTM Net Income Attributable to Common Shareholders Add: Income Tax Provision Add: Interest Expense Add: Loss on Derivative Instruments Add: Other Expense (1) (2) Operating Income Add: Depreciation and Amortization Operating EBITDA Operating EBITDA Comprised of: Pulp Wood Products (Lumber & Energy) Corporate Costs & Eliminations (4.4) (9.0) (7.9) (10.8) Pro forma DMI acquisition Note: See next page for additional disclosures Note: Some numbers may not add due to rounding 1) Includes debt settlement loss of $10.7 million related to the 2019 Senior Notes from Q ) Includes debt settlement loss of $21.5 million related to the 2022 Senior Notes and legal cost award of $7.0 million from Q

33 Reconciling Net Income to EBITDA Note: For other reconciliations of Net Income (Loss) to Operating EBITDA in periods not shown, please refer to that period s respective Form 10Q or 10K, which can be found on our website ( Operating EBITDA is defined as operating income (loss) plus depreciation and amortization and nonrecurring 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 nonrecurring 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. 33

34 Mercer International Inc. Phone: (1) Fax: (1) Suite 1120, 700 West Pender Street, Vancouver, BC, V6C 1G8, Canada Copyright 2018 Mercer International Inc.