Mercer International Inc. Reports Fourth Quarter and Year End 2020 Results and Announces Quarterly Cash Dividend of $0.065

February 16, 2021 4:30 PM EST

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Selected Highlights

  • Record quarterly and annual wood products segment results
  • Fourth quarter Operating EBITDA* of $49.5 million and net loss of $13.0 million
  • 2020 annual Operating EBITDA of $192.7 million and net loss of $17.2 million ($0.26 per diluted share)

NEW YORK, Feb. 16, 2021 (GLOBE NEWSWIRE) -- Mercer International Inc. (Nasdaq: MERC) today reported fourth quarter 2020 Operating EBITDA increased to $49.5 million from negative $34.2 million in the fourth quarter of 2019 and $45.6 million in the third quarter of 2020.

In the fourth quarter of 2020, net loss was $13.0 million (or $0.20 per share) compared to a net loss of $72.7 million (or $1.11 per share) in the fourth quarter of 2019 and net income of $7.5 million (or $0.11 per share) in the third quarter of 2020.

In 2020, Operating EBITDA decreased by 8% to $192.7 million from $210.4 million in 2019 and the net loss was $17.2 million (or $0.26 per share) compared to $9.6 million (or $0.15 per share) in 2019.   

Mr. David Gandossi, the Chief Executive Officer, stated: “All of our mills ran well in the fourth quarter. Our Rosenthal and Peace River mills successfully and safely completed a total of 16 days of annual maintenance downtime. Our recent capital investment in our Friesau sawmill continues to pay dividends in the form of record quarterly operating income of $12.9 million in the fourth quarter.

Our fourth quarter results are highlighted by improved pulp pricing and moderately lower fiber costs, as well as steady production. Fourth quarter average European NBSK list prices were up $40 per ADMT, and average net prices in China were up $65 per ADMT compared to the third quarter. Pulp market fundamentals continued to improve in the fourth quarter allowing us to achieve record sales volumes.

____________________*Operating EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States ("GAAP") and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. See page 6 of the financial tables included in this press release for a reconciliation of net income (loss) to Operating EBITDA.

Our wood products segment had record operating results this quarter and benefited from strong demand and robust pricing in the U.S. market. In the current quarter approximately 56% of lumber revenues and 37% of our lumber sales volumes were to the U.S. which was our single largest market.

In the first quarter of 2021, our pulp mills have 20 days of planned annual maintenance downtime (approximately 27,600 ADMTs).

In January 2021, we issued $875 million of 5.125% senior notes due 2029 to refinance and repay all $250 million of our 6.5% senior notes due 2024 and all $550 million of our 7.375% senior notes due 2025. This transaction reduces our cost of capital and extends the maturity of our senior note debt to 2026 at the earliest. After giving effect to the transaction, going forward it will reduce our annual interest expense by approximately $12 million.

While I am pleased that COVID-19 vaccines are beginning to be administered globally, it will be some time before the pandemic is behind us. In late 2020, there was a second wave in reported infections in Europe, the United States and Canada, as well as the emergence of new variants of the virus. As such, we remain committed to maintaining measures and procedures to operate our business safely and efficiently and protect our people.

Looking ahead to 2021, we are encouraged by the improving fundamentals in pulp demand and markets and continued price increases implemented in 2021 to date. Along with continuing strong lumber markets and our ample liquidity position, we are positioned well to execute our strategic plan in 2021.”

Consolidated Financial Results

 Q4  Q3  Q4  YTD  YTD 
 2020  2020  2019  2020  2019 
               
 (in thousands, except per share amounts) 
Revenues$398,195  $333,151  $331,172  $1,423,140  $1,624,411 
Operating income (loss)$15,616  $13,736  $(66,106) $63,729  $84,003 
Operating EBITDA$49,506  $45,620  $(34,159) $192,650  $210,397 
Net income (loss)$(12,977) $7,545  $(72,721) $(17,235) $(9,639)
Net income (loss) per common share                   
Basic and diluted$(0.20) $0.11  $(1.11) $(0.26) $(0.15)

Consolidated – Three Months Ended December 31, 2020 Compared to Three Months Ended December 31, 2019Total revenues for the three months ended December 31, 2020 increased by approximately 20% to $398.2 million from $331.2 million in the same quarter of 2019 primarily due to higher pulp and energy sales volumes and higher lumber sales realizations.

Costs and expenses in the current quarter decreased by approximately 4% to $382.6 million from $397.3 million in the fourth quarter of 2019 primarily due to lower annual maintenance costs and per unit fiber costs partially offset by higher pulp sales volumes and the negative impact of a weaker dollar on our euro and Canadian dollar denominated costs and expenses. The fourth quarter of 2019 included the reversal of $13.7 million in accrued wastewater fees as a result of completing certain approved capital projects.

In the fourth quarter of 2020, Operating EBITDA increased to $49.5 million from negative $34.2 million in the same quarter of 2019 primarily due to lower annual maintenance costs, lower per unit fiber costs, higher pulp and energy sales volumes and higher lumber sales realizations.

Segment Results

Pulp: Record quarterly pulp sales volumes and lower annual maintenance and fiber costs

 Three Months Ended December 31, 
 2020 2019
      
 (in thousands) 
Pulp revenues$321,379  $275,517 
Energy and chemical revenues$22,698  $15,273 
Operating income (loss)$4,650  $(66,574)

Pulp segment operating income increased to $4.7 million in the fourth quarter of 2020 compared to an operating loss of $66.6 million in the same quarter of 2019 due to lower annual maintenance and per unit fiber costs and higher pulp and energy sales volumes.

In the fourth quarter of 2020, our pulp sales realizations were flat at $588 per ADMT from $581 per ADMT in the same quarter of the prior year. NBSK sales volumes increased by approximately 13% to a record 469,544 ADMTs in the current quarter from 416,569 ADMTs in the same quarter of 2019 primarily due to lower annual maintenance downtime. In the current quarter of 2020, our pulp mills had 16 days of annual maintenance downtime (approximately 21,500 ADMTs). In the comparative quarter of 2019, our pulp mills had 54 days of annual maintenance downtime (approximately 86,500 ADMTs). We estimate that such downtime in the fourth quarter of 2020 adversely impacted our operating income by approximately $14.7 million, comprised of approximately $9.4 million in direct out-of-pocket expenses and the balance in reduced production. Many of our competitors that report their results using International Financial Reporting Standards capitalize their direct costs of maintenance downtime.

In the fourth quarter of 2020, per unit fiber costs decreased by approximately 19% from the same quarter of 2019 due to lower per unit fiber costs for all of our mills. In Germany, per unit fiber costs benefited from the continuing availability of beetle damaged wood. In Canada, per unit fiber costs declined due to increased sawmill activity but remained at historically high levels due to strong demand in the mills’ fiber procurement areas.

Wood Products: Record operating income driven by strong demand  

 Three Months Ended December 31, 
 2020 2019
    
 (in thousands) 
Lumber revenues$48,560  $35,071 
Energy revenues$3,133  $2,646 
Wood residual revenues$1,398  $1,871 
Operating income$12,859  $5,274 

In the fourth quarter of 2020, our wood products segment had record operating income of $12.9 million compared to $5.3 million in the same quarter of 2019 primarily due to higher realized sales prices.

Average lumber sales realizations increased by approximately 35% to $467 per Mfbm in the fourth quarter of 2020 compared to approximately $347 per Mfbm in the same quarter of 2019 primarily due to higher pricing in the U.S. market. U.S. lumber pricing increased due to strong demand in the fourth quarter of 2020 from the U.S. housing and renovation markets. European lumber pricing modestly increased in the quarter due to steady demand with limited supply.

Per unit fiber costs decreased by approximately 5% in the fourth quarter of 2020 from the same quarter of 2019 primarily as a result of the continuing availability of beetle damaged wood.

Consolidated – Year Ended December 31, 2020 Compared to Year Ended December 31, 2019Total revenues in 2020 decreased by approximately 12% to $1,423.1 million from $1,624.4 million in 2019 primarily due to lower pulp sales realizations and pulp sales volumes partially offset by higher lumber sales realizations and lumber sales volumes.

Costs and expenses in 2020 decreased by approximately 12% to $1,359.4 million from $1,540.4 million in 2019 primarily due to lower per unit fiber costs, maintenance costs and pulp sales volumes. 2019 costs and expenses included a reversal of $20.9 million in accrued wastewater fees at our German pulp mills.

In 2020, we had $5.9 million of other income primarily due to a $17.5 million gain on the sale of investments partially offset by a $13.8 million foreign exchange loss primarily on the translation of dollar denominated cash held at our mills as the dollar weakened at the end of 2020. In 2019, we had $6.1 million of other income primarily due to interest earned on cash.

In 2020, Operating EBITDA decreased by approximately 8% to $192.7 million from $210.4 million in 2019 as lower pulp sales realizations were only partially offset by lower per unit fiber costs, lower maintenance costs and higher lumber sales realizations.

Segment Results

Pulp

 Year Ended December 31, 
 2020 2019
    
 (in thousands) 
Pulp revenues$1,130,302  $1,370,742 
Energy and chemical revenues$90,342  $86,381 
Depreciation and amortization$115,945  $117,108 
Operating income$37,952  $90,583 

Wood Products

 Year Ended December 31, 
 2020 2019
    
 (in thousands) 
Lumber revenues$180,769  $142,243 
Energy revenues$10,619  $9,721 
Wood residual revenues$6,261  $7,973 
Depreciation and amortization$12,212  $7,966 
Operating income$34,704  $7,349 

Liquidity

The following table is a summary of selected financial information as of the dates indicated:

 December 31, 
 2020 2019
    
 (in thousands) 
Cash and cash equivalents$361,098  $351,085 
Working capital$663,056  $588,385 
Total assets$2,129,126  $2,065,720 
Long-term liabilities$1,316,303  $1,259,005 
Total shareholders' equity$601,027  $550,403 

As of December 31, 2020, we had cash and cash equivalents of approximately $361.1 million, approximately $266.8 million available under our revolving credit facilities, providing aggregate liquidity of about $627.9 million.

Current Market EnvironmentIn January 2021, published NBSK list prices increased $50 per ADMT in Europe, and $30 per ADMT in North America and net prices increased $100 per ADMT in China. Although there is continued economic uncertainty as a result of the COVID-19 pandemic, based on the recent NBSK price increases and an improving supply demand balance, we are currently expecting stable pulp demand and modestly improving prices during the course of 2021.

In our lumber segment, going into 2021 we currently expect continued strong lumber demand and prices in the U.S. market along with modestly improving sales realizations in the European market.

Quarterly DividendA quarterly dividend of $0.065 per share will be paid on April 7, 2021 to all shareholders of record on March 31, 2021. Future dividends will be subject to Board approval and may be adjusted as business and industry conditions warrant.

Earnings Release CallIn conjunction with this release, Mercer International Inc. will host a conference call, which will be simultaneously broadcast live over the Internet. Management will host the call, which is scheduled for February 17, 2021 at 10:00 AM (Eastern Standard Time). Listeners can access the conference call live and archived for 30 days over the Internet at https://edge.media-server.com/mmc/p/4hyqmsx9 or through a link on the company's home page at https://www.mercerint.com. Please allow 15 minutes prior to the call to visit the site and download and install any necessary audio software.

Mercer International Inc. is a global forest products company with operations in Germany and Canada with consolidated annual production capacity of 2.2 million tonnes of pulp and 550 million board feet of lumber. To obtain further information on the company, please visit its web site at https://www.mercerint.com.

The preceding includes forward looking statements which involve known and unknown risks and uncertainties which may cause our actual results in future periods to differ materially from forecasted results. Words such as "expects", "anticipates", "projects", "intends", "designed", "will", "believes", "estimates", "may", "could" and variations of such words and similar expressions are intended to identify such forward-looking statements. Among those factors which could cause actual results to differ materially are the following: the highly cyclical nature of our business, raw material costs, our level of indebtedness, competition, foreign exchange and interest rate fluctuations, our use of derivatives, expenditures for capital projects, environmental regulation and compliance, disruptions to our production, market conditions and other risk factors listed from time to time in our SEC reports.

APPROVED BY:

Jimmy S.H. LeeExecutive Chairman(604) 684-1099

David M. Gandossi, FCPA, FCAChief Executive Officer (604) 684-1099

-FINANCIAL TABLES FOLLOW-

Summary Financial Highlights

 Q4 Q3 Q4 YTD YTD
 2020 2020 2019 2020 2019
          
 (in thousands, except per share amounts) 
Pulp segment revenues$344,077  $274,916  $290,790  $1,220,644  $1,457,123 
Wood products segment revenues 53,091   57,053   39,588   197,649   159,937 
Corporate and other revenues 1,027   1,182   794   4,847   7,351 
Total revenues$398,195  $333,151  $331,172  $1,423,140  $1,624,411 
                    
Pulp segment operating income (loss)$4,650  $3,753  $(66,574) $37,952  $90,583 
Wood products segment operating income 12,859   11,963   5,274   34,704   7,349 
Corporate and other operating loss (1,893)  (1,980)  (4,806)  (8,927)  (13,929)
Total operating income (loss)$15,616  $13,736  $(66,106) $63,729  $84,003 
                    
Pulp segment depreciation and amortization$30,104  $28,251  $29,492  $115,945  $117,108 
Wood products segment depreciation and amortization 3,585   3,446   2,029   12,212   7,966 
Corporate and other depreciation and amortization 201   187   426   764   1,320 
Total depreciation and amortization$33,890  $31,884  $31,947  $128,921  $126,394 
                    
Operating EBITDA$49,506  $45,620  $(34,159) $192,650  $210,397 
Income tax recovery (provision)$(1,645) $1,775  $15,875  $(6,096) $(19,226)
Net income (loss)$(12,977) $7,545  $(72,721) $(17,235) $(9,639)
Net income (loss) per common share                   
Basic and diluted$(0.20) $0.11  $(1.11) $(0.26) $(0.15)
Common shares outstanding at period end 65,868   65,868   65,629   65,868   65,629 

Summary Operating Highlights

 Q4 Q3 Q4 YTD YTD
 2020 2020 2019 2020 2019
Pulp Segment                   
Pulp production ('000 ADMTs)                   
NBSK 436.9   400.2   381.3   1,716.1   1,736.4 
NBHK 87.4   79.8   60.9   335.0   304.2 
Annual maintenance downtime ('000 ADMTs) 21.5   15.0   86.5   50.1   108.1 
Annual maintenance downtime (days) 16   10   54   43   82 
Pulp sales ('000 ADMTs)                   
NBSK 469.5   369.9   416.6   1,700.4   1,773.2 
NBHK 93.6   100.1   65.3   329.0   325.7 
Average NBSK pulp prices ($/ADMT)(1)                   
Europe 880   840   822   851   946 
China 637   572   563   588   612 
North America 1,138   1,133   1,115   1,139   1,239 
Average NBHK pulp prices ($/ADMT)(1)                   
China 480   443   455   462   558 
North America 868   868   893   881   1,036 
Average pulp sales realizations ($/ADMT)(2)                   
NBSK 588   562   581   572   663 
NBHK 454   424   476   452   567 
Energy production ('000 MWh)(3) 568.1   529.2   432.9   2,238.6   2,141.2 
Energy sales ('000 MWh)(3) 225.3   215.5   154.5   894.5   822.8 
Average energy sales realizations ($/MWh)(3) 96   96   88   93   91 
                    
Wood Products Segment                   
Lumber production (MMfbm) 111.4   96.8   106.7   438.0   414.7 
Lumber sales (MMfbm) 104.0   118.5   101.1   449.2   408.8 
Average lumber sales realizations ($/Mfbm) 467  453  347   402  348 
Energy production and sales ('000 MWh) 25.7   17.8   23.1   89.0   83.5 
Average energy sales realizations ($/MWh) 122  125  114   119  116 
                    
Average Spot Currency Exchange Rates                   
$ / €(4) 1.1925   1.1698   1.1075   1.1410  1.1194 
$ / C$(4) 0.7675  0.7508   0.7578   0.7457  0.7537 

______________

(1)    Source: RISI pricing report. Europe and North America are list prices. China are net prices which include discounts, allowances and rebates. Effective January 2020, the RISI pricing report does not provide list prices for China. (2)    Sales realizations after customer discounts, rebates and other selling concessions. Incorporates the effect of pulp price variations occurring between the order and shipment dates.(3)    Does not include our 50% joint venture interest in the Cariboo mill, which is accounted for using the equity method.(4)    Average Federal Reserve Bank of New York Noon Buying Rates over the reporting period.

MERCER INTERNATIONAL INC.CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)(In thousands, except per share data)

 Three Months Ended December 31,  For the Year Ended December 31, 
 2020 2019 2020 2019
Revenues$398,195  $331,172  $1,423,140  $1,624,411 
Costs and expenses               
Cost of sales, excluding depreciation and amortization 331,173   346,020   1,163,727   1,340,380 
Cost of sales depreciation and amortization 33,865   31,693   128,817   125,801 
Selling, general and administrative expenses 17,541   19,565   66,867   74,227 
Operating income (loss) 15,616   (66,106)  63,729   84,003 
Other income (expenses)               
Interest expense (20,690)  (20,647)  (80,746)  (75,750)
Loss on settlement of debt    (4,750)     (4,750)
Other income (expenses) (6,258)  2,907   5,878   6,084 
Total other expenses, net (26,948)  (22,490)  (74,868)  (74,416)
Income (loss) before income taxes (11,332)  (88,596)  (11,139)  9,587 
Income tax recovery (provision) (1,645)  15,875   (6,096)  (19,226)
Net loss$(12,977) $(72,721) $(17,235) $(9,639)
Net loss per common share               
Basic and diluted$(0.20) $(1.11) $(0.26) $(0.15)
Dividends declared per common share$0.0650  $0.1375  $0.3325  $0.5375 

MERCER INTERNATIONAL INC.CONSOLIDATED BALANCE SHEETS(Unaudited)(In thousands, except share and per share data)

 December 31, 
 2020  2019 
ASSETS       
Current assets       
Cash and cash equivalents$361,098  $351,085 
Accounts receivable, net 227,055   208,740 
Inventories 271,696   272,599 
Prepaid expenses and other 15,003   12,273 
Total current assets 874,852   844,697 
Property, plant and equipment, net 1,109,740   1,074,242 
Investment in joint ventures 46,429   53,122 
Amortizable intangible assets, net 51,571   53,371 
Operating lease right-of-use assets 13,251   13,004 
Other long-term assets 31,928   26,038 
Deferred income tax 1,355   1,246 
Total assets$2,129,126  $2,065,720 
LIABILITIES AND SHAREHOLDERS’ EQUITY       
Current liabilities       
Accounts payable and other$210,994  $255,544 
Pension and other post-retirement benefit obligations 802   768 
Total current liabilities 211,796   256,312 
Debt 1,145,294   1,087,932 
Pension and other post-retirement benefit obligations 31,810   25,489 
Finance lease liabilities 41,329   31,103 
Operating lease liabilities 9,933   10,520 
Other long-term liabilities 10,909   14,114 
Deferred income tax 77,028   89,847 
Total liabilities 1,528,099   1,515,317 
Shareholders’ equity       
Common shares $1 par value; 200,000,000 authorized; 65,868,000 issued and outstanding (2019 – 65,629,000) 65,800   65,598 
Additional paid-in capital 345,696   344,994 
Retained earnings 217,106   256,371 
Accumulated other comprehensive loss (27,575)  (116,560)
Total shareholders’ equity 601,027   550,403 
Total liabilities and shareholders’ equity$2,129,126  $2,065,720 

MERCER INTERNATIONAL INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(In thousands)

 For the Year Ended December 31, 
 2020 2019 2018
Cash flows from (used in) operating activities           
Net income (loss)$(17,235) $(9,639) $128,589 
Adjustments to reconcile net income (loss) to cash flows from operating activities           
Depreciation and amortization 128,921   126,394   96,729 
Deferred income tax provision (recovery) (15,249)  (7,873)  16,596 
Inventory impairment 25,998   9,200    
Loss on settlement of debt    4,750   21,515 
Defined benefit pension plans and other post-retirement benefit plan expense 3,053   3,449   1,868 
Stock compensation expense 928   3,036   3,940 
Gain on sale of investments (17,540)      
Foreign exchange transaction losses 13,272   7,116   746 
Other 543   5,834   2,419 
Defined benefit pension plans and other post-retirement benefit plan contributions (4,164)  (4,467)  (1,133)
Changes in working capital           
Accounts receivable (6,269)  41,369   (10,370)
Inventories (11,430)  24,683   (58,082)
Accounts payable and accrued expenses (53,744)  45,256   37,959 
Other (5,519)  (4,825)  (4,108)
Net cash from (used in) operating activities 41,565   244,283   236,668 
Cash flows from (used in) investing activities           
Purchase of property, plant and equipment (78,518)  (132,034)  (87,012)
Purchase of amortizable intangible assets (647)  (623)  (600)
Acquisitions    (6,380)  (380,312)
Purchase of investments (9,370)      
Proceeds from sale of investments 26,910       
Other 1,798   (321)  445 
Net cash from (used in) investing activities (59,827)  (139,358)  (467,479)
Cash flows from (used in) financing activities           
Redemption of senior notes    (103,875)  (317,439)
Proceeds from issuance of senior notes    205,500   350,000 
Proceeds from (repayment of) revolving credit facilities, net 52,651   (58,404)  36,560 
Dividend payments (21,892)  (35,279)  (40,724)
Repurchase of common shares (162)  (754)   
Payment of debt issuance costs    (4,213)  (10,074)
Proceeds from government grants 362   6,467    
Other (4,642)  (3,344)  (3,462)
Net cash from (used in) financing activities 26,317   6,098   14,861 
Effect of exchange rate changes on cash and cash equivalents 1,958   (429)  (4,297)
Net increase (decrease) in cash and cash equivalents 10,013   110,594   (220,247)
Cash and cash equivalents, beginning of year 351,085   240,491   460,738 
Cash and cash equivalents, end of year$361,098  $351,085  $240,491 

MERCER INTERNATIONAL INC.COMPUTATION OF OPERATING EBITDA(Unaudited)(In thousands)

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 our 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), including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income (loss) or operating income (loss) as a measure of performance, nor as an alternative to net cash from (used in) operating activities as a measure of liquidity. The following tables set forth the net income (loss) to Operating EBITDA:

 Q4 Q3 Q4 YTD YTD
 2020 2020 2019 2020 2019
Net income (loss)$(12,977) $7,545  $(72,721) $(17,235) $(9,639)
Income tax provision (recovery) 1,645   (1,775)  (15,875)  6,096   19,226 
Interest expense 20,690   19,864   20,647   80,746   75,750 
Loss on settlement of debt       4,750      4,750 
Other (income) expenses 6,258   (11,898)  (2,907)  (5,878)  (6,084)
Operating income (loss) 15,616   13,736   (66,106)  63,729   84,003 
Add: Depreciation and amortization 33,890   31,884   31,947   128,921   126,394 
Operating EBITDA$49,506  $45,620  $(34,159) $192,650  $210,397 

Primary Logo

Source: Mercer International Inc.


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