Mercer International Inc. Reports Second Quarter and First Half 2021 Results and Announces Quarterly Cash Dividend of $0.065

Thursday, 29. July 2021 22:30

Selected Highlights

  • Record quarterly wood products segment results
  • Second quarter Operating EBITDA* of $83.8 million and net income of $21.4 million
  • Completed Capital Program to Increase Stendal Mill production by 80,000 ADMTs per year

NEW YORK, July 29, 2021 (GLOBE NEWSWIRE) -- Mercer International Inc. (Nasdaq: MERC) today reported second quarter 2021 Operating EBITDA increased to $83.8 million from $40.5 million in the second quarter of 2020 and from $82.0 million in the first quarter of 2021.

In the second quarter of 2021, net income was $21.4 million (or $0.32 per share) compared to a net loss of $8.4 million (or $0.13 per share) in the second quarter of 2020 and net income of $5.9 million (or $0.09 per share) in the first quarter of 2021.

In the first half of 2021, Operating EBITDA increased by 70% to $165.8 million from $97.5 million in the same period of 2020. In the first half of 2021, net income was $27.3 million (or $0.41 per share) compared to a net loss of $11.8 million (or $0.18 per share) in the same period of 2020.

Mr. David Gandossi, the Chief Executive Officer, stated: “In the second quarter, we successfully and safely completed major capital programs to improve the performance of our Stendal and Peace River mills. At Stendal we have added 80,000 tonnes of NBSK pulp capacity with the addition of two new batch digesters which are currently being ramped up. At Peace River we rebuilt its recovery boiler and are ramping up its operations.

Our Friesau sawmill’s strong second quarter production allowed it to continue significant sales into the very strong U.S. market and to achieve record quarterly operating income of $42.3 million. In the current quarter, approximately 39% of lumber sales volumes were to the U.S.

Pulp prices improved across all markets in the second quarter. Second quarter average European NBSK list prices were up $251 per ADMT and average net prices in China were up $79 per ADMT compared to the first quarter. Currently NBSK list prices are approximately $1,340 in Europe and net prices are approximately $850 in China.

While I am encouraged by the global roll-out of vaccines and the reopening of economies, there remains ongoing uncertainty about the impact of COVID-19 variations and increases in infection levels. Consequently, we will maintain our measures and procedures put in place to protect our employees and contractors and which allow us to operate our business safely and efficiently.

In the interior of British Columbia the wildfires situation so far has not disrupted our operations but has impacted logistics, increasing rail congestion, slowing pulp deliveries and causing the use of more expensive trucking. We are continuing to monitor the situation.

Looking ahead to the third quarter, we expect strong pulp market fundamentals to support marginally higher NBSK pulp prices in Europe but we expect a modest price decline in China. As well, we expect lumber demand and pricing to remain steady in all markets. Although there was a recent significant price correction in the U.S. lumber market, prices remain at historically attractive levels. Further, we believe U.S. lumber prices are near a floor level and expect them to slowly increase once home construction ramps up in the early fall.

Steady markets combined with our ample liquidity leave us well positioned to accelerate our strategic plan, including pursuing high return opportunities.”

____________________
*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.

Consolidated Financial Results

 Q2  Q1  Q2  YTD  YTD 
 2021  2021  2020  2021  2020 
 (in thousands, except per share amounts) 
Revenues$401,832  $412,720  $341,195  $814,552  $691,794 
Operating income$51,836  $51,029  $10,315  $102,865  $34,377 
Operating EBITDA$83,791  $81,996  $40,516  $165,787  $97,524 
Loss on early extinguishment of debt$  $(30,368(1)$  $(30,368)(1)$ 
Net income (loss)$21,415  $5,933  $(8,411) $27,348  $(11,803)
Net income (loss) per common share                   
Basic and diluted$0.32  $0.09  $(0.13) $0.41  $(0.18)

______________

(1)   Redemption of 6.50% senior notes due 2024 and 7.375% senior notes due 2025.

Consolidated – Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020
Total revenues for the three months ended June 30, 2021 increased by approximately 18% to $401.8 million from $341.2 million in the same quarter of 2020 primarily due to higher pulp and lumber sales realizations partially offset by lower pulp sales volumes.

Costs and expenses in the current quarter increased by approximately 6% to $350.0 million from $330.9 million in the second quarter of 2020 primarily due to higher maintenance costs and the negative impact of a weaker dollar on our Canadian dollar and euro denominated costs and expenses partially offset by lower pulp sales volumes.

In the second quarter of 2021, Operating EBITDA increased to $83.8 million from $40.5 million in the same quarter of 2020 primarily due to higher pulp and lumber sales realizations partially offset by higher maintenance costs, the negative impact of a weaker dollar and lower pulp sales volumes.

Segment Results
Pulp

 Three Months Ended June 30, 
 2021  2020 
 (in thousands) 
Pulp revenues$297,191  $276,919 
Energy and chemical revenues$13,058  $21,127 
Operating income$13,338  $8,110 

In the second quarter of 2021, pulp segment operating income increased by approximately 64% to $13.3 million from $8.1 million in the same quarter of 2020 as higher pulp sales realizations were only partially offset by higher maintenance costs, the negative impact of a weaker dollar and lower pulp sales volumes.

In the current quarter of 2021, average NBSK pulp sales realizations increased by approximately 45% to $830 per ADMT from $573 per ADMT in the same quarter of the prior year due to strong demand and low customer inventory levels. NBSK pulp sales volumes decreased by approximately 22% to 330,425 ADMTs in the current quarter from 422,586 ADMTs in the same quarter of 2020 due to lower production.

NBSK pulp production declined by approximately 16% to 355,103 ADMTs in the current quarter from 423,773 ADMTs in the same quarter of 2020 primarily due to capital projects and maintenance downtime. In the current quarter of 2021, our pulp mills had 117 days of maintenance downtime (approximately 173,100 ADMTs) including our 50% owned Cariboo mill. Approximately 79 days of such downtime was at our Peace River mill and primarily related to boiler work which was deferred from last year relating to a 2017 incident. The Peace River mill maintenance shut was about 25 days longer than planned, nine days of which were in July, but we expect the majority of this extra downtime will be covered by our insurance.

In the second quarter of 2021, we received insurance proceeds of $20.0 million in connection with the costs of the Peace River mill boiler work along with an initial payment of $4.2 million for our business interruption insurance claims. We currently expect our remaining business interruption insurance claim to be in excess of $15 million.

We estimate that annual maintenance downtime in the current quarter adversely impacted our operating income by approximately $80.1 million, comprised of approximately $45.0 million in direct out-of-pocket expenses and the balance in reduced production (exclusive of business interruption insurance proceeds).

In the third quarter of 2021, excluding our 50% owned Cariboo mill, we have 24 days of scheduled maintenance. Also, while our Rosenthal mill will be operating and producing pulp, in the third quarter of 2021 it will take down and rebuild its turbine. This work is expected to continue into the early fourth quarter and require the mill to purchase its energy requirements.

On average, in the current quarter overall per unit fiber costs were flat when compared to the same quarter of 2020.

Wood Products

 Three Months Ended June 30, 
 2021  2020 
 (in thousands) 
Lumber revenues$86,285  $37,611 
Energy revenues$2,692  $2,629 
Wood residual revenues$1,462  $1,487 
Operating income$42,314  $4,327 

In the second quarter of 2021, our wood products segment had record operating income of $42.3 million compared to $4.3 million in the same quarter of 2020 primarily due to a higher lumber realized sales price.

Average lumber sales realizations increased to $789 per Mfbm in the second quarter of 2021 from approximately $345 per Mfbm in the same quarter of 2020 due to higher pricing in both the U.S. and European markets. U.S. lumber pricing increased due to strong demand from the housing and renovation markets. European lumber pricing increased due to steady demand with limited supply.

Fiber costs were approximately 75% of our lumber cash production costs in the current quarter. In the current quarter per unit fiber costs increased by approximately 30% from the same quarter of 2020 primarily due to strong demand for sawlogs and the negative impact of a weaker dollar on our euro denominated fiber costs.

In the third quarter of 2021, our Friesau sawmill has four weeks of seasonal scheduled downtime.

Consolidated – Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Total revenues for the first half of 2021 increased by approximately 18% to $814.6 million from $691.8 million in the first half of 2020 primarily due to higher pulp and lumber sales realizations partially offset by lower pulp sales volumes.

Costs and expenses in the first half of 2021 increased by approximately 8% to $711.7 million from $657.4 million in the first half of 2020 primarily due to the negative impact of a weaker dollar on our Canadian dollar and euro denominated costs and expenses and higher maintenance costs partially offset by lower pulp sales volumes and per unit fiber costs.

For the first half of 2021, our net income was $27.3 million, or $0.41 per share compared to a net loss of $11.8 million, or $0.18 per share, in the same period of 2020.

In the first half of 2021, Operating EBITDA increased by approximately 70% to $165.8 million from $97.5 million in the same period of 2020 primarily due to higher pulp and lumber sales realizations and lower per unit fiber costs partially offset by higher maintenance costs, the negative impact of a weaker dollar on our Canadian dollar and euro denominated costs and expenses and lower pulp and energy sales volumes.

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

 June 30,  December 31, 
 2021  2020 
 (in thousands) 
Cash and cash equivalents$384,534  $361,098 
Working capital$672,237  $663,056 
Total assets$2,214,698  $2,129,126 
Long-term liabilities$1,345,200  $1,316,303 
Total shareholders’ equity$604,134  $601,027 

As of June 30, 2021, we had cash and cash equivalents of approximately $384.5 million and approximately $310.4 million available under our revolving credit facilities, providing aggregate liquidity of about $694.9 million.

Quarterly Dividend
A quarterly dividend of $0.065 per share will be paid on October 6, 2021 to all shareholders of record on September 29, 2021. Future dividends will be subject to Board approval and may be adjusted as business and industry conditions warrant.

Earnings Release Call
In 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 July 30, 2021 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived for 30 days over the Internet at https://edge.media-server.com/mmc/p/w2j2nx7v 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. Lee
Executive Chairman
(604) 684-1099

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



-FINANCIAL TABLES FOLLOW-


Summary Financial Highlights

 Q2  Q1  Q2  YTD  YTD 
 2021  2021  2020  2021  2020 
 (in thousands, except per share amounts) 
Pulp segment revenues$310,249  $339,756  $298,046  $650,005  $601,651 
Wood products segment revenues 90,439   70,987   41,727   161,426   87,505 
Corporate and other revenues 1,144   1,977   1,422   3,121   2,638 
Total revenues$401,832  $412,720  $341,195  $814,552  $691,794 
                    
Pulp segment operating income$13,338  $25,296  $8,110  $38,634  $29,549 
Wood products segment operating income 42,314   27,977   4,327   70,291   9,882 
Corporate and other operating loss (3,816)  (2,244)  (2,122)  (6,060)  (5,054)
Total operating income$51,836  $51,029  $10,315  $102,865  $34,377 
                    
Pulp segment depreciation and amortization$27,967  $27,046  $27,219  $55,013  $57,590 
Wood products segment depreciation and amortization 3,748   3,723   2,804   7,471   5,181 
Corporate and other depreciation and amortization 240   198   178   438   376 
Total depreciation and amortization$31,955  $30,967  $30,201  $62,922  $63,147 
                    
Operating EBITDA$83,791  $81,996  $40,516  $165,787  $97,524 
Loss on early extinguishment of debt$  $(30,368) (1)$  $(30,368)(1)$ 
Income tax provision$(10,685) $(2,698) $(882) $(13,383) $(6,226)
Net income (loss)$21,415  $5,933  $(8,411) $27,348  $(11,803)
Net income (loss) per common share                   
Basic and diluted$0.32  $0.09  $(0.13) $0.41  $(0.18)
Common shares outstanding at period end 66,037   65,988   65,868   66,037   65,868 

______________

(1)   Redemption 6.50% senior notes due 2024 and 7.375% senior notes due 2025.



Summary Operating Highlights

 Q2  Q1  Q2  YTD  YTD 
 2021  2021  2020  2021  2020 
Pulp Segment                   
Pulp production ('000 ADMTs)                   
NBSK 355.1   396.9   423.8   752.0   879.0 
NBHK 4.5   81.6   88.8   86.1   167.8 
Annual maintenance downtime (’000 ADMTs) 173.1   37.8   11.3   210.9   13.6 
Annual maintenance downtime (days) 117   27   15   144   17 
Pulp sales (’000 ADMTs)                   
NBSK 330.4   418.6   422.6   749.1   860.9 
NBHK 30.3   69.0   69.3   99.4   135.4 
Average NBSK pulp prices ($/ADMT)(1)                   
Europe 1,288   1,037   850   1,163   842 
China 962   883   572   922   573 
North America 1,598   1,302   1,158   1,450   1,143 
Average NBHK pulp prices ($/ADMT)(1)                   
China 767   692   465   729   463 
North America 1,297   1,020   897   1,158   893 
Average pulp sales realizations ($/ADMT)(2)                   
NBSK 830   668   573   739   567 
NBHK 672   520   475   566   472 
Energy production (’000 MWh)(3) 362.0   519.1   562.9   881.1   1,141.3 
Energy sales (’000 MWh)(3) 130.9   201.1   222.0   332.0   453.7 
Average energy sales realizations ($/MWh)(3) 90   97   85   94   90 
                    
Wood Products Segment                   
Lumber production (MMfbm) 116.7   117.8   113.5   234.5   229.8 
Lumber sales (MMfbm) 109.3   108.2   109.0   217.5   226.7 
Average lumber sales realizations ($/Mfbm) 789  622  345  706  347 
Energy production and sales (’000 MWh) 21.0   16.4   22.7   37.3   45.4 
Average energy sales realizations ($/MWh)128  129  116  129  116 
                    
Average Spot Currency Exchange Rates                   
$ / €(4) 1.2050   1.2045   1.1016   1.2048   1.1019 
$ / C$(4)0.8142  0.7902   0.7221  0.8026  0.7328 

______________

(1)   Source: RISI pricing report. Europe and North America are list prices. China are net prices which include discounts, allowances and rebates.
(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.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)

 Three Months Ended June 30,  Six Months Ended June 30, 
 2021  2020  2021  2020 
Revenues$401,832  $341,195  $814,552  $691,794 
Costs and expenses               
Cost of sales, excluding depreciation and amortization 297,826   284,333   608,023   560,389 
Cost of sales depreciation and amortization 31,935   30,179   62,881   63,090 
Selling, general and administrative expenses 20,235   16,368   40,783   33,938 
Operating income 51,836   10,315   102,865   34,377 
Other income (expenses)               
Interest expense (17,130)  (20,108)  (36,149)  (40,192)
Loss on early extinguishment of debt       (30,368)   
Other income (expenses) (2,606)  2,264   4,383   238 
Total other expenses, net (19,736)  (17,844)  (62,134)  (39,954)
Income (loss) before income taxes 32,100   (7,529)  40,731   (5,577)
Income tax provision (10,685)  (882)  (13,383)  (6,226)
Net income (loss)$21,415  $(8,411) $27,348  $(11,803)
Net income (loss) per common share               
Basic and diluted$0.32  $(0.13) $0.41  $(0.18)
Dividends declared per common share$0.0650  $0.0650  $0.1300  $0.2025 



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

  June 30,  December 31, 
  2021  2020 
ASSETS        
Current assets        
Cash and cash equivalents $384,534  $361,098 
Accounts receivable, net  225,238   227,055 
Inventories  313,354   271,696 
Prepaid expenses and other  14,475   15,003 
Total current assets  937,601   874,852 
Property, plant and equipment, net  1,133,292   1,109,740 
Investment in joint ventures  45,844   46,429 
Amortizable intangible assets, net  50,982   51,571 
Operating lease right-of-use assets  11,829   13,251 
Other long-term assets  33,896   31,928 
Deferred income tax  1,254   1,355 
Total assets $2,214,698  $2,129,126 
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities        
Accounts payable and other $264,459  $210,994 
Pension and other post-retirement benefit obligations  905   802 
Total current liabilities  265,364   211,796 
Debt  1,157,873   1,145,294 
Pension and other post-retirement benefit obligations  31,057   31,810 
Finance lease liabilities  57,039   41,329 
Operating lease liabilities  8,488   9,933 
Other long-term liabilities  12,130   10,909 
Deferred income tax  78,613   77,028 
Total liabilities  1,610,564   1,528,099 
Shareholders’ equity        
Common shares $1 par value; 200,000,000 authorized; 66,037,000 issued and outstanding (2020 – 65,868,000)  65,988   65,800 
Additional paid-in capital  347,093   345,696 
Retained earnings  235,872   217,106 
Accumulated other comprehensive loss  (44,819)  (27,575)
Total shareholders’ equity  604,134   601,027 
Total liabilities and shareholders’ equity $2,214,698  $2,129,126 



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

  Three Months Ended June 30,  Six Months Ended June 30, 
  2021  2020  2021  2020 
Cash flows from (used in) operating activities                
Net income (loss) $21,415  $(8,411) $27,348  $(11,803)
Adjustments to reconcile net income (loss) to cash flows from operating activities                
Depreciation and amortization  31,955   30,201   62,922   63,147 
Deferred income tax provision (recovery)  1,276   (4,744)  2,480   (6,075)
Inventory impairment     6,530      12,264 
Loss on early extinguishment of debt        30,368    
Defined benefit pension plans and other post-retirement benefit plan expense  856   739   1,775   1,501 
Stock compensation expense (reversal)  975   (34)  1,585   (80)
Foreign exchange transaction losses (gains)  1,966   6,880   (6,640)  736 
Other  356   (695)  (260)  (1,192)
Defined benefit pension plans and other post-retirement benefit plan contributions  (1,202)  (797)  (2,125)  (1,712)
Changes in working capital                
Accounts receivable  16,364   14,938   3,941   (5,988)
Inventories  (21,964)  11,442   (42,763)  (6,678)
Accounts payable and accrued expenses  30,167   7,879   34,603   (49,781)
Other  (1,012)  177   (1,794)  (76)
Net cash from (used in) operating activities  81,152   64,105   111,440   (5,737)
Cash flows from (used in) investing activities                
Purchase of property, plant and equipment  (62,124)  (21,544)  (87,386)  (44,562)
Insurance proceeds  20,048      20,048    
Purchase of amortizable intangible assets  (568)  (89)  (1,209)  (527)
Other  285   796   (109)  847 
Net cash from (used in) investing activities  (42,359)  (20,837)  (68,656)  (44,242)
Cash flows from (used in) financing activities                
Redemption of senior notes        (824,557)   
Proceeds from issuance of senior notes        875,000    
Proceeds from (repayment of) revolving credit facilities, net  (42,042)  (25,651)  (57,112)  25,609 
Dividend payments  (4,289)     (4,289)  (9,047)
Payment of debt issuance costs        (14,414)   
Proceeds from government grants     299   8,532   299 
Repurchase of common shares           (162)
Other  (1,832)  (1,996)  89   (11,797)
Net cash from (used in) financing activities  (48,163)  (27,348)  (16,751)  4,902 
Effect of exchange rate changes on cash and cash equivalents  (1,179)  888   (2,597)  (2,674)
Net increase (decrease) in cash and cash equivalents  (10,549)  16,808   23,436   (47,751)
Cash and cash equivalents, beginning of period  395,083   286,526   361,098   351,085 
Cash and cash equivalents, end of period $384,534  $303,334  $384,534  $303,334 



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

Operating EBITDA is defined as operating income 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 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 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:

 Q2  Q1  Q2  YTD  YTD 
 2021  2021  2020  2021  2020 
Net income (loss)$21,415  $5,933  $(8,411) $27,348  $(11,803)
Income tax provision 10,685   2,698   882   13,383   6,226 
Interest expense 17,130   19,019   20,108   36,149   40,192 
Loss on early extinguishment of debt    30,368      30,368    
Other expenses (income) 2,606   (6,989)  (2,264)  (4,383)  (238)
Operating income 51,836   51,029   10,315   102,865   34,377 
Add: Depreciation and amortization 31,955   30,967   30,201   62,922   63,147 
Operating EBITDA$83,791  $81,996  $40,516  $165,787  $97,524 

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