Mercer International Inc. Reports Third Quarter and Nine Months 2020 Results and Announces Quarterly Cash Dividend of $0.065

Thursday, 29. October 2020 21:30

Selected Highlights

  • Third quarter net income of $7.5 million and Operating EBITDA* of $45.6 million
  • Record Wood Segment Results
  • Cash on hand and available credit facilities provide liquidity of about $600.6 million at September 30, 2020

NEW YORK, Oct. 29, 2020 (GLOBE NEWSWIRE) -- Mercer International Inc. (Nasdaq: MERC) today reported third quarter 2020 Operating EBITDA decreased to $45.6 million from $50.8 million in the third quarter of 2019 and increased from $40.5 million in the second quarter of 2020.

In the third quarter of 2020, net income was $7.5 million (or $0.11 per share) compared to $1.2 million (or $0.02 per share) in the third quarter of 2019 and a net loss of $8.4 million (or $0.13 per share) in the second quarter of 2020.

In the first nine months of 2020, Operating EBITDA decreased by 41% to $143.1 million from $244.6 million in the same period of 2019. In the first nine months of 2020, net loss was $4.3 million compared to net income of $63.1 million in the same period of 2019.   

Mr. David Gandossi, the Chief Executive Officer, stated: “As a resurgence or second wave of infections from COVID-19 is being felt in a number of countries, we remain committed to maintaining measures and procedures to operate our business safely and efficiently and protect our people.

All of our mills ran well this quarter and our Friesau sawmill had record operating income of $12.0 million despite ten days of downtime related to capital upgrades. Our pulp production was down in the quarter primarily due to the previously announced planned 30-day curtailment at our Celgar mill.

Our Q3 results reflect strong cost control and steady production. On average, NBSK pulp pricing was flat compared to Q2. Globally the supply demand fundamentals are slowly improving based on China’s improving economy and expected higher levels of maintenance by pulp producers going into the fourth quarter.

Our wood products segment had a record quarter and benefitted from strong demand and robust pricing in the U.S. market. In the current quarter approximately 59% of lumber revenues and 39% of our lumber sales volumes were to the U.S. which was our single largest market.

In Q4, our pulp mills have 17 days of planned annual maintenance downtime (approximately 19,600 ADMTs). We have no planned downtime at our Friesau sawmill. Going forward we will continue to ensure we control our costs, manage our working capital and conservatively manage our strong liquidity position.”

____________________
*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

 Q3  Q2  Q3  YTD  YTD 
 2020  2020  2019  2020  2019 
   
 (in thousands, except per share amounts) 
Revenues$333,151  $341,195  $383,536  $1,024,945  $1,293,239 
Operating income$13,736  $10,315  $18,747  $48,113  $150,109 
Operating EBITDA$45,620  $40,516  $50,799  $143,144  $244,556 
Net income (loss)$7,545  $(8,411) $1,207  $(4,258) $63,082 
Net income (loss) per common share                   
Basic and diluted$0.11  $(0.13) $0.02  $(0.06) $0.96 

Consolidated – Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Total revenues for the three months ended September 30, 2020 decreased by approximately 13% to $333.2 million from $383.5 million in the same quarter of 2019 primarily due to lower pulp sales volumes and pulp sales realizations partially offset by higher lumber sales realizations and volumes.

Costs and expenses in the current quarter decreased by approximately 12% to $319.4 million from $364.8 million in the third quarter of 2019 primarily due to lower pulp sales volumes, per unit fiber costs and maintenance costs partially offset by the negative impact of a weaker dollar primarily on our euro denominated costs and expenses. In the current quarter of 2020, we received approximately $3.5 million of wage assistance under a Canadian government wage subsidy program.

In the third quarter of 2020, other income increased to $11.9 million from $0.9 million in the same quarter of 2019 primarily as a result of $15.4 million of realized gains on the sale of investments in the current quarter.

In the third quarter of 2020, Operating EBITDA decreased by approximately 10% to $45.6 million from $50.8 million in the same quarter of 2019 primarily due to lower pulp sales realizations and the negative impact of a weaker dollar primarily on our euro denominated costs and expenses partially offset by lower per unit fiber costs and higher lumber sales realizations.

Segment Results

Pulp: Lower fiber costs more than offset by lower sales realizations

  Three Months Ended September 30, 
 2020  2019 
   
 (in thousands) 
Pulp revenues$253,056  $322,707 
Energy and chemical revenues$21,860  $22,353 
Operating income$3,753  $21,386 

In the third quarter of 2020, pulp segment operating income decreased to $3.8 million from $21.4 million in the same quarter of 2019 as lower pulp sales realizations and the negative impact of a weaker dollar were only partially offset by the positive impact of lower per unit fiber costs and lower maintenance costs.

In the current quarter of 2020, NBSK pulp sales realizations decreased by approximately 8% to $562 per ADMT from $609 per ADMT in the same quarter of the prior year. NBSK sales volumes decreased by approximately 18% to 369,913 ADMTs in the current quarter from 451,171 ADMTs in the same quarter of 2019 primarily due to lower production.

In the current quarter our Canadian pulp mills recorded a non-cash write down of our inventory carrying values of $8.0 million as a result of low pulp sales realizations and high per unit fiber costs. In the same quarter of the prior year our Canadian mills recorded a non-cash write down of our inventory carrying values of $6.9 million.

In the current quarter per unit fiber costs decreased by approximately 12% from the same quarter of 2019 due to lower per unit fiber costs for all of our mills. In Germany, per unit fiber costs benefitted from the continuing availability of beetle damaged wood. Per unit fiber costs in Canada declined due to increased sawmill activity but remained at historically high levels due to strong fiber demand in our mills' fiber procurement areas.

Wood Products: Record operating income driven by strong demand  

  Three Months Ended September 30, 
 2020  2019 
   
 (in thousands) 
Lumber revenues$53,612  $32,687 
Energy revenues$2,226  $1,621 
Wood residual revenues$1,215  $2,150 
Operating income$11,963  $544 

In the third quarter of 2020, our wood products segment had record operating income of $12.0 million compared to $0.5 million in the same quarter of 2019 primarily due to a higher lumber realized sales price.

Average lumber sales realizations increased by approximately 34% to $453 per Mfbm in the third quarter of 2020 compared to approximately $337 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 current quarter. European lumber pricing modestly decreased due to the supply of lumber processed from beetle damaged wood which generally obtains a lower price.

In the current quarter per unit fiber costs decreased by approximately 6% from the same quarter of 2019 primarily as a result of the continuing availability of beetle damaged wood.

Consolidated – Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Total revenues for the nine months ended September 30, 2020 decreased by approximately 21% to $1,024.9 million from $1,293.2 million in the nine months ended September 30, 2019 primarily due to lower pulp sales realizations and pulp sales volumes partially offset by higher lumber sales volumes and realizations.

Costs and expenses in the nine months ended September 30, 2020 decreased by approximately 15% to $976.8 million from $1,143.1 million in the nine months ended September 30, 2019 primarily due to lower pulp sales volumes, per unit fiber costs and maintenance costs.

Other income in the nine months ended September 30, 2020 increased to $12.1 million from $3.2 million in the same period of 2019 primarily due to $15.4 million of realized gains in the sale of investments.

For the nine months ended September 30, 2020, our net loss was $4.3 million, or $0.06 per share compared to net income of $63.1 million, or $0.96 per share, in the same period of 2019.

In the nine months ended September 30, 2020, Operating EBITDA decreased by approximately 41% to $143.1 million from $244.6 million in the same period of 2019 primarily due to lower pulp sales realizations and pulp sales volumes partially offset by lower per unit fiber costs, lower maintenance costs and higher lumber sales realizations.

Liquidity

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

  September 30,  December 31, 
 2020  2019 
   
 (in thousands) 
Cash and cash equivalents$345,580  $351,085 
Working capital$633,764  $588,385 
Total assets$2,044,735  $2,065,720 
Long-term liabilities$1,293,312  $1,259,005 
Total equity$550,707  $550,403 

As of September 30, 2020, we had cash and cash equivalents of approximately $345.6 million, approximately $255.0 million available under our revolving credit facilities, providing aggregate liquidity of about $600.6 million.

Current Market Environment

In mid-2020, many countries eased restrictions on economic and social activities adopted in response to the COVID-19 pandemic to, among other things, reopen their economies by allowing businesses to restart and encourage economic activity. The results of such economic measures and reopening have varied from country to country.

We are encouraged by improved economic activity globally. However, recently there has been a widespread increase or "second wave" in reported infections from COVID-19 including in Europe and the United States. In response, various countries including in Europe have announced the re-imposition of some restrictions on social, business and other activities. Currently we are unable to predict the impact of the recent resurgence in infections, the extent of measures governments may take in response thereto, including imposing some or all prior or new restrictive measures, including business closures, or the overall impact on global economic activity, including the pace of any economic recovery.

Although there is continued economic uncertainty created by the COVID-19 pandemic, we are currently expecting generally stable pulp demand in the upcoming quarter with some modest price improvements due to improving global economic activity, particularly in China.

On the pulp supply side, to date various pulp mills globally have delayed their annual maintenance schedules as a result of the pandemic. As a result, we currently expect mills to curtail production to implement such delayed maintenance in the later part of this year or the early part of next year.

We currently expect strong lumber demand and lumber prices in the U.S. market and steady demand and modestly improving sales realizations in the European lumber market in the upcoming quarter.

Quarterly Dividend

A quarterly dividend of $0.065 per share will be paid on December 30, 2020 to all shareholders of record on December 23, 2020. 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 October 30, 2020 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/ermirxzo 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

 Q3  Q2  Q3  YTD  YTD 
 2020  2020  2019  2020  2019 
   
 (in thousands, except per share amounts) 
Pulp segment revenues$274,916  $298,046  $345,060  $876,567  $1,166,333 
Wood products segment revenues 57,053   41,727   36,458   144,558   120,349 
Corporate and other revenues 1,182   1,422   2,018   3,820   6,557 
Total revenues$333,151  $341,195  $383,536  $1,024,945  $1,293,239 
                    
Pulp segment operating income$3,753  $8,110  $21,386  $33,302  $157,157 
Wood products segment operating income 11,963   4,327   544   21,845   2,075 
Corporate and other operating loss (1,980)  (2,122)  (3,183)  (7,034)  (9,123)
Total operating income$13,736  $10,315  $18,747  $48,113  $150,109 
                    
Pulp segment depreciation and amortization$28,251  $27,219  $29,744  $85,841  $87,616 
Wood products segment depreciation and amortization 3,446   2,804   2,016   8,627   5,937 
Corporate and other depreciation and amortization 187   178   292   563   894 
Total depreciation and amortization$31,884  $30,201  $32,052  $95,031  $94,447 
                    
Operating EBITDA$45,620  $40,516  $50,799  $143,144  $244,556 
Income tax recovery (provision)$1,775  $(882) $(244) $(4,451) $(35,101)
Net income (loss)$7,545  $(8,411) $1,207  $(4,258) $63,082 
Net income (loss) per common share                   
Basic and diluted$0.11  $(0.13) $0.02  $(0.06) $0.96 
Common shares outstanding at period end 65,868   65,868   65,629   65,868   65,629 



Summary Operating Highlights

  Q3  Q2  Q3  YTD  YTD 
 2020  2020  2019  2020  2019 
Pulp Segment                   
Pulp production ('000 ADMTs)                   
NBSK 400.2   423.8   441.7   1,279.1   1,355.1 
NBHK 79.8   88.8   75.3   247.6   243.3 
Annual maintenance downtime ('000 ADMTs) 15.0   11.3   14.1   28.6   21.6 
Annual maintenance downtime (days) 10   15   13   27   28 
Pulp sales ('000 ADMTs)                   
NBSK 369.9   422.6   451.2   1,230.8   1,356.6 
NBHK 100.1   69.3   91.0   235.4   260.4 
Average NBSK pulp prices ($/ADMT)(1)                   
Europe 840   850   860   841   987 
China 572   572   555   572   628 
North America 1,133   1,158   1,170   1,139   1,281 
Average NBHK pulp prices ($/ADMT)(1)                   
China 443   465   477   456   593 
North America 868   897   970   885   1,083 
Average pulp sales realizations ($/ADMT)(2)                   
NBSK 562   573   609   565   689 
NBHK 424   475   499   451   589 
Energy production ('000 MWh)(3) 529.2   562.9   572.5   1,670.5   1,708.3 
Energy sales ('000 MWh)(3) 215.5   222.0   224.7   669.3   668.4 
Average energy sales realizations ($/MWh)(3) 96   85   89   92   92 
                    
Wood Products Segment                   
Lumber production (MMfbm) 96.8   113.5   96.6   326.6   308.0 
Lumber sales (MMfbm) 118.5   109.0   97.0   345.2   307.7 
Average lumber sales realizations ($/Mfbm) 453  345  337   383  348 
Energy production and sales ('000 MWh) 17.8   22.7   13.9   63.3   60.4 
Average energy sales realizations ($/MWh) 125  116  116   118  117 
                    
Average Spot Currency Exchange Rates                   
$ / €(4) 1.1698   1.1016   1.1120   1.1248  1.1234 
$ / C$(4) 0.7508  0.7221   0.7573   0.7388  0.7523 

______________

        (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.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)

   Three Months Ended
September 30
  Nine Months Ended
September 30
 
  2020  2019  2020  2019 
Revenues $333,151  $383,536  $1,024,945  $1,293,239 
Costs and expenses                
Cost of sales, excluding depreciation and amortization  272,165   314,894   832,554   994,360 
Cost of sales depreciation and amortization  31,862   31,934   94,952   94,108 
Selling, general and administrative expenses  15,388   17,961   49,326   54,662 
Operating income  13,736   18,747   48,113   150,109 
Other income (expenses)                
Interest expense  (19,864)  (18,183)  (60,056)  (55,103)
Other income  11,898   887   12,136   3,177 
Total other expenses, net  (7,966)  (17,296)  (47,920)  (51,926)
Income before income taxes  5,770   1,451   193   98,183 
Income tax recovery (provision)  1,775   (244)  (4,451)  (35,101)
Net income (loss) $7,545  $1,207  $(4,258) $63,082 
Net income (loss) per common share                
Basic and diluted $0.11  $0.02  $(0.06) $0.96 
Dividends declared per common share $0.0650  $0.1375  $0.2675  $0.4000 



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

   September 30,  December 31, 
  2020  2019 
ASSETS        
Current assets        
Cash and cash equivalents $345,580  $351,085 
Accounts receivable, net  202,619   208,740 
Inventories  269,864   272,599 
Prepaid expenses and other  16,417   12,273 
Total current assets  834,480   844,697 
Property, plant and equipment, net  1,065,345   1,074,242 
Investment in joint ventures  47,865   53,122 
Amortizable intangible assets, net  50,132   53,371 
Operating lease right-of-use assets  12,932   13,004 
Other long-term assets  32,744   26,038 
Deferred income tax  1,237   1,246 
Total assets $2,044,735  $2,065,720 
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities        
Accounts payable and other $199,992  $255,544 
Pension and other post-retirement benefit obligations  724   768 
Total current liabilities  200,716   256,312 
Debt  1,124,202   1,087,932 
Pension and other post-retirement benefit obligations  24,613   25,489 
Finance lease liabilities  39,741   31,103 
Operating lease liabilities  9,912   10,520 
Other long-term liabilities  14,213   14,114 
Deferred income tax  80,631   89,847 
Total liabilities  1,494,028   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  345,583   344,994 
Retained earnings  234,365   256,371 
Accumulated other comprehensive loss  (95,041)  (116,560)
Total shareholders’ equity  550,707   550,403 
Total liabilities and shareholders’ equity $2,044,735  $2,065,720 



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

  Three Months Ended
September 30
  Nine Months Ended
September 30
 
  2020  2019  2020  2019 
Cash flows from (used in) operating activities                
Net income (loss) $7,545  $1,207  $(4,258) $63,082 
Adjustments to reconcile net income (loss) to cash flows from operating activities                
Depreciation and amortization  31,884   32,052   95,031   94,447 
Deferred income tax provision (recovery)  (4,255)  (1,706)  (10,330)  2,359 
Inventory impairment  8,000   6,900   25,998   13,800 
Defined benefit pension plans and other post-retirement benefit plan expense  769   866   2,270   2,582 
Stock compensation expense  895   1,179   815   2,036 
Gain on sale of investments  (15,443)     (15,443)   
Foreign exchange transaction losses (gains)  3,384   (8,873)  4,120   369 
Other  (1,801)  2,887   (2,993)  4,331 
Defined benefit pension plans and other post-retirement benefit plan contributions  (783)  (1,200)  (2,495)  (2,628)
Changes in working capital                
Accounts receivable  17,226   41,381   11,238   17,232 
Inventories  (8,031)  2,342   (20,443)  15,714 
Accounts payable and accrued expenses  (4,219)  (16,691)  (54,000)  (12,667)
Other  (6,683)  (3,483)  (6,759)  (12,889)
Net cash from (used in) operating activities  28,488   56,861   22,751   187,768 
Cash flows from (used in) investing activities                
Purchase of property, plant and equipment  (14,639)  (37,049)  (59,201)  (81,417)
Purchase of amortizable intangible assets  (30)  (215)  (557)  (710)
Purchase of investments        (9,370)   
Proceeds from sale of investments  21,540      21,540    
Other  396   162   1,243   (181)
Net cash from (used in) investing activities  7,267   (37,102)  (46,345)  (82,308)
Cash flows from (used in) financing activities                
Proceeds from (repayment of) revolving credit facilities, net  8,750      34,359   (58,404)
Dividend payments  (4,282)  (9,025)  (13,329)  (17,231)
Repurchase of common shares        (162)  (754)
Payment of debt issuance costs     (369)     (1,126)
Proceeds from government grants     147   299   6,467 
Other  (302)  (1,735)  (2,729)  (8,664)
Net cash from (used in) financing activities  4,166   (10,982)  18,438   (79,712)
Effect of exchange rate changes on cash and cash equivalents  2,325   (1,200)  (349)  (1,340)
Net increase (decrease) in cash and cash equivalents  42,246   7,577   (5,505)  24,408 
Cash and cash equivalents, beginning of period  303,334   257,322   351,085   240,491 
Cash and cash equivalents, end of period $345,580  $264,899  $345,580  $264,899 


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:

 Q3  Q2  Q3  YTD  YTD 
 2020  2020  2019  2020  2019 
Net income (loss)$7,545  $(8,411) $1,207  $(4,258) $63,082 
Income tax provision (recovery) (1,775)  882   244   4,451   35,101 
Interest expense 19,864   20,108   18,183   60,056   55,103 
Other income (11,898)  (2,264)  (887)  (12,136)  (3,177)
Operating income 13,736   10,315   18,747   48,113   150,109 
Add: Depreciation and amortization 31,884   30,201   32,052   95,031   94,447 
Operating EBITDA$45,620  $40,516  $50,799  $143,144  $244,556 

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