Mercer International Inc. Reports Second Quarter and First Half 2020 Results and Announces Quarterly Cash Dividend of $0.065

Selected Highlights

  • Second quarter net loss of $8.4 million

  • Quarterly Operating EBITDA* of $40.5 million

  • Cash on hand and available credit facilities provide liquidity of about $566.8 million at June 30, 2020

NEW YORK, July 30, 2020 (GLOBE NEWSWIRE) -- Mercer International Inc. (Nasdaq: MERC) today reported second quarter 2020 Operating EBITDA decreased to $40.5 million from $70.0 million in the second quarter of 2019 and from $57.0 million in the first quarter of 2020.

In the second quarter of 2020, net loss was $8.4 million (or $0.13 per share) compared to net income of $10.3 million (or $0.16 per share) in the second quarter of 2019 and a net loss of $3.4 million (or $0.05 per share) in the first quarter of 2020. 

In the first half of 2020, Operating EBITDA decreased by 50% to $97.5 million from $193.8 million in the same period of 2019. In the first half of 2020, net loss was $11.8 million compared to net income of $61.9 million in the same period of 2019.   

Mr. David Gandossi, the Chief Executive Officer, stated: “While the world continues to be impacted by the COVID-19 pandemic, I am proud to say that our people have remained resilient and we implemented measures and procedures to meet the challenges of operating our business safely and efficiently. We are constantly monitoring our operations and guidance from governmental and health organizations to ensure that we continue to take appropriate and necessary actions to protect our people.

All of our mills ran well this quarter. Pulp production was down slightly in the quarter primarily due to a previously announced short-term planned curtailment.

Our Q2 results reflect strong cost control and steady production.  On average, pulp pricing was modestly up compared to Q1. However, late in the current quarter, overall pulp demand was modestly weaker as continued strong tissue demand was more than offset by weaker demand from printing and writing customers. Our wood products segment had another strong quarter. Our Friesau mill ran well with strong demand in our U.S. market creating upward pricing pressure late in the quarter. In the current quarter approximately 38% of our lumber sales volumes were to the U.S. which was our single largest market.

As we move into Q3 we will remain focused on controlling our costs, managing our working capital and conservatively managing 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

 Q2  Q1  Q2  YTD  YTD 
 2020  2020  2019  2020  2019 
               
 (in thousands, except per share amounts) 
Revenues$341,195  $350,599  $425,753  $691,794  $909,703 
Operating income$10,315  $24,062  $37,810  $34,377  $131,362 
Operating EBITDA$40,516  $57,008  $69,958  $97,524  $193,757 
Net income (loss)$(8,411) $(3,392) $10,259  $(11,803) $61,875 
Net income (loss) per common share                   
Basic and diluted$(0.13) $(0.05) $0.16  $(0.18) $0.94 
                    

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

Total revenues for the three months ended June 30, 2020 decreased by approximately 20% to $341.2 million from $425.8 million in the same quarter of 2019 primarily due to lower pulp sales realizations and pulp sales volumes.

Costs and expenses in the current quarter decreased by approximately 15% to $330.9 million from $387.9 million in the second quarter of 2019 primarily due to lower per unit fiber costs and lower pulp sales volumes and the positive impact of a stronger dollar on our Canadian dollar and euro denominated costs and expenses.

In the second quarter of 2020, Operating EBITDA decreased by approximately 42% to $40.5 million from $70.0 million in the same quarter of 2019 primarily due to lower pulp sales realizations partially offset by lower per unit fiber costs and the positive impact of a stronger dollar.

Segment Results

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

 Three Months Ended June 30, 
 2020  2019 
      
 (in thousands) 
Pulp revenues$276,919  $359,205 
Energy and chemical revenues$21,127  $25,594 
Operating income$8,110  $42,251 
        

In the second quarter of 2020, pulp segment operating income decreased to $8.1 million from $42.3 million in the same quarter of 2019. The decrease was primarily due to lower pulp sales realizations partially offset by the positive impact of lower per unit fiber costs and a stronger dollar. In the current quarter of 2020, NBSK pulp sales realizations decreased by approximately 18% to $573 per ADMT from $699 per ADMT in the same quarter of the prior year due to high producer inventory levels. NBSK sales volumes decreased by approximately 4% to 422,586 ADMTs in the current quarter from 438,520 ADMTs in the same quarter of 2019 due to lower production.  

Our Canadian pulp mills recorded a non-cash write down of our inventory carrying values of $12.3 million in the current quarter as a result of lower pulp sales realizations and high fiber costs.

Per unit fiber costs decreased in the current quarter by approximately 16% 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 but remained at historically high levels due to strong fiber demand in the mills' fiber procurement areas.

Wood Products: Continued strong production and lower fiber costs 

 Three Months Ended June 30, 
 2020  2019 
      
 (in thousands) 
Lumber revenues$37,611  $35,322 
Energy revenues$2,629  $2,788 
Wood residual revenues$1,487  $1,342 
Operating income (loss)$4,327  $(89)
        

In the second quarter of 2020 the wood products segment operating income increased to $4.3 million compared to an operating loss of $0.1 million in the same quarter of 2019. The increase was primarily due to strong production and lower per unit fiber costs. Production increased by approximately 13% to 113.5 MMfbm of lumber in the current quarter from 100.8 MMfbm in the same quarter of 2019 primarily due to capital improvements at the mill. In the current quarter per unit fiber costs decreased by approximately 26% from the same quarter of 2019 primarily as a result of the continuing availability of beetle damaged wood.

Average lumber sales realizations were generally flat at approximately $345 per Mfbm in the second quarter of 2020 compared to approximately $348 per Mfbm in the same quarter of 2019 as higher pricing in the U.S. market was offset by lower pricing in Europe. U.S. lumber pricing increased due to stronger demand in the current quarter. European lumber pricing declined due to an increase in the supply of lumber processed from beetle damaged wood which generally obtains lower prices.

Consolidated – Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Total revenues for the first half of 2020 decreased by approximately 24% to $691.8 million from $909.7 million in the first half of 2019 primarily due to lower pulp sales realizations and pulp sales volumes.

Costs and expenses in the first half of 2020 decreased by approximately 16% to $657.4 million from $778.3 million in the first half of 2019 primarily due to lower per unit fiber costs, lower pulp sales volumes and the positive impact of a stronger dollar on our Canadian dollar and euro denominated costs and expenses.

For the first half of 2020, our net loss was $11.8 million, or $0.18 per share compared to net income of $61.9 million, or $0.94 per share, in the same period of 2019.

In the first half of 2020, Operating EBITDA decreased by approximately 50% to $97.5 million from $193.8 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 and the positive impact of a stronger dollar versus the Canadian dollar and euro.

Liquidity

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

 June 30,  December 31, 
 2020  2019 
      
 (in thousands) 
Cash and cash equivalents$303,334  $351,085 
Working capital$586,682  $588,385 
Total assets$1,973,609  $2,065,720 
Long-term liabilities$1,282,395  $1,259,005 
Total equity$494,260  $550,403 
        

As of June 30, 2020, we had cash and cash equivalents of approximately $303.3 million, approximately $263.5 million available under our revolving credit facilities, providing aggregate liquidity of about $566.8 million.

In June 2020, we amended our revolving credit facility for our Celgar mill to increase the principal amount available to C$60 million from C$40 million with all other terms remaining substantially unchanged.

Current Market Environment

Commencing around the end of the second quarter, many countries have taken measures to ease restrictions on economic and social activities 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.

While such measures are encouraging, currently we are unable to predict the outcome or pace of such economic reopening, the strength or timing of any recovery or whether they will result in such a material resurgence of the virus that causes governments to re-impose restrictive measures.

As a result of the continuing global economic impact and uncertainty resulting from the COVID-19 pandemic and the seasonal third quarter pulp market slowdown, we are expecting an overall weakening in pulp demand in the upcoming quarter with some modest price improvements towards the end of the quarter.

On the pulp supply side, to date various pulp mills globally have delayed their annual maintenance schedules as a result of the current 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. As previously announced, in July our Celgar mill is taking a 30-day market related curtailment.

We currently expect strong lumber demand and higher lumber sales realizations in the U.S. market and steady demand and 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 October 6, 2020 to all shareholders of record on September 29, 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 July 31, 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/cmgyreto 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 
 2020  2020  2019  2020  2019 
               
 (in thousands, except per share amounts) 
Pulp segment revenues$298,046  $303,605  $384,799  $601,651  $821,273 
Wood products segment revenues 41,727   45,778   39,452   87,505   83,891 
Corporate and other revenues 1,422   1,216   1,502   2,638   4,539 
Total revenues$341,195  $350,599  $425,753  $691,794  $909,703 
                    
Pulp segment operating income$8,110  $21,439  $42,251  $29,549  $135,771 
Wood products segment operating income (loss) 4,327   5,555   (89)  9,882   1,531 
Corporate and other operating loss (2,122)  (2,932)  (4,352)  (5,054)  (5,940)
Total operating income$10,315  $24,062  $37,810  $34,377  $131,362 
                    
Pulp segment depreciation and amortization$27,219  $30,371  $29,849  $57,590  $57,872 
Wood products segment depreciation and amortization 2,804   2,377   2,010   5,181   3,921 
Corporate and other depreciation and amortization 178   198   289   376   602 
Total depreciation and amortization$30,201  $32,946  $32,148  $63,147  $62,395 
                    
Operating EBITDA$40,516  $57,008  $69,958  $97,524  $193,757 
Provision for income taxes$(882) $(5,344) $(10,433) $(6,226) $(34,857)
Net income (loss)$(8,411) $(3,392) $10,259  $(11,803) $61,875 
Net income (loss) per common share                   
Basic and diluted$(0.13) $(0.05) $0.16  $(0.18) $0.94 
Common shares outstanding at period end 65,868   65,800   65,629   65,868   65,629 
                    


Summary Operating Highlights

 Q2  Q1  Q2  YTD  YTD 
 2020  2020  2019  2020  2019 
Pulp Segment                   
Pulp production ('000 ADMTs)                   
NBSK 423.8   455.2   452.8   879.0   913.4 
NBHK 88.8   78.9   89.4   167.8   168.0 
Annual maintenance downtime ('000 ADMTs) 11.3   2.3   7.5   13.6   7.5 
Annual maintenance downtime (days) 15   2   15   17   15 
Pulp sales ('000 ADMTs)                   
NBSK 422.6   438.3   438.5   860.9   905.4 
NBHK 69.3   66.0   81.5   135.4   169.4 
Average NBSK pulp prices ($/ADMT)(1)                   
Europe 850   833   997   842   1,051 
China 572   573   630   573   665 
North America 1,158   1,127   1,292   1,143   1,336 
Average NBHK pulp prices ($/ADMT)(1)                   
China 465   460   607   463   651 
North America 897   890   1,100   893   1,140 
Average pulp sales realizations ($/ADMT)(2)                   
NBSK 573   561   699   567   729 
NBHK 475   468   618   472   638 
Energy production ('000 MWh)(3) 562.9   578.4   575.4   1,141.3   1,135.8 
Energy sales ('000 MWh)(3) 222.0   231.7   231.9   453.7   443.7 
Average energy sales realizations ($/MWh)(3) 85   95   93   90   94 
                    
Wood Products Segment                   
Lumber production (MMfbm) 113.5   116.4   100.8   229.8   211.5 
Lumber sales (MMfbm) 109.0   117.7   101.5   226.7   210.7 
Average lumber sales realizations ($/Mfbm) 345  348  348   347  354 
Energy production and sales ('000 MWh) 22.7   22.8   24.1   45.4   46.4 
Average energy sales realizations ($/MWh) 116  116  116   116  118 
                    
Average Spot Currency Exchange Rates                   
$ / €(4) 1.1016   1.1022  1.1237   1.1019  1.1293 
$ / C$(4) 0.7221  0.7438   0.7475   0.7328  0.7497 

______________

(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
June 30
  Six Months Ended
June 30
 
  2020  2019  2020  2019 
Revenues $341,195  $425,753  $691,794  $909,703 
Costs and expenses                
Cost of sales, excluding depreciation and amortization  284,333   336,433   560,389   679,466 
Cost of sales depreciation and amortization  30,179   32,038   63,090   62,174 
Selling, general and administrative expenses  16,368   19,472   33,938   36,701 
Operating income  10,315   37,810   34,377   131,362 
Other income (expenses)                
Interest expense  (20,108)  (18,369)  (40,192)  (36,920)
Other income  2,264   1,251   238   2,290 
Total other expenses, net  (17,844)  (17,118)  (39,954)  (34,630)
Income (loss) before provision for income taxes  (7,529)  20,692   (5,577)  96,732 
Provision for income taxes  (882)  (10,433)  (6,226)  (34,857)
Net income (loss) $(8,411) $10,259  $(11,803) $61,875 
Net income (loss) per common share                
Basic and diluted $(0.13) $0.16  $(0.18) $0.94 
Dividends declared per common share $0.0650  $0.1375  $0.2025  $0.2625 
                 


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

  June 30,  December 31, 
  2020  2019 
ASSETS        
Current assets        
Cash and cash equivalents $303,334  $351,085 
Accounts receivable, net  209,184   208,740 
Inventories  261,453   272,599 
Prepaid expenses and other  9,665   12,273 
Total current assets  783,636   844,697 
Property, plant and equipment, net  1,040,171   1,074,242 
Investment in joint ventures  48,413   53,122 
Amortizable intangible assets, net  49,893   53,371 
Operating lease right-of-use assets  12,866   13,004 
Other long-term assets  37,414   26,038 
Deferred income tax  1,216   1,246 
Total assets $1,973,609  $2,065,720 
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities        
Accounts payable and other $196,238  $255,544 
Pension and other post-retirement benefit obligations  716   768 
Total current liabilities  196,954   256,312 
Debt  1,114,069   1,087,932 
Pension and other post-retirement benefit obligations  24,044   25,489 
Finance lease liabilities  38,628   31,103 
Operating lease liabilities  10,052   10,520 
Other long-term liabilities  13,733   14,114 
Deferred income tax  81,869   89,847 
Total liabilities  1,479,349   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  344,688   344,994 
Retained earnings  231,101   256,371 
Accumulated other comprehensive loss  (147,329)  (116,560)
Total shareholders’ equity  494,260   550,403 
Total liabilities and shareholders’ equity $1,973,609  $2,065,720 
 


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

  Three Months Ended
June 30
  Six Months Ended
June 30
 
  2020  2019  2020  2019 
Cash flows from (used in) operating activities                
Net income (loss) $(8,411) $10,259  $(11,803) $61,875 
Adjustments to reconcile net income (loss) to cash flows from operating activities                
Depreciation and amortization  30,201   32,148   63,147   62,395 
Deferred income tax provision (benefit)  (4,744)  426   (6,075)  4,065 
Inventory impairment  6,530   6,900   12,264   6,900 
Defined benefit pension plans and other post-retirement benefit plan expense  739   860   1,501   1,716 
Stock compensation expense (recovery)  (34)  1,202   (80)  857 
Foreign exchange transaction losses  6,880   9,505   736   9,242 
Other  (695)  740   (1,192)  1,444 
Defined benefit pension plans and other post-retirement benefit plan contributions  (797)  (270)  (1,712)  (1,428)
Changes in working capital                
Accounts receivable  14,938   32,204   (5,988)  (24,149)
Inventories  11,442   (7,769)  (6,678)  13,372 
Accounts payable and accrued expenses  7,879   4,197   (49,781)  4,024 
Other  177   (1,681)  (76)  (9,406)
Net cash from (used in) operating activities  64,105   88,721   (5,737)  130,907 
Cash flows from (used in) investing activities                
Purchase of property, plant and equipment  (21,544)  (24,979)  (44,562)  (44,368)
Purchase of amortizable intangible assets  (89)  (179)  (527)  (495)
Other  796   (82)  847   (343)
Net cash from (used in) investing activities  (20,837)  (25,240)  (44,242)  (45,206)
Cash flows from (used in) financing activities                
Proceeds from (repayment of) revolving credit facilities, net  (25,651)  (24,732)  25,609   (58,404)
Dividend payments     (8,206)  (9,047)  (8,206)
Repurchase of common shares     (754)  (162)  (754)
Payment of debt issuance costs     (248)     (757)
Proceeds from government grants  299      299   6,320 
Other  (1,996)  (6,067)  (11,797)  (6,929)
Net cash from (used in) financing activities  (27,348)  (40,007)  4,902   (68,730)
Effect of exchange rate changes on cash and cash equivalents  888   614   (2,674)  (140)
Net increase (decrease) in cash and cash equivalents  16,808   24,088   (47,751)  16,831 
Cash and cash equivalents, beginning of period  286,526   233,234   351,085   240,491 
Cash and cash equivalents, end of period $303,334  $257,322  $303,334  $257,322 
 


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 
 2020  2020  2019  2020  2019 
Net income (loss)$(8,411) $(3,392) $10,259  $(11,803) $61,875 
Provision for income taxes 882   5,344   10,433   6,226   34,857 
Interest expense 20,108   20,084   18,369   40,192   36,920 
Other (income) expenses (2,264)  2,026   (1,251)  (238)  (2,290)
Operating income 10,315   24,062   37,810   34,377   131,362 
Add: Depreciation and amortization 30,201   32,946   32,148   63,147   62,395 
Operating EBITDA$40,516  $57,008  $69,958  $97,524  $193,757 
 


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