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

Mercer International Inc. reported first quarter 2021 Operating EBITDA increased to $82.0 million from $57.0 million in the first quarter of 2020 and from $49.5 million in the fourth quarter of 2020.

–Record quarterly wood products segment results

–First quarter Operating EBITDA* of $82.0 million and net income of $5.9 million

In the first quarter of 2021, net income was $5.9 million (or $0.09 per share) compared to a net loss of $3.4 million (or $0.05 per share) in the first quarter of 2020 and a net loss of $13.0 million (or $0.20 per share) in the fourth quarter of 2020.

Mr. David Gandossi, the Chief Executive Officer, stated: “In the first quarter, our mills continued to run well and safely due to our extensive COVID-19 protection measures. Our Friesau sawmill’s strong operating results allowed us to take full advantage of the strong U.S. lumber market.

Our strong first quarter results reflected improved pulp pricing across all of our markets. First quarter average European NBSK list prices were up $157 per ADMT, and average net prices in China were up $246 per ADMT compared to the prior quarter.

Our wood products segment achieved another record quarterly result and continues to benefit from strong demand and robust pricing, particularly in the U.S. market. In the current quarter, approximately 67% of our lumber revenues and 44% of lumber sales volumes were to the U.S. which was our single largest market.

In January 2021, we refinanced (the “Refinancing”) a significant portion of our debt by issuing $875.0 million of 5.125% 2029 Senior Notes and using the proceeds to redeem and/or repurchase all of our 6.5% 2024 and 7.375% 2025 Senior Notes at a cost including premium of $824.6 million (the “Redemption”). We recorded a loss on such Redemption of $30.4 million (being $0.46 per share). The Refinancing reduced our annual interest expense going forward by approximately $12 million.

We have significant major maintenance scheduled this quarter, which requires a large number of specialty contractors at our mills. Consequently, we continue to maintain measures and procedures to operate our business safely and efficiently and to protect our people, including regular COVID-19 testing of employees and contractors.

While I am encouraged by the significant ramp up in the administration of vaccines globally, there has also been a widespread increase in infection rates which has led various countries to re-impose restrictions on certain activities.

Looking ahead to the second quarter, we are pleased with the strong pulp market fundamentals, which are being supported by steady demand. As well, lumber demand and pricing are expected to remain robust in all markets. Strong markets combined with our ample liquidity leave us well positioned to accelerate our strategic plan, including pursuing high return opportunities.”

Consolidated – Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Total revenues for the three months ended March 31, 2021 increased by approximately 18% to $412.7 million from $350.6 million in the same quarter of 2020 primarily due to higher pulp and lumber sales realizations partially offset by lower sales volumes.

Costs and expenses in the current quarter increased by approximately 11% to $361.7 million from $326.5 million in the first quarter 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 per unit fiber costs.

In the first quarter of 2021, Operating EBITDA increased by approximately 44% to $82.0 million from $57.0 million in the same quarter of 2020 primarily due to higher pulp and lumber sales realizations and lower per unit fiber costs partially offset by the negative impact of a weaker dollar on our Canadian dollar and euro denominated costs and higher maintenance costs.

For the first quarter of 2021, our net income was $5.9 million, or $0.09 per share after giving effect to the loss on the Redemption of $30.4 million compared to a net loss of $3.4 million, or $0.05 per share, in the same quarter of 2020.

Segment Results

Pulp

Pulp segment operating income increased by approximately 18% to $25.3 million from $21.4 million in the same quarter of 2020 as higher pulp sales realizations and lower per unit fiber costs were only partially offset by the negative impact of a weaker dollar and higher maintenance costs.

In the first quarter of 2021, our NBSK pulp sales realizations increased by approximately 19% to $668 per ADMT from $561 per ADMT in the same quarter of the prior year. NBSK pulp sales volumes decreased by approximately 4% to 418,645 ADMTs in the current quarter from 438,326 ADMTs in the same quarter of 2020 primarily due to lower production.

NBSK pulp production decreased by approximately 13% to 396,865 ADMTs in the current quarter from 455,192 ADMTs in the same quarter of 2020 primarily due to higher annual maintenance downtime. In the current quarter of 2021, our planned annual maintenance downtime at our Celgar mill of 20 days was extended to 27 days (approximately 37,800 ADMTs) for additional boiler work. In the comparative quarter of 2020, we only had two days of annual maintenance downtime (approximately 2,300 ADMTs). We estimate that such downtime in the first quarter of 2021 adversely impacted our operating income by approximately $30.3 million, comprised of approximately $21.8 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 second quarter of 2021, our pulp mills currently have 95 days of planned annual maintenance downtime (approximately 140,400 ADMTs) of which approximately 63 days will be at our Peace River mill and primarily relates to boiler work which was deferred from last year and resulted from an incident in 2017. We expect insurance to cover the estimated remaining costs of about $27 million for the boiler work and to receive business interruption insurance for the extra downtime relating to such work. Additionally, in the second quarter of 2021, we had 14 days of downtime at our Celgar mill related to its slower than planned restart.

In the current quarter of 2021 compared to the same quarter of 2020, primarily as a result of the weaker dollar on our Canadian dollar and euro denominated costs and expenses, we had a negative impact of approximately $30.4 million in operating income due to foreign exchange.

In the first quarter of 2021, per unit fiber costs decreased by approximately 10% from the same quarter of 2020 due to lower per unit fiber costs for all of our mills. In Germany, per unit fiber costs benefited from the continued availability of beetle damaged wood. In Canada, per unit fiber costs declined due to improved chip supply as a result of increased sawmill activity.

Wood Products

In the first quarter of 2021, our wood products segment had record operating income of $28.0 million compared to $5.6 million in the same quarter of 2020 primarily due to a higher lumber realized sales price.

Average lumber sales realizations increased by approximately 79% to $622 per Mfbm in the first quarter of 2021 from approximately $348 per Mfbm in the same quarter of 2020 primarily due to higher pricing in 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.

Per unit fiber costs increased by approximately 6% in the first quarter of 2021 from the same quarter of 2020 primarily as a result of the negative impact of a weaker dollar on our euro denominated fiber costs.

Liquidity

As of March 31, 2021, we had cash and cash equivalents of approximately $395.1 million and approximately $276.7 million available under our revolving credit facilities, providing aggregate liquidity of about $671.8 million.

Included in our cash and cash equivalents is approximately $15.8 million in government grants received and committed to partially finance greenhouse gas emission reduction capital projects and innovation at our Canadian mills. These projects include upgrades to the woodrooms at such mills which are also expected to reduce fiber costs.

As a result of such new woodroom projects, our expected 2021 capital expenditures, excluding amounts financed by government grants and expected insurance proceeds, will increase to about $185 million from about $150 million.

Current Market Environment

Although there is continued economic uncertainty resulting from the resurgence of the COVID-19 pandemic, we are currently expecting further modest pulp price improvements in the second quarter of 2021 due to stable pulp demand, particularly in China, and reduced supply.

We currently expect continuing strong lumber demand and prices in the U.S. market along with modestly improving sales realizations in the European market in the second quarter of 2021.

Quarterly Dividend

A quarterly dividend of $0.065 per share will be paid on July 7, 2021 to all shareholders of record on June 30, 2021. Future dividends will be subject to Board approval and may be adjusted as business and industry conditions warrant.

For the complete press release, click here.

About Mercer International

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.

Contact:

David M. Gandossi – CEO – (604) 684-1099

Source: Mercer International Inc.