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Mercer International Inc. Reports Second Quarter and First Half 2019 Results and Announces Quarterly Cash Dividend of $0.1375

Selected Highlights

  • Second quarter net income of $10.3 million ($0.16 per share) and Operating EBITDA* of $70.0 million
  • First half 2019 net income of $61.9 million ($0.94 per share) and Operating EBITDA of $193.8 million

NEW YORK, Aug. 01, 2019 (GLOBE NEWSWIRE) -- Mercer International Inc. (MERC) today reported second quarter 2019 Operating EBITDA increased to $70.0 million from $60.5 million in the second quarter of 2018 and decreased from $123.8 million in the first quarter of 2019.

For the second quarter of 2019, net income decreased to $10.3 million, or $0.16 per share, from $16.8 million, or $0.26 per share, in the second quarter of 2018 and $51.6 million, or $0.79 per basic share and $0.78 per diluted share, in the first quarter of 2019. 

In the first half of 2019, Operating EBITDA increased by 21% to $193.8 million from $159.9 million in the same period of 2018. In the first half of 2019, net income increased to $61.9 million from $42.4 million in the same period of 2018.

Mr. David M. Gandossi, the Chief Executive Officer, stated: "Our second quarter results reflect an overall weakening of pulp markets resulting from weak demand for certain paper grades in China and high producer inventories. As a result of the decline in pulp prices in China during the current quarter of 2019, we recorded a non-cash write down of inventories at our Canadian mills of $6.9 million.

Overall, I am pleased with our mills strong production this quarter and the acquisition of MPR continues to materially increase our production, revenues and scope of operations."

____________________

*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 to Operating EBITDA.

Consolidated Financial Results: Lower pulp and lumber sales realizations

  Q2     Q1     Q2     YTD     YTD    
  2019     2019     2018     2019     2018    
                               
  (in thousands, except per share amounts)  
Revenues $ 425,753     $ 483,950     $ 346,532     $ 909,703     $ 714,435    
Operating income $ 37,810     $ 93,552     $ 37,476     $ 131,362     $ 113,524    
Operating EBITDA $ 69,958     $ 123,799     $ 60,490     $ 193,757     $ 159,857    
Loss on settlement of debt $     $     $     $     $ (21,515 ) (1)
Legal cost award $     $     $     $     $ (6,951 )  
Net income $ 10,259     $ 51,616     $ 16,755     $ 61,875     $ 42,404    
Net income per common share                                      
Basic $ 0.16     $ 0.79     $ 0.26     $ 0.94     $ 0.65    
Diluted $ 0.16     $ 0.78     $ 0.26     $ 0.94     $ 0.65    

______________

(1) Redemption of 7.75% senior notes due 2022.

In the second quarter of 2019 our operating income decreased to $37.8 million from $93.6 million in the first quarter of 2019, and was generally flat from $37.5 million in the same quarter of 2018. The decrease in the current quarter over the prior quarter is primarily due to lower pulp sales realizations and higher maintenance costs arising from scheduled maintenance downtime at our 50% joint venture Cariboo mill. Compared to the same quarter of 2018 lower maintenance costs, higher energy and pulp sales volumes and lower per unit fiber costs were mostly offset by lower pulp and lumber sales realizations.

Segment Results

Pulp: Strong production offset by lower pulp sales realizations

  Three Months Ended June 30
  2019     2018
         
  (in thousands)
Pulp revenues $ 359,205     $ 279,939
Energy and chemical revenues $ 25,594     $ 11,693
Operating income $ 42,251     $ 36,976

In the second quarter of 2019 pulp segment operating income increased by approximately 14% to $42.3 million from $37.0 million in the same quarter of 2018. Maintenance costs were significantly lower in the current quarter as our 50% joint venture Cariboo mill had 15 days of scheduled maintenance downtime (approximately 7,500 ADMTs) compared to our mills having 37 days (approximately 55,400 ADMTs) in the same period of the prior year. Excluding the impact of the shuts, production increased in the current quarter due to the inclusion of MPR and overall strong operating performance from all our mills. The higher production contributed to a higher sales volume in the current quarter. The NBSK pulp realized sales price decreased by approximately 15% to $699 per ADMT in the second quarter of 2019 from $821 per ADMT in the same quarter of the prior year due to high producer inventory levels.

Energy and chemical revenues increased by approximately 119% to $25.6 million in the second quarter of 2019 from $11.7 million in the same quarter of 2018 when one turbine at each of our Stendal and Celgar mills was taken offline for scheduled maintenance.

Per unit fiber costs decreased in the current quarter by approximately 10% from the same quarter of 2018 due to the positive impact of a stronger dollar on our euro and Canadian dollar denominated fiber costs and lower per unit fiber costs for our German mills. In Germany, the fiber market was stable due to the continued availability of storm and beetle damaged wood while the market in Celgar's fiber procurement basket remained tight due to strong demand.

Wood Products: Lower per unit fiber costs more than offset by lower lumber sales realizations 

  Three Months Ended June 30,
  2019     2018
         
  (in thousands)
Lumber revenues $ 35,322     $ 48,991
Energy revenues $ 2,788     $ 3,255
Wood residual revenues $ 1,342     $ 2,654
Operating income (loss) $ (89 )   $ 4,322

In the second quarter of 2019 our wood products segment had an operating loss of $0.1 million compared to operating income of $4.3 million in the same quarter of 2018. Average lumber sales realizations decreased by approximately 20% to $348 per Mfbm in the second quarter of 2019 from approximately $433 per Mfbm in the same quarter of 2018 primarily due to weakening in the U.S. lumber markets which started in the second half of 2018 as a result of high customer inventory levels. European lumber pricing also declined due to an increase in the supply of lumber processed from beetle and storm damaged wood which generally obtains lower prices. In the current quarter, per unit fiber costs decreased by approximately 24% from the same quarter of 2018 primarily as a result of the availability of storm and beetle damaged wood and the positive impact of a stronger dollar on our euro denominated fiber costs.

Consolidated ‑ Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
Total revenues for the first half of 2019 increased by approximately 27% to $909.7 million from $714.4 million in the first half of 2018 primarily due to the inclusion of the results of MPR and higher pulp and energy sales volumes partially offset by lower product sales realizations.

Costs and expenses in the first half of 2019 increased by approximately 30% to $778.3 million from $600.9 million in the first half of 2018 primarily due to the inclusion of MPR costs and higher pulp sales volumes partially offset by lower maintenance costs, the positive impact of a stronger dollar on our euro denominated costs and expenses and lower per unit fiber costs. 

For the first half of 2019, our net income increased to $61.9 million, or $0.94 per share, after giving effect to costs of $28.5 million, or $0.44 per basic and $0.43 per diluted share, for the redemption of senior notes and the NAFTA legal cost award from $42.4 million in the same period of 2018.

In the first half of 2019, Operating EBITDA increased by approximately 21% to $193.8 million from $159.9 million in the same period of 2018 primarily due to lower maintenance costs, higher energy and pulp sales volumes, lower per unit fiber costs and the inclusion of MPR partially offset by lower pulp and lumber sales realizations.

Outlook
We currently expect pulp markets to moderately strengthen with improved pricing in the later part of the year. We currently believe that pulp producer inventories will decline in the third quarter of 2019 as a result of customary summer producer downtime along with steady demand in Europe and North America and moderately higher demand from paper producers in China.

We currently expect lumber pricing in the later part of the year to modestly increase due to seasonal increased demand from the U.S. lumber market.

In the third quarter of 2019, our pulp mills have 10 days of scheduled maintenance downtime, or approximately 12,300 ADMTs. The Peace River mill had previously been scheduled for 58 days of maintenance downtime commencing in the third quarter of 2019 to undertake certain boiler replacements and upgrade work. Such work has now been rescheduled to 2020 primarily due to a delay in the delivery of parts.

In the third quarter we will also continue to be focused on realizing upon the identified synergies at MPR, and continue to expect to realize about $15 to $20 million of synergies this year.

Quarterly Dividend
A quarterly dividend of $0.1375 per share will be paid on October 2, 2019 to all shareholders of record on September 25, 2019. 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 August 2, 2019 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/cobfhvk4 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
Chief Executive Officer
(604) 684-1099

-FINANCIAL TABLES FOLLOW-


Summary Financial Highlights

  Q2     Q1     Q2     YTD     YTD    
  2019     2019     2018     2019     2018    
                               
  (in thousands, except per share amounts)  
Pulp segment revenues $ 384,799     $ 436,474     $ 291,632     $ 821,273     $ 605,867    
Wood products segment revenues   39,452       44,439       54,900       83,891       108,568    
Corporate and other revenues   1,502       3,037               4,539          
Total revenues $ 425,753     $ 483,950     $ 346,532     $ 909,703     $ 714,435    
                                       
Pulp segment operating income $ 42,251     $ 93,520     $ 36,976     $ 135,771     $ 111,030    
Wood products segment operating income (loss)   (89 )     1,620       4,322       1,531       7,304    
Corporate and other operating loss   (4,352 )     (1,588 )     (3,822 )     (5,940 )     (4,810 )  
Total operating income $ 37,810     $ 93,552     $ 37,476     $ 131,362     $ 113,524    
                                       
Pulp segment depreciation and amortization $ 29,849     $ 28,023     $ 21,127     $ 57,872     $ 42,650    
Wood products segment depreciation and amortization    2,010       1,911       1,779       3,921       3,465    
Corporate and other depreciation and amortization   289       313       108       602       218    
Total depreciation and amortization $ 32,148     $ 30,247     $ 23,014     $ 62,395     $ 46,333    
                                       
Operating EBITDA $ 69,958     $ 123,799     $ 60,490     $ 193,757     $ 159,857    
Loss on settlement of debt $     $     $     $     $ (21,515 ) (1)
Legal cost award $     $     $     $     $ (6,951 )  
Provision for income taxes $ (10,433 )   $ (24,424 )   $ (8,461 )   $ (34,857 )   $ (18,042 )  
Net income $ 10,259     $ 51,616     $ 16,755     $ 61,875     $ 42,404    
Net income per common share                                      
Basic $ 0.16     $ 0.79     $ 0.26     $ 0.94     $ 0.65    
Diluted $ 0.16     $ 0.78     $ 0.26     $ 0.94     $ 0.65    
Common shares outstanding at period end   65,629       65,651       65,202       65,629       65,202    

______________

(1) Redemption of 7.75% senior notes due 2022.

Summary Operating Highlights

  Q2   Q1   Q2   YTD   YTD  
  2019   2019   2018   2019   2018  
Pulp Segment                              
Pulp production ('000 ADMTs)                              
NBSK   452.8     460.6     309.7     913.4     674.2  
NBHK   89.4     78.6           168.0        
Annual maintenance downtime ('000 ADMTs)   7.5         55.4     7.5     55.4  
Annual maintenance downtime (days)   15         37     15     37  
Pulp sales ('000 ADMTs)                              
NBSK   438.5     466.9     338.3     905.4     705.4  
NBHK   81.5     87.8           169.4        
Average NBSK pulp list prices ($/ADMT)(1)                              
Europe   997     1,105     1,200     1,051     1,148  
China   653     710     910     682     910  
North America   1,292     1,380     1,310     1,336     1,272  
Average NBHK pulp list prices ($/ADMT)(1)                              
China   635     687     800     661     799  
North America   1,100     1,180     1,125     1,140     1,101  
Average pulp sales realizations ($/ADMT)(2)                              
NBSK   699     757     821     729     801  
NBHK   618     656           638        
Energy production ('000 MWh)   575.4 (3)   560.5 (3)   294.7     1,135.8 (3)   732.7  
Energy sales ('000 MWh)   231.9 (3)   211.8 (3)   84.6     443.7 (3)   260.3  
Average energy sales realizations ($/MWh)   93     94     99     94     104  
                               
Wood Products Segment                              
Lumber production (MMfbm)   100.8   110.7     111.9     211.5   214.6  
Lumber sales (MMfbm)   101.5   109.2   113.1     210.7   228.2  
Average lumber sales realizations ($/Mfbm)   348   359   433     354   426  
Energy production and sales ('000 MWh)   24.1   22.4   25.6     46.4   46.2  
Average energy sales realizations ($/MWh) 116   119   127   118   131  
                               
Average Spot Currency Exchange Rates                              
$ / €(4) 1.1237   1.1354   1.1922   1.1293   1.2103  
$ / C$(4) 0.7475   0.7521     0.7750   0.7497   0.7826  

_____________

(1) Source: RISI pricing report.
(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) Excludes energy production and sales relating to our 50% joint venture interest in the Cariboo mill which is accounted for as an equity investment.
(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
 
    2019     2018     2019     2018  
Revenues   $ 425,753     $ 346,532     $ 909,703     $ 714,435  
Costs and expenses                                
Cost of sales, excluding depreciation and amortization     336,433       271,134       679,466       525,419  
Cost of sales depreciation and amortization     32,038       22,906       62,174       46,115  
Selling, general and administrative expenses     19,472       15,016       36,701       29,377  
Operating income     37,810       37,476       131,362       113,524  
Other income (expenses)                                
Interest expense     (18,369 )     (12,128 )     (36,920 )     (24,243 )
Loss on settlement of debt                       (21,515 )
Legal cost award                       (6,951 )
Other income (expenses)     1,251       (132 )     2,290       (369 )
Total other expenses, net     (17,118 )     (12,260 )     (34,630 )     (53,078 )
Income before provision for income taxes     20,692       25,216       96,732       60,446  
Provision for income taxes     (10,433 )     (8,461 )     (34,857 )     (18,042 )
Net income   $ 10,259     $ 16,755     $ 61,875     $ 42,404  
Net income per common share                                
Basic and diluted   $ 0.16     $ 0.26     $ 0.94     $ 0.65  
Dividends declared per common share   $ 0.1375     $ 0.1250     $ 0.2625     $ 0.2500  

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)

    June 30,     December 31,  
    2019     2018  
ASSETS                
Current assets                
Cash and cash equivalents   $ 257,322     $ 240,491  
Accounts receivable     273,502       252,692  
Inventories     286,839       303,813  
Prepaid expenses and other     20,229       13,703  
Total current assets     837,892       810,699  
Property, plant and equipment, net     1,031,696       1,029,257  
Investment in joint ventures     57,659       62,574  
Intangible assets, net     55,795       53,927  
Operating lease right-of-use assets     14,087        
Other long-term assets     31,183       17,904  
Deferred income tax     1,465       1,374  
Total assets   $ 2,029,777     $ 1,975,735  
LIABILITIES AND SHAREHOLDERS’ EQUITY                
Current liabilities                
Accounts payable and other   $ 222,272     $ 194,484  
Pension and other post-retirement benefit obligations     831       904  
Total current liabilities     223,103       195,388  
Debt     983,644       1,041,389  
Pension and other post-retirement benefit obligations     26,291       25,829  
Finance lease liabilities     23,229       24,669  
Operating lease liabilities     11,610        
Other long-term liabilities     14,394       13,924  
Deferred income tax     100,981       93,107  
Total liabilities     1,383,252       1,394,306  
Shareholders’ equity                
Common shares $1 par value; 200,000,000 authorized; 65,629,000 issued and outstanding (2018 – 65,202,000)     65,598       65,171  
Additional paid-in capital     342,815       342,438  
Retained earnings     345,934       301,990  
Accumulated other comprehensive loss     (107,822 )     (128,170 )
Total shareholders’ equity     646,525       581,429  
Total liabilities and shareholders’ equity   $ 2,029,777     $ 1,975,735  
                 

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

    Three Months Ended
June 30
    Six Months Ended
June 30
 
    2019     2018     2019     2018  
Cash flows from (used in) operating activities                                
Net income   $ 10,259     $ 16,755     $ 61,875     $ 42,404  
Adjustments to reconcile net income to cash flows from operating activities                                
Depreciation and amortization     32,148       23,014       62,395       46,333  
Deferred income tax provision     426       1,204       4,065       6,016  
Loss on settlement of debt                       21,515  
Defined benefit pension plans and other post-retirement benefit plan expense     860       432       1,716       871  
Stock compensation expense     1,202       1,759       857       1,952  
Foreign exchange transaction losses     9,505       347       9,242       524  
Other     740       964       1,444       1,607  
Defined benefit pension plans and other post-retirement benefit plan contributions     (270 )     (60 )     (1,428 )     (105 )
Changes in working capital                                
Accounts receivable     32,204       13,475       (24,149 )     8,343  
Inventories     (869 )     (12,221 )     20,272       (19,043 )
Accounts payable and accrued expenses     4,197       36,906       4,024       54,933  
Other     (1,681 )     3,170       (9,406 )     (3,228 )
Net cash from (used in) operating activities     88,721       85,745       130,907       162,122  
Cash flows from (used in) investing activities                                
Purchase of property, plant and equipment     (24,979 )     (28,655 )     (44,368 )     (44,839 )
Purchase of intangible assets     (179 )     (153 )     (495 )     (320 )
Other     (82 )     67       (343 )     67  
Net cash from (used in) investing activities     (25,240 )     (28,741 )     (45,206 )     (45,092 )
Cash flows from (used in) financing activities                                
Redemption of senior notes                       (317,439 )
Proceeds from (repayment of) revolving credit facilities, net     (24,732 )     17,665       (58,404 )     37,736  
Dividend payments     (8,206 )     (8,147 )     (8,206 )     (16,274 )
Repurchase of common shares     (754 )           (754 )      
Payment of debt issuance costs     (248 )           (757 )     (1,390 )
Proceeds from government grants                 6,320        
Other     (6,067 )     (771 )     (6,929 )     (1,619 )
Net cash from (used in) financing activities     (40,007 )     8,747       (68,730 )     (298,986 )
Effect of exchange rate changes on cash and cash equivalents     614       (9,835 )     (140 )     (9,300 )
Net increase (decrease) in cash and cash equivalents     24,088       55,916       16,831       (191,256 )
Cash and cash equivalents, beginning of period     233,234       213,566       240,491       460,738  
Cash and cash equivalents, end of period   $ 257,322     $ 269,482     $ 257,322     $ 269,482  

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, 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 or income from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity. The following tables set forth the net income to Operating EBITDA:

  Q2     Q1     Q2     YTD     YTD  
  2019     2019     2018     2019     2018  
Net income $ 10,259     $ 51,616     $ 16,755     $ 61,875     $ 42,404  
Provision for income taxes   10,433       24,424       8,461       34,857       18,042  
Interest expense   18,369       18,551       12,128       36,920       24,243  
Loss on settlement of debt                           21,515  
Legal cost award                           6,951  
Other (income) expenses   (1,251 )     (1,039 )     132       (2,290 )     369  
Operating income   37,810       93,552       37,476       131,362       113,524  
Add: Depreciation and amortization   32,148       30,247       23,014       62,395       46,333  
Operating EBITDA $ 69,958     $ 123,799     $ 60,490     $ 193,757     $ 159,857