Mercer International Inc. Reports Fourth Quarter and Year End 2021 Results and Increases Quarterly Cash Dividend

Mercer International Inc. reported fourth quarter 2021 Operating EBITDA increased to a record $164.9 million from $49.5 million in the fourth quarter of 2020 and from $148.1 million in the third quarter of 2021.

In the fourth quarter of 2021, net income was $74.5 million (or $1.13 per basic share and $1.12 per diluted share) compared to a net loss of $13.0 million (or $0.20 per share) in the fourth quarter of 2020 and net income of $69.1 million (or $1.05 per basic share and $1.04 per diluted share) in the third quarter of 2021.

In 2021, Operating EBITDA increased to a record $478.8 million from $192.7 million in 2020. In 2021, net income was a record $171.0 million (or $2.59 per basic share and $2.58 per diluted share) compared to a net loss of $17.2 million (or $0.26 per share) in 2020.

Mr. David Gandossi, the Chief Executive Officer, stated: “I am pleased with our record fourth quarter operating results which were driven by strong sales volumes and steady pulp and lumber pricing and by materially higher energy prices in Germany for our surplus green energy sales. We also benefitted from the settlement of our business interruption insurance claim associated with the downtime taken in 2021 to rebuild our Peace River mill’s recovery boiler. Our annual Operating EBITDA also set a new benchmark which significantly surpasses our prior high and highlights the cash generating power of our world class assets.

Overall, our fourth quarter pulp results were comparable to the trailing third quarter other than the recording of business interruption insurance proceeds of $31.9 million in the current quarter. In the current quarter, overall pulp pricing was slightly weaker than the prior quarter. A price decline in China in the fourth quarter began to reverse late in the quarter due to supply issues primarily driven by global logistical slowdowns. Such logistical issues also caused 35,000 tonnes of pulp from our Canadian operations to Asia being delayed and the revenue associated with this shipment will be reflected in the first quarter of 2022. As of December 31, 2021, third party industry quoted NBSK list prices were approximately $1,260 per ADMT in Europe and net prices were approximately $760 per ADMT in China.

In the fourth quarter of 2021, our Friesau sawmill’s production continued its strong performance. Our wood products segment generated operating income of $19.9 million in the fourth quarter as U.S. lumber sales increased primarily because of a strengthening housing market. In the fourth quarter, approximately 46% of lumber sales volumes were to the U.S.

We are seeing some impacts from the current global logistics bottleneck primarily with respect to North American rail traffic where pandemic related slowdowns and extreme weather have made rail service inconsistent. This resulted in periodic slowdowns of our Canadian pulp mills during the fourth quarter and caused us to use additional trucking which is less efficient and more expensive. We are currently optimistic that such logistics issues will be resolved over the coming months.

Looking ahead to the first quarter of 2022, we currently expect relatively strong NBSK markets globally. Improving sentiment and demand for pulp and paper along with supply interruptions in Canada and Scandinavia are supportive of a positive pricing outlook. For hardwood pulp, while longer term new incremental supply may lead to pricing pressure, in the first quarter of 2022, we currently expect hardwood prices to remain steady or improve modestly. In January 2022, the turbine at our Rosenthal mill came back on-line which, coupled with currently high European energy prices, should increase our surplus energy sales in the first quarter of 2022.

With respect to our wood products segment, in the first quarter of 2022 we currently expect lumber demand to remain steady in all markets with modest price improvements in the U.S. market.

In 2022, we will continue our strategy of adding shareholder value through the implementation of capital projects designed to deliver high returns and help us achieve our ESG objectives. In 2022, these will include new woodroom projects at our Canadian pulp mills which are designed to reduce our GHG emissions, reduce wood waste and lower our fiber costs. Currently we expect our 2022 capital expenditures will be approximately $175 to $200 million. While our capital spending will be higher in 2022, we are forecasting less overall scheduled maintenance downtime at pulp mills compared to 2021.

Finally, while the global roll-out of vaccines is ongoing and results to date are encouraging, COVID-19 infections and health risks, including from variants and additional “waves” remain. Consequently, we will maintain our measures and procedures put in place to protect our people and allow us to operate our business safely and efficiently.”

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

Total revenues for the three months ended December 31, 2021 increased by approximately 30% to $519.0 million from $398.2 million in the same quarter of 2020 primarily due to higher sales realizations partially offset by lower pulp sales volumes.

Costs and expenses in the three months ended December 31, 2021 increased by approximately 2% to $389.0 million from $382.6 million in the fourth quarter of 2020 primarily due to higher per unit fiber costs and energy costs partially offset by the recognition of a $31.9 million business interruption insurance claim related to our Peace River mill and lower pulp sales volumes.

In the fourth quarter of 2021, Operating EBITDA increased to a record $164.9 million from $49.5 million in the same quarter of 2020 primarily due to higher sales realizations and recognition of the business interruption insurance claim partially offset by certain higher costs.

Segment Results

Pulp

In the fourth quarter of 2021, pulp segment operating income increased to a record $113.2 million from $4.7 million in the same quarter of 2020 as higher sales realizations and the recognition of the business interruption insurance claim were only partially offset by higher energy and per unit fiber costs.

In the fourth quarter of 2021, prices for NBSK pulp increased from the same quarter of 2020 largely as a result of strong demand and low customer inventory levels. Average NBSK pulp sales realizations increased by approximately 33% to $784 per ADMT in the fourth quarter of 2021 from approximately $588 per ADMT in the same quarter of 2020.

Costs and expenses in the three months ended December 31, 2021 decreased by approximately 5% to $323.3 million from $339.5 million in the fourth quarter of 2020 due to the recognition of the business interruption insurance claim and lower pulp sales volume partially offset by higher energy costs primarily for the Rosenthal mill and higher per unit fiber costs. Our Rosenthal mill’s turbine was taken down in the third quarter of 2021 to complete extensive repair work which was completed in January 2022. The mill was required to purchase replacement energy during this period.

On average, in the fourth quarter of 2021, overall per unit fiber costs increased 19% when compared to the same quarter of 2020 due to strong demand and lower regional sawmill production. For our Canadian mills, per unit fiber costs increased primarily due to the Peace River mill producing a higher proportion of NBSK. In 2022, we are currently expecting modestly higher per unit fiber costs due to strong demand.

Wood Products

In the fourth quarter of 2021, our wood products segment operating income increased by approximately 54% to $19.9 million from $12.9 million in the same quarter of 2020 primarily due to a higher lumber sales realizations partially offset by higher per unit fiber costs.
Average lumber sales realizations increased by approximately 48% to $689 per Mfbm in the fourth quarter of 2021 from approximately $467 per Mfbm in the same quarter of 2020 primarily due to higher pricing in the European market partially offset by lower pricing in the U.S. market. European lumber pricing increased due to steady demand and low customer inventory levels as earlier in the year producers shifted product to the U.S. The U.S. lumber pricing decreased as a response to record pricing earlier in the year which moderated demand.
In the comparative quarter of 2020, per unit fiber costs were low as a result of a large supply of beetle damaged wood. As producers have been working through such wood, more green wood is being harvested. As a result of utilizing more green wood and continuing strong sawlog demand, current quarter per unit fiber costs increased by approximately 90% from the same quarter of 2020. We currently expect modestly increasing per unit fiber costs in the first quarter of 2022 due to continued strong demand.

Consolidated – Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Total revenues in 2021 increased by approximately 27% to a record $1,803.3 million from $1,423.1 million in 2020 primarily due to higher sales realizations partially offset by lower sales volumes.

Costs and expenses in 2021 increased by approximately 7% to $1,456.7 million from $1,359.4 million in 2020 primarily due to higher energy costs, the negative impact of a weaker dollar on our Canadian dollar and euro denominated costs and expenses, higher maintenance costs and higher per unit fiber costs for our wood products segment partially offset by lower sales volumes. Our maintenance costs were partially offset by the recovery of about $36.1 million in business interruption insurance claims related to our Peace River mill.

In 2021, the dollar was 7% weaker against the Canadian dollar and 4% weaker against the euro compared to 2020, which increased our Canadian dollar and euro denominated costs and expenses.

Selling, general and administrative expenses increased by approximately 18% to $78.9 million in 2021 from $66.9 million in 2020 primarily due to higher employee compensation and the negative impact of a weaker dollar.

In 2021, our net income was a record $171.0 million, or $2.59 per basic share and $2.58 per diluted share, compared to a net loss of $17.2 million, or $0.26 per share in 2020.

In 2021, Operating EBITDA increased to a record $478.8 million from $192.7 million in 2020 as higher sales realizations were only partially offset by higher energy costs, higher maintenance downtime, the negative impact of a weaker dollar and higher per unit fiber costs for our wood products segment.

Liquidity

As of December 31, 2021, we had cash and cash equivalents of approximately $345.6 million and approximately $285.3 million available under our revolving credit facilities providing us with aggregate liquidity of about $630.9 million.

Quarterly Dividend

A quarterly dividend of $0.075 per share will be paid on April 6, 2022 to all shareholders of record on March 30, 2022. Future dividends will be subject to Board approval and may be adjusted as business and industry conditions warrant.

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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.Mercer International Inc. is a global forest products company with operations in Germany, USA and Canada with consolidated annual production capacity of 2.3 million tonnes of pulp, 550 million board feet of lumber and 140 thousand cubic meters of CLT. 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
Jimmy S.H. Lee – Executive Chairman – (604) 684-1099

Source: Mercer International Inc.