Mercer International Reports Third Quarter 2020 Results

"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." – David Gandossi, CEO, Mercer International.

Oct. 30, 2020 - Mercer International Inc. (Nasdaq: MERC) [on Oct. 29] 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."

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

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.

Mercer International's complete third quarter 2020 earnings report can be found on the company's website: www.mercerint.com.

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. For further information, visit: www.mercerint.com.