Mercer International Inc. Reports Record Annual Pulp Production, Pulp Sales Volumes and Energy Sales and 2012 Fourth Quarter and Year End Results

NEW YORK, Feb. 13, 2013 (GLOBE NEWSWIRE) -- Mercer International Inc. (Nasdaq:MERC) (TSX:MRI.U) today reported results for the fourth quarter and for the year ended December 31, 2012.

Operating EBITDA* in the fourth quarter of 2012 was €21.3 million ($27.6 million), compared to €17.0 million ($22.9 million) in the fourth quarter of 2011 and €22.3 million ($27.9 million) in the third quarter of 2012. For 2012, Operating EBITDA was €107.1 million ($137.7 million), compared to €167.1 million ($232.6 million) in 2011.

For the fourth quarter of 2012, we had a net loss of €5.2 million ($6.7 million), or €0.09 ($0.12) per basic share, compared to a net loss of €1.8 million ($2.4 million), or €0.03 ($0.04) per basic share, in the fourth quarter of 2011 and a net loss of €9.7 million ($12.1 million), or €0.17 ($0.21) per basic share, for the third quarter of 2012. For 2012, we reported net loss of €12.2 million ($15.7 million), or €0.22 ($0.28) per basic share, compared to net income of €50.1 million ($69.7 million), or €1.00 ($1.39) per basic share, in 2011.

Summary Financial Highlights

* 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. Operating EBITDA is defined as operating income (loss) plus depreciation and amortization and non-recurring capital asset impairment changes. See page 10 of the financial tables included in this press release for a reconciliation of net income (loss) to Operating EBITDA.

Summary Operating Highlights

President's Comments

Mr. Jimmy S.H. Lee, President and Chairman, stated: "Overall, our fourth quarter and 2012 results reflect generally weak NBSK pulp prices due to continued economic uncertainty in Europe and China. However, our mills generally performed well in 2012 as we achieved record annual pulp production and sales volumes. We also set an annual record for energy and chemical sales in 2012 as sales increased by approximately 6% to €72.3 million from €68.1 million in 2011. The sale of surplus renewable energy provides us with a stable income source unrelated to cyclical movements in pulp pricing and increasing the same is a continuing focus for us."

Mr. Lee continued: "In the fourth quarter of 2012, although pulp supply and demand was generally balanced, prices were mostly stagnant with only marginal price increases. At the end of 2012, list prices in Europe were approximately $810 per ADMT and in North America and China were approximately $870 and $655 per ADMT, respectively."

Mr. Lee added: "In 2012, we continued to implement capital projects designed to enhance our mills' operating efficiencies and increase pulp and energy production. We completed an upgrade to the Rosenthal mill's recovery boiler in mid-2012 to increase production capacity and lower operating costs and emissions. In 2012, our Stendal mill commenced Project Blue Mill which is designed to increase its pulp and green energy production capacity by approximately 30,000 ADMTs and 109,000 MWh, respectively. The project is currently on schedule and budget and is currently expected to be completed and start to generate power sales in or about September 2013." 

Mr. Lee concluded: "Although pulp prices currently remain weak, we believe supply and demand to be balanced and the market should emerge from the current pricing environment in 2013. We believe the announced huge expansion of tissue production capacity in China of over 2.3 million ADMTs by 2015, along with the indefinite curtailment of approximately 320,000 ADMTs of pulp production by two Canadian mills, will further support price improvement. Looking ahead, we are starting to see NBSK prices beginning to firm up and expect that a modest price recovery will continue into 2013. Overall we believe that, with continuing strong performance at our mills, along with increased energy revenues from initiatives like Project Blue Mill and improving market conditions, we are well positioned for 2013."

Three Months Ended December 31, 2012 Compared to Three Months Ended December 31, 2011

Total revenues for the three months ended December 31, 2012 decreased to €188.4 million ($244.4 million) from €231.6 million ($312.1 million) in the same period in 2011. Pulp revenues for the three months ended December 31, 2012 decreased by approximately 20% to €171.3 million from €213.2 million in the comparative period of 2011, primarily due to lower average pulp sales realizations and pulp sales volumes during the period, partially offset by a stronger U.S. dollar relative to the Euro.

Energy and chemical revenues decreased by approximately 6% in the fourth quarter of 2012 to €17.2 million from €18.3 million in the same quarter last year, as a result of lower pulp production.

Pulp production decreased to 349,517 ADMTs in the current quarter from 364,876 ADMTs in the same quarter of 2011, primarily due to greater than planned maintenance downtime at our Celgar mill, partially offset by record production at our Rosenthal mill. In the current quarter, equipment and process disruptions at the Celgar mill resulted in approximately 14,000 ADMTs of lost production.We took ten days (approximately 18,100 ADMTs) of scheduled maintenance downtime at our Stendal mill in the fourth quarter of 2012, compared to 15 days (approximately 27,900 ADMTs) in the same quarter of 2011. We currently have no scheduled maintenance downtime for the first quarter of 2013.

Pulp sales volumes decreased by approximately 16% and 17% to 335,215 ADMTs in the current quarter from 400,005 ADMTs and 404,301 ADMTs in the comparative and prior quarters, respectively, primarily as a result of lower sales to China. Pulp sales volumes in the comparative and prior quarters were particularly strong as a result of strong sales volumes to China. Average pulp sales realizations decreased by 4% to €504 ($654) per ADMT in the fourth quarter of 2012, compared to €527 ($710) per ADMT in the same period last year, due to lower NBSK pulp prices.

Costs and expenses in the fourth quarter of 2012 decreased by approximately 21% to €181.2 million from €228.6 million in the comparative period of 2011, primarily due to lower pulp sales volumes and fiber costs at our mills. Our costs and expenses in the current quarter included approximately €6.4 million for regularly scheduled maintenance costs. Several competing producers and members of the peer group that we benchmark our performance against now report their financial results in accordance with International Financial Reporting Standards which permit a significant portion of such maintenance costs to be capitalized instead of expensed. Such costs are not charged to EBITDA by the peer group companies but instead are expensed as depreciation.

On average, our per unit fiber costs in the current quarter decreased by approximately 8% from the same period in 2011, due to lower fiber costs in Germany caused by reduced demand from other regional residual fiber users and in British Columbia caused by increased chip supply resulting from increased regional sawmill activity. We currently expect fiber costs at our German mills to increase slightly in the short- to mid-term, primarily due to higher demand from pellet and board producers which has been compounded by winter weather conditions limiting wood supply, though we expect these costs to be partially offset by price decreases in Canada as a result of strong sawmill activity.

Selling, general and administrative expenses decreased to €9.6 million in the fourth quarter of 2012, compared to €11.4 million in the fourth quarter of 2011.

For the fourth quarter of 2012, operating income increased to €7.3 million from €3.0 million in the comparative quarter of 2011, primarily due to lower fiber costs and a stronger U.S. dollar against the Euro, partially offset by lower average pulp sales realizations.

Interest expense in the fourth quarter of 2012 decreased to €13.7 million from €14.1 million in the comparative quarter of 2011, primarily due to lower debt levels associated with the Stendal mill in 2012.

Our Stendal mill recorded an unrealized gain of €2.3 million on the interest rate derivative in the current quarter, compared to an unrealized loss of €0.8 million in the same quarter of last year. We also recorded a gain of approximately €0.1 million related to a series of fixed price pulp swap contracts entered into in 2012.

In each of the fourth quarters of 2012 and 2011, the noncontrolling shareholder's interest in the Stendal mill's loss was €1.2 million.

In the fourth quarter of 2012, Operating EBITDA increased to €21.3 million from €17.0 million in the fourth quarter of 2011. Operating EBITDA is defined as operating income (loss) plus depreciation and amortization and non-recurring capital asset impairment charges. Operating EBITDA has significant limitations as an analytical tool and should not be considered in isolation or as a substitute for our results as reported under GAAP. See page 10 of the financial tables included in the press release for a reconciliation of net income (loss) to Operating EBITDA.

We reported a net loss of €5.2 million, or €0.09 per basic and diluted share, for the fourth quarter of 2012, compared to a net loss of €1.8 million, or €0.03 per basic and diluted share, in the fourth quarter of 2011.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Total revenues for 2012 decreased to €834.1 million ($1,072.7 million) from €899.5 million ($1,252.0 million) in 2011. Pulp revenues for 2012 decreased by approximately 8% to €761.9 million from €831.4 million in 2011, primarily due to lower average pulp sales realizations, partially offset by higher pulp sales volumes and a stronger U.S. dollar relative to the Euro.

Energy and chemical revenues increased by approximately 6% in 2012 to an annual record of €72.3 million from €68.1 million in 2011, primarily as a result of record pulp production.

Pulp sales volumes increased by approximately 3% to a record 1,473,519 ADMTs in 2012 from 1,427,924 ADMTs in 2011, primarily as a result of increased sales to China. Average pulp sales realizations decreased by 11% to €511 per ADMT in 2012, compared to €574 per ADMT in 2011, primarily due to lower pulp prices, only partially offset by a stronger U.S. dollar relative to the Euro.

Costs and expenses in 2012 marginally decreased to €785.1 million, compared to €788.4 million in 2011, primarily due to lower costs for fiber, partially offset by higher pulp sales volumes.

On average, our per unit fiber costs in 2012 decreased by approximately 7% from 2011, primarily due to lower fiber costs in Germany caused by decreased demand from the European particle board industry and other regional residual fiber users. Fiber costs at our Celgar mill were higher, primarily due to the impact of foreign exchange changes more than offsetting improved wood chip availability for the region. We currently expect fiber costs at our German mills to increase slightly in the short- to mid-term, primarily due to higher demand from pellet and board producers which has been compounded by winter weather conditions limiting wood supply, though we expect these costs to be partially offset by price decreases in Canada as a result of strong sawmill activity in British Columbia.

For 2012, operating income decreased to €49.0 million from €111.1 million in 2011, primarily due to lower average pulp sales realizations, partially offset by a stronger U.S. dollar relative to the Euro and lower fiber costs.

Interest expense in 2012 decreased to €55.8 million from €59.0 million in 2011, primarily due to reduced debt levels associated with our Stendal mill and the conversion of our remaining convertible notes in 2011.

In 2012, Operating EBITDA decreased to €107.1 million from €167.1 million in 2011.⁽¹⁾

We reported a net loss of €12.2 million, or €0.22 per basic and diluted share, for 2012, which included a total non-cash unrealized gain of €2.5 million on Stendal interest rate and pulp price derivatives. In 2011, we reported net income of €50.1 million, or €1.00 per basic and €0.89 per diluted share, which included a non-cash unrealized loss of €1.4 million on the Stendal interest rate derivative.

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⁽¹⁾ See page 10 of the financial tables included in the press release for limitations on the use of Operating EBITDA as an analytical tool and a reconciliation of net income (loss) to Operating EBITDA.

Liquidity and Capital Resources

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

As at December 31, 2012, we had approximately €26.2 million and C$24.0 million available under our Rosenthal and Celgar facilities, respectively. During 2012, our Stendal mill reduced its bank indebtedness by €24.6 million and, at December 31, 2012, €452.9 million was outstanding under our Stendal mill's loan facility.

Restricted Group

The following table is a summary of selected financial information for the Restricted Group (which, under the indenture for our 2017 9.5% Senior Notes, is comprised of Mercer International Inc., certain holding subsidiaries and our Rosenthal and Celgar mills) as at the dates indicated:

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 Thursday, February 14, 2013 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived through March 16, 2013, over the Internet at http://investor.shareholder.com/media/eventdetail.cfm?eventid=125198&CompanyID=MERC&e=1&mediaKey=1AE35D7DABC3ECD95E2779DA87354812 or through a link on our home page at http://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 pulp manufacturing company. To obtain further information on the company, please visit its web site at http://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.