Mr. David Gandossi reports
MERCER INTERNATIONAL INC. REPORTS STRONG 2015 FOURTH QUARTER AND YEAR END RESULTS AND ANNOUNCES QUARTERLY CASH DIVIDEND OF $0.115
Mercer International Inc. today released strong results for the fourth quarter and year ended Dec. 31, 2015. Amounts are in U.S. dollars unless otherwise stated. Operating earnings before interest, taxes, depreciation and amortization in the fourth quarter of 2015 was $61.5-million, compared with $71.3-million in the fourth quarter of 2014 and $61.1-million in the prior quarter of 2015. For 2015, operating EBITDA was $234-million, compared with $239.8-million for 2014.
For the fourth quarter of 2015, the company's net income was $21.7-million, or 34 cents per basic and 33 cents per diluted share, compared with $3.2-million, or five cents per basic and diluted share in the fourth quarter of 2014, and $23.8-million, or 37 cents per basic and diluted share, in the prior quarter of 2015. For 2015, net income was $75.5-million, or $1.17 per basic and diluted share, compared with $113.2-million, or $1.82 per basic and $1.81 per diluted share in 2014.
SUMMARY FINANCIAL HIGHLIGHTS
(in millions, except per share amounts)
Q4 Q3 Q4 Year Year
2015 2015 2014 2015 2014
Pulp revenues $216.3 $249.1 $258.7 $946.2 $1,073.6
Energy and chemical revenues 21.5 21.8 23.9 87.0 101.5
Operating income 44.2 44.0 52.3 165.7 161.8
Operating EBITDA 61.5 61.1 71.3 234.0 239.8
Gain (loss) on settlement of debt (28.5) - 3.4
Foreign exchange loss on intercompany debt (0.9) - (1.4) (5.3) (4.8)
Gain (loss) on derivative instruments (0.2) (0.3) 2.3 (0.9) 11.5
Income tax benefit (provision) (7.7) (6.6) (6.0) (29.4) 16.8
Net income (1) 21.7 23.8 3.2 75.5 113.2
Net income per share (1)
Basic 0.34 0.37 0.05 1.17 1.82
Diluted 0.33 0.37 0.05 1.17 1.81
Common shares outstanding at period end 64.5 64.5 64.3 64.5 64.3
(1) Attributable to common shareholders.
SUMMARY OPERATING HIGHLIGHTS
Q4 Q3 Q4 Year Year
2015 2015 2014 2015 2014
Pulp production (000 ADMTs) 367.0 369.5 373.7 1,458.0 1,485.0
Annual maintenance downtime (000 ADMTs) 7.5 11.1 3.8 58.4 31.6
Annual maintenance downtime (days) 4 11 2 40 24
Pulp sales (000 ADMTs) 351.9 390.2 361.3 1,463.1 1,486.4
Average NBSK pulp list price in Europe
($/ADMT)(1) 817 843 935 850 928
Average NBSK pulp list price in
North America ($/ADMT)(1) 945 967 1,025 972 1,025
Average NBSK pulp list price in China
$/ADMT)(1) 600 638 715 643 733
Average pulp sales realizations
($/ADMT)(2) 609 632 709 640 715
Energy production (000 MWh) 465.9 475.5 469.0 1,846.8 1,853.5
Energy sales (000 MWh) 204.4 214.8 201.8 815.0 807.8
Average energy sales realizations ($/MWh) 92 91 105 92 110
Average spot currency exchange rates
$/euro (3) 1.0954 1.1119 1.2497 1.1096 1.3297
$/$ (3) 0.7487 0.7642 0.8808 0.7830 0.9060
(1) Source: RISI pricing report.
(2) Sales realizations after discounts. Incorporates the effect of pulp price
variations occurring between the order and shipment dates.
(3) Average Federal Reserve Bank of New York noon buying rates over the reporting
period.
President's comments
David M. Gandossi, the chief executive officer, stated: "We are generally pleased with our performance and results for 2015 as:
- "Strong operating performance and the strength of the dollar helped us generate $234-million in operating EBITDA and $75.5-million in net income;
- "We continued to strengthen our balance sheet and increased our cash position to $99.6-million from $53.2-million and our working capital to $284.4-million from $242.4-million, respectively, from the start of the year;
- "We reduced our debt by $35.6-million;
- "Midway through the year, our board instituted a quarterly cash dividend of 11.5 cents per share, and we returned approximately $14.8-million to our shareholders;
- "We initiated a broad company-wide program to enhance safety performance at all of our operations;
- "We were successful in our appeal before the B.C. Utilities Commission and recovered $6.1-million and completed our North American Free Trade Agreement hearing and are awaiting a decision currently expected some time in 2016."
Mr. Gandossi continued: "As our operating costs are primarily incurred in euros and Canadian dollars, and our principal product, NBSK pulp, is quoted in U.S. dollars, our business and operating margins materially benefit from the current strength of the U.S. dollar. However, our energy and chemical sales are made in local currencies, and our realizations decline in U.S.-dollar terms when the U.S. dollar strengthens."
He said: "During the current quarter, the U.S. dollar was 12 per cent and 15 per cent stronger against the euro and Canadian dollar, respectively, compared to the same period of 2014, which largely contributed to a 16-per-cent reduction in our operating costs in the current quarter of 2015. Over all, in 2015, the U.S. dollar was 16 per cent and 14 per cent stronger against the euro and Canadian dollar, respectively, compared to 2014, which largely contributed to an approximately 14-per-cent reduction in our operating costs in 2015."
Mr. Gandossi stated: "The strengthening of the U.S. dollar increased the costs to our European and Asian customers and put downward pressure on pulp prices in the fourth quarter of 2015 and 2015 over all. As a result, our pulp sales realizations in the current quarter declined by approximately 14 per cent and 4 per cent, compared to the same quarter of 2014 and the prior quarter, respectively. Pulp sales realizations in 2015 declined by approximately 10 per cent, compared to 2014.
"At the end of 2015, list pulp prices in Europe were approximately $800 per air-dried metric tonne, while list prices in North America and China were approximately $940 and $595 per ADMT, respectively. At year-end, world producer inventories of NBSK pulp were generally balanced at about 29 days supply."
Mr. Gandossi continued, "In the fourth quarter of 2015, we successfully resolved a disputed element of our Celgar mill's existing energy contract and recovered $6.1-million which was recorded as a reduction of the mill's energy costs."
Mr. Gandossi continued: "Our mills generally performed well in 2015, including in the fourth quarter.
"In the current quarter, we had four days (approximately 7,500 ADMTs) of annual maintenance downtime at our Stendal mill which included approximately $2.4-million in direct costs, compared to two days in the comparative quarter of 2014. Over all, in 2015, we had 40 days (approximately 58,400 ADMTs) of annual maintenance downtime, which included approximately $26.4-million in direct costs, compared to 24 days in 2014. Many of our competitors who report their financial results using international financial reporting standards capitalize their direct costs of annual maintenance downtime."
He continued: "In the current quarter, we had operating EBITDA of $61.5-million, compared to $71.3-million in the same period of 2014. Over all, in 2015, we had operating EBITDA of $234-million, compared to $239.8-million in 2014."
Mr. Gandossi added: "Net income in the fourth quarter of 2015 increased to $21.7-million from $3.2-million in the comparative quarter of 2014, which included a loss of $28.5-million on the settlement of debt in connection with the refinancing of our long-term debt. In 2015, net income was $75.5-million, compared to $113.2-million in 2014, which included a net income tax benefit of $16.8-million, a non-cash gain on derivative instruments of $11.5-million and a net gain on the settlement of debt of $3.4-million."
Mr. Gandossi added: "Currently, the NBSK market fundamentals are generally positive and we currently expect demand to remain steady in the first quarter of 2016, as customer inventories continue to be at normal levels. However, the continuing strength of the U.S. dollar may continue to pressure pulp prices."
Mr. Gandossi concluded, "With our strengthened capital structure and balance sheet, along with our world-class mills, we are well positioned to enhance value for our stakeholders through both organic and strategic initiatives and our focus on continual improvement."
Quarterly dividend
A quarterly dividend of 11.5 cents per common share will be paid on April 5, 2016, to all shareholders of record on March 28, 2016. Future dividends will be subject to board approval and may be adjusted as business and industry conditions warrant.
Three months ended Dec. 31, 2015, compared with three months ended Dec. 31, 2014
Total revenues for the fourth quarter of 2015 were $237.8-million, compared with $282.6-million in the comparative quarter of 2014.
In the current quarter of 2015, pulp revenues decreased to $216.3-million from $258.7-million in the comparative quarter of 2014, primarily due to lower pulp sales realizations and sales volumes.
In the current quarter of 2015, energy and chemical revenues decreased to $21.5-million from $23.9-million in the same quarter last year primarily due to the impact of a stronger U.S. dollar relative to the euro and Canadian dollar, partially offset by higher sales volumes.
Pulp production decreased by approximately 2 per cent to 367,010 ADMTs in the current quarter from 373,681 ADMTs in the same quarter of 2014, primarily as a result of higher downtime. In the current quarter, the company had an aggregate of four days (approximately 7,500 ADMTs) of annual maintenance downtime, including $2.4-million in direct out-of-pocket expenses, compared with two days in the same period of 2014. Many of the company's competitors that report their financial results using IFRS capitalize their direct costs of annual maintenance downtime. Going forward, the company has no days of annual maintenance downtime scheduled for the first quarter of 2016.
Pulp sales volumes decreased to 351,875 ADMTs in the current quarter from 361,302 ADMTs in the comparative quarter of 2014, primarily due to a delay in shipping volumes to China that were scheduled for late 2015 into 2016. In the current quarter of 2015, list prices for NBSK pulp declined from the same quarter of 2014, largely as a result of the strengthening of the U.S. dollar.
Average pulp sales realizations decreased by about 14 per cent to $609 per ADMT from approximately $709 per ADMT in the same quarter last year primarily due to lower list prices.
During the current quarter, the U.S. dollar was 12 per cent and 15 per cent stronger against the euro and the Canadian dollar, respectively, compared with the same quarter of 2014.
Costs and expenses in the fourth quarter of 2015 decreased by approximately 16 per cent to $193.7-million from $230.3-million in the comparative period of 2014, primarily due to the overall impact on costs of the stronger U.S. dollar. Additionally, in the current quarter energy costs benefited from a recovery of $6.1-million as a result of a successful appeal before the B.C. Utilities Commission of certain elements of the company's Celgar mill's energy purchase agreement.
Selling, general and administrative expenses in the fourth quarter of 2015 decreased by 20 per cent to $10.7-million from $13.3-million, due to the stronger U.S. dollar.
Transportation costs decreased to $17-million in the current quarter of 2015 from $20.1-million in the comparative quarter of 2014, primarily due to the impact of the stronger U.S. dollar.
On average, the company's overall per-unit fibre costs in the current quarter decreased by approximately 11 per cent from the same quarter of 2014, primarily as a result of the effect of a strong U.S. dollar. In the current quarter, in euro terms, average fibre prices in Germany were approximately 1 per cent lower than the comparative quarter of 2014. In the current quarter, in Canadian dollar terms, average fibre prices for the company's Celgar mill increased by 17 per cent versus the comparative quarter of 2014, due to the impact of a stronger U.S. dollar, as a portion of the Celgar mill's fibre is sourced in U.S. dollars.
In the fourth quarter of 2015, the company's operating income decreased to $44.2-million from $52.3-million in the comparative quarter of 2014, primarily due to lower pulp sales realizations, partially offset by the positive impact of a stronger U.S. dollar on costs.
Interest expense decreased by 14 per cent to $13.3-million in the fourth quarter of 2015 from $15.4-million in the comparative quarter of 2014, primarily as a result of lower indebtedness.
In the fourth quarter of 2015, operating EBITDA decreased by approximately 14 per cent to $61.5-million from $71.3-million in the fourth quarter of 2014, as a result of lower pulp sales realizations, partially offset by a stronger U.S. dollar.
In the current quarter, the company recorded a derivative loss of $200,000 on the mark to market adjustment of the company's Stendal mill's interest rate derivative, compared with a non-cash derivative gain of $2.3-million in the same quarter of 2014.
During the current quarter of 2015, the company recorded an income tax expense of $7.7-million, compared with $6-million in the comparative quarter of 2014.
Net income attributable to common shareholders was $21.7-million, or 34 cents per basic and 33 cents per diluted share, in the fourth quarter of 2015. In the comparative quarter of 2014, net income attributable to common shareholders was $3.2-million, or five cents per basic and diluted share, after giving effect to a $28.5-million loss on the settlement of debt resulting from the refinancing of the company's long-term debt.
Year ended Dec. 31, 2015, compared with year ended Dec. 31, 2014
Total revenues in 2015 decreased by approximately 12 per cent to $1,033.2-million from $1,175.1-million in 2014.
Pulp revenues in 2015 decreased by approximately 12 per cent to $946.2-million from $1,073.6-million in 2014, due to lower pulp sales realizations and sales volumes.
Energy and chemical revenues decreased by approximately 14 per cent to $87-million in 2015 from $101.5-million in 2014, primarily due to the impact of a stronger U.S. dollar relative to the euro and Canadian dollar, partially offset by higher sales volumes.
Pulp production marginally decreased by approximately 2 per cent to 1,457,973 ADMTs in 2015 from 1,485,011 ADMTs in 2014. The company had an aggregate of 40 days (approximately 58,400 ADMTs) of annual maintenance downtime at its mills in 2015, including $26.4-million in direct out-of-pocket expenses, compared with 24 days (approximately 31,600 ADMTs) in 2014, including $19.3-million in direct out-of-pocket expenses. Many of the compnay's competitors that report their financial results using IFRS capitalize their direct costs of annual maintenance downtime. In 2016, the company currently estimate taking an aggregate of 39 days of annual maintenance downtime at its mills.
Pulp sales volumes marginally decreased by approximately 2 per cent to 1,463,132 ADMTs in 2015 from 1,486,356 ADMTs in 2014, primarily due to lower production resulting from higher annual maintenance downtime days in 2015.
Average list prices for NBSK pulp in Europe were approximately $850 per ADMT in 2015, compared with approximately $928 per ADMT in 2014. Average list prices for NBSK pulp in North America and China were approximately $972 per ADMT and $643 per ADMT, respectively, in 2015, compared with approximately $1,025 per ADMT and $733 per ADMT, respectively, in 2014.
Average pulp sales realizations decreased by approximately 10 per cent to $640 per ADMT in 2015 from approximately $715 per ADMT last year, primarily due to lower list prices resulting from the strength of the U.S. dollar.
In 2015, the U.S. dollar was 16 per cent and 14 per cent stronger against the euro and Canadian dollar, respectively, compared with 2014.
Costs and expenses in 2015 decreased by approximately 14 per cent to $867.5-million from $1,013.3-million in 2014, primarily due to the overall impact on costs of the stronger U.S. dollar, partially offset by higher annual maintenance downtime costs.
Selling, general and administrative expenses decreased marginally to $46.2-million from $47.9-million in 2014, due to the stronger U.S. dollar.
Transportation costs decreased to $74.4-million in 2015 from $88.6-million in 2014, primarily due to the impact of a stronger U.S. dollar.
On average, the company's overall per-unit fibre costs in 2015 decreased by approximately 14 per cent from 2014, primarily as a result of the effect of a strong U.S. dollar versus the euro and the Canadian dollar on local currency per-unit fibre prices. In 2015, in local currency terms, average fibre prices in Germany were marginally lower than in 2014, as a result of a generally balanced wood market. In Canadian-dollar terms, average fiber prices for the company's Celgar mill were approximately 17 per cent higher than in 2014, due to the impact of a stronger U.S. dollar, as a portion of Celgar mill's fiber is sourced in U.S. dollars and due to increased demand for chips in Celgar mill's procurement area from coastal pulp mills.
In 2015, the company operating income increased to $165.7-million from $161.8-million in 2014, primarily due to the effect of a strong U.S. dollar, partially offset by lower pulp sales realizations and higher annual maintenance downtime costs.
Interest expense in 2015 decreased by approximately 20 per cent to $53.9-million from $67.5-million in 2014, primarily due to lower indebtedness.
The non-controlling shareholder's interest in the Stendal mill's net income, which was eliminated in the third quarter of 2014, was $7.8-million in 2014.
In 2015, operating EBITDA marginally decreased by 2 per cent to $234-million from $239.8-million in 2014, as the decline in pulp sales realizations, lower energy revenues and higher maintenance costs more than offset the positive effect of the strength of the U.S. dollar.
In 2015, the company recorded a derivative loss of $900,000 on the mark to market adjustment of the company's Stendal mill's interest rate derivative, compared with a non-cash derivative gain of $11.5-million in 2014.
During 2014, the company recorded a net gain on the settlement of debt of $3.4-million, which reflected a gain of $31.9-million on the company's acquisition of all of the shareholder loans of the former non-controlling shareholder in Stendal, in large part offset by a loss of $28.5-million on the settlement of debt resulting from the refinancing of the company's long-term debt.
During 2015, as a result of the strengthening of the U.S. dollar versus the euro, the company recorded a non-cash loss on the foreign exchange translation of intercompany debt between Mercer Inc. and its wholly owned subsidiaries of $5.3-million, compared with $4.8-million in 2014.
During 2015, the company recorded an income tax expense of $29.4-million, compared with a net income tax benefit of $16.8-million in 2014, due to the recognition of income tax loss carry-forwards.
The company had net income attributable to common shareholders of $75.5-million, or $1.17 per basic and diluted share, in 2015. In 2014, net income attributable to common shareholders was $113.2-million, or $1.82 per basic and $1.81 per diluted share, which included a net income tax benefit of $16.8-million, a non-cash gain on derivative instruments of $11.5-million and a net gain on the settlement of debt of $3.4-million.
Liquidity and capital resources
The following table is a summary of selected financial information as at the dates indicated.
FINANCIAL POSITION
(in thousands)
Year ended Dec. 31,
2015 2014
Cash and cash equivalents $99,629 $53,172
Working capital 284,390 242,364
Total assets 1,182,817 1,306,229
Long-term liabilities 695,420 751,846
Total equity 382,976 438,880
As at Dec. 31, 2015, the company had approximately $137-million available under its revolving credit facilities.
During 2015, as a result of the strengthening of the U.S. dollar versus the euro and the Canadian dollar, the company recorded a non-cash reduction in the carrying value of its net assets, consisting primarily of its fixed assets, denominated in euros and Canadian dollars. This non-cash reduction of approximately $123-million does not affect the company's net income, operating EBITDA or cash flows, but is reflected in the company's other comprehensive income (loss) and as a reduction to the company's total equity.
Earnings release call
In conjunction with this release, Mercer International will host a conference call, which will be simultaneously broadcast live over the Internet. Management will host the call, which is scheduled for Friday, Feb. 12, 2016, at 10 a.m. (Eastern Standard Time). Listeners can access the conference call live and archived for 30 days over the Internet through a link on the company's home page. Please allow 15 minutes prior to the call to visit the site, and download and install any necessary audio software.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three months ended 12 months ended
Dec. 31, Dec. 31,
2015 2014 2015 2014
Revenues
Pulp $216,313 $258,685 $946,237 $1,073,632
Energy and chemicals 21,515 23,940 86,967 101,480
237,828 282,625 1,033,204 1,175,112
Costs and expenses
Operating costs, excluding depreciation and
amortization 165,776 198,112 753,523 887,712
Operating depreciation and amortization 17,174 18,891 67,761 77,675
Selling, general and administrative expenses 10,706 13,274 46,236 47,927
Operating income 44,172 52,348 165,684 161,798
Other income (expense)
Interest expense (13,256) (15,445) (53,891) (67,516)
Gain (loss) on settlement of debt - (28,494) - 3,357
Foreign exchange (loss) on intercompany debt (874) (1,412) (5,306) (4,777)
Gain (loss) on derivative instruments (236) 2,277 (935) 11,501
Other expense (432) (52) (601) (171)
Total other expense (14,798) (43,126) (60,733) (57,606)
Income before income taxes 29,374 9,222 104,951 104,192
Income tax benefit (provision)
Current (2,644) (2,609) (11,934) (5,242)
Deferred (5,034) (3,408) (17,515) 22,016
Net income 21,696 3,205 75,502 120,966
Less net income attributable to noncontrolling
interest - - - (7,812)
Net income attributable to common shareholders 21,696 3,205 75,502 113,154
Net income per share attributable to common
shareholders
Basic 0.34 0.05 1.17 1.82
Diluted 0.33 0.05 1.17 1.81
Cash dividends declared per common share 0.115 - 0.230 -
We seek Safe Harbor.
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