MERCER INTERNATIONAL INC. In this document: (i) unless the context otherwise requires, references to "we",
"our", "us", the "Company" or "Mercer" mean
Due to rounding, numbers presented throughout this report may not add up precisely to totals we provide and percentages may not precisely reflect the absolute figure.
The following discussion and analysis of our results of operations and financial
condition for the three months ended
Results of Operations
General
We have two reportable operating segments:
• Pulp - consists of the manufacture, sale and distribution of pulp,
electricity and other by-products at our pulp mills.
• Wood Products - consists of the manufacture, sale and distribution
of lumber, electricity and other wood residuals at the Friesau
sawmill.
Each segment offers primarily different products and requires different manufacturing processes, technology and sales and marketing.
Current Market Environment
In the first quarter of 2022, we achieved record quarterly pulp, lumber and
energy revenues. Pulp and lumber revenues were driven by low customer inventory
levels and restricted supply caused by global logistics issues. Our energy
revenues benefitted from both strong demand and higher prices for energy in
As we move into the second quarter, we currently expect some continued upward
pricing pressure on pulp prices as a result of current supply-demand dynamics.
While lumber prices in
As of
Partially offsetting the higher revenues was the negative impact of inflationary pressures and global supply chain challenges that increased our costs for fiber, energy and chemicals and negatively impacted production and sales
FORM 10-Q QUARTERLY REPORT - PAGE 19 --------------------------------------------------------------------------------
volumes in the first quarter of 2022. Such supply chain challenges resulted in our Canadian mills' being forced to temporarily slow production in the first quarter of 2022 and utilize higher cost trucking transportation as the railways work to address their backlogs.
We anticipate that the inflationary pressures and global supply chain challenges we experienced in the first quarter of 2022 will continue to impact our business in the second quarter of 2022.
COVID-19 Pandemic
While many countries globally have eased pandemic restrictions and the global roll-out of vaccines continues, health and infection risks from COVID-19, including from variants, continue. 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. We will continue to monitor our operations and guidance from governmental and health organizations to ensure we take appropriate and necessary actions to protect our people.
Summary Financial Highlights
Three Months Ended March 31,
2022 2021
(in thousands, other than per share
amounts)
Statement of Operations Data
Pulp segment revenues $ 485,931 $ 339,756
Wood products segment revenues 101,033 70,987
Corporate and other revenues 5,777 1,977
Total revenues $ 592,741 $ 412,720
Pulp segment operating income $ 86,236 $ 25,296
Wood products segment operating income 40,479 27,977
Corporate and other operating loss (4,364 ) (2,244 )
Total operating income $ 122,351 $ 51,029
Pulp segment depreciation and amortization $ 27,684 $ 27,046
Wood products segment depreciation and amortization 3,637 3,723
Corporate and other depreciation and amortization 795 198
Total depreciation and amortization $ 32,116 $ 30,967
Operating EBITDA(1) $ 154,467 $ 81,996
Loss on early extinguishment of debt $ - $ (30,368 ) (2)
Income tax provision $ (24,236 ) $ (2,698 )
Net income $ 88,897 $ 5,933
Net income per common share
Basic $ 1.35 $ 0.09
Diluted $ 1.34 $ 0.09
Common shares outstanding at period end 66,132 65,988
(1) The following table provides a reconciliation of net income to operating
income and Operating EBITDA for the periods indicated:
Three Months Ended March 31,
2022 2021
(in thousands)
Net income $ 88,897 $ 5,933
Income tax provision 24,236 2,698
Interest expense 17,464 19,019
Loss on early extinguishment of debt - 30,368
Other income (8,246 ) (6,989 )
Operating income 122,351 51,029
Add: Depreciation and amortization 32,116 30,967
Operating EBITDA $ 154,467 $ 81,996 (2) Redemption of 6.5% senior notes due 2024 (the "2024 Senior Notes") and 7.375%
senior notes due 2025 (the "2025 Senior Notes").
FORM 10-Q QUARTERLY REPORT - PAGE 20 --------------------------------------------------------------------------------
Selected Production, Sales and Other Data
Three Months Ended March 31,
2022 2021
Pulp Segment
Pulp production ('000 ADMTs)
NBSK 435.5 396.9
NBHK 56.8 81.6
Annual maintenance downtime ('000 ADMTs) - 37.8
Annual maintenance downtime (days) - 27
Pulp sales ('000 ADMTs)
NBSK 505.1 418.6
NBHK 49.9 69.0
Average NBSK pulp prices ($/ADMT)(1)
Europe 1,330 1,037
China 899 883
North America 1,527 1,302
Average NBHK pulp prices ($/ADMT)(1)
China 668 692
North America 1,312 1,020
Average pulp sales realizations ($/ADMT)(2)
NBSK 812 668
NBHK 695 520
Energy production ('000 MWh)(3) 531.5 519.1
Energy sales ('000 MWh)(3) 194.7 201.1
Average energy sales realizations ($/MWh)(3) 186 97
Wood Products Segment
Lumber production (MMfbm) 115.6 117.8
Lumber sales (MMfbm) 109.9 108.2
Average lumber sales realizations ($/Mfbm) 840 622
Energy production and sales ('000 MWh) 24.5 16.4
Average energy sales realizations ($/MWh) 211 129
Average Spot Currency Exchange Rates
$ / €(4) 1.1216 1.2045
$ / C$(4) 0.7897 0.7902
(1) Source: RISI pricing report.
are net prices which include discounts, allowances and rebates.
(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) Does not include our 50% joint venture interest in the Cariboo mill, which is
accounted for using the equity method.
(4)
period.
Consolidated - Three Months Ended
Total revenues in the first quarter of 2022 increased by approximately 44% to a
record
In the first quarter of 2022, our energy and chemical revenues increased by 76%
to
Costs and expenses in the first quarter of 2022 increased by approximately 30%
to
In the first quarter of 2022, cost of sales depreciation and amortization
increased to
FORM 10-Q QUARTERLY REPORT - PAGE 21 --------------------------------------------------------------------------------
Selling, general and administrative expenses increased to
In the first quarter of 2022, our operating income increased to
In
Interest expense in the first quarter of 2022 decreased to
In the first quarter of 2022, other income increased to
During the first quarter of 2022, we had an income tax provision of
For the first quarter of 2022, our net income was
In the first quarter of 2022, Operating EBITDA increased by approximately 88% to
Operating Results by Business Segment
None of the income or loss items following operating income in our Interim Consolidated Statements of Operations are allocated to our segments, since those items are reviewed separately by management.
Pulp Segment - Three Months Ended
Selected Financial Information
Three Months Ended March 31,
2022 2021
(in thousands)
Pulp revenues $ 446,911 $ 317,582 Energy and chemical revenues
$ 86,236 $ 25,296
Pulp revenues in the first quarter of 2022 increased by approximately 41% to a
record
Energy and chemical revenues increased by approximately 76% to a record
Total pulp production increased by approximately 3% to 492,288 ADMTs in the first quarter of 2022 from 478,499 ADMTs in the same quarter of 2021 primarily due to lower annual maintenance downtime partially offset by lower
FORM 10-Q QUARTERLY REPORT - PAGE 22 --------------------------------------------------------------------------------
production at our Canadian mills as they slowed production as a result of railcar shortages disrupting shipping pulp from the mills. In the first quarter of 2022, we had no annual maintenance downtime. In the comparative quarter of 2021, we had annual maintenance downtime at our Celgar mill of 27 days (approximately 37,800 ADMTs).
In the second quarter of 2022, our pulp mills currently have 39 days of planned annual maintenance downtime (approximately 51,000 ADMTs).
Total pulp sales volumes increased by approximately 14% to 555,035 ADMTs in the first quarter of 2022 from 487,678 ADMTs in the same quarter of 2021 primarily due to the timing of shipments and higher production.
In the first quarter of 2022, third party industry quoted average list prices for NBSK pulp increased from the same quarter of 2021 primarily as a result of low customer inventory levels and global logistics issues restricting supply.
Average third party industry quoted list prices for NBSK pulp in
Prices quoted for
Our average NBSK pulp sales realizations increased by approximately 22% to
In the first quarter of 2022 compared to the same quarter of 2021, primarily as
a result of the effect of the stronger dollar on our euro denominated costs and
expenses, we had a positive impact of approximately
Costs and expenses in the first quarter of 2022 increased by approximately 27%
to
In the first quarter of 2022 per unit fiber costs increased by approximately 25% from the same quarter of 2021 due to higher per unit fiber costs for all of our mills. Per unit fiber costs for our German mills increased due to strong demand and reduced availability of lower cost beetle damaged wood. For our Canadian mills, per unit fiber costs increased due to strong demand in the mills' fiber baskets. We currently expect per unit fiber costs will increase in the second quarter of 2022 due to continued strong demand.
Transportation costs increased by approximately 32% to
In the first quarter of 2022, depreciation and amortization increased to
In the first quarter of 2022, pulp segment operating income increased to
FORM 10-Q QUARTERLY REPORT - PAGE 23 --------------------------------------------------------------------------------
Wood Products Segment - Three Months Ended
Selected Financial Information
Three Months Ended March 31,
2022 2021
(in thousands)
Lumber revenues $ 92,366 $ 67,311
Energy revenues $ 5,177 $ 2,114
Wood residual revenues
$ 40,479 $ 27,977
In the first quarter of 2022, lumber revenues increased by approximately 37% to
a record
Energy and wood residual revenues in the first quarter of 2022 increased to a
record
Lumber production modestly decreased to 115.6 MMfbm in the first quarter of 2022 from 117.8 MMfbm in the same quarter of 2021.
Lumber sales volumes modestly increased to 109.9 MMfbm in the first quarter of 2022 from 108.2 MMfbm in the same quarter of 2021.
Average lumber sales realizations increased by approximately 35% to
Fiber costs were approximately 80% of our lumber cash production costs in the first quarter of 2022. In the comparative quarter of 2021, per unit fiber costs were lower as a result of a large supply of beetle damaged wood. As producers have worked through such wood, more green wood is being harvested. In the first quarter of 2022 per unit fiber costs increased by approximately 56% from the same quarter of 2021 as a result of using more green wood and continued strong demand for sawlogs. We currently expect modestly higher per unit fiber costs in the second quarter of 2022.
In the first quarter of 2022, depreciation and amortization was flat at
Transportation costs in the first quarter of 2022 increased by approximately 39%
to
In the first quarter of 2022, our wood products segment had operating income of
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