Mercer International Inc. Announces Record 2017 Fourth Quarter and Near Record Year End Results

Mercer International Inc. (Nasdaq: MERC, TSX: MERC.U) today reported strong results for the fourth quarter and year ended December 31, 2017. Operating EBITDA* in the fourth quarter of 2017 increased by 54% to a record $89.1 million compared to $57.8 million in the fourth quarter of 2016 and by 39% from $64.0 million in the prior quarter of 2017. For 2017, Operating EBITDA increased by approximately 36% to $252.3 million from $185.7 million in 2016.

For the fourth quarter of 2017, our net income was $41.7 million, or $0.64 per basic and diluted share, compared to $18.5 million, or $0.29 per basic and $0.28 per diluted share, in the fourth quarter of 2016 and $21.1 million, or $0.33 per basic and $0.32 per diluted share, in the prior quarter of 2017. For 2017, net income was $70.5 million, or $1.09 per basic and $1.08 per diluted share, after giving effect to a loss on the early settlement of debt of $10.7 million (or $0.16 per basic and diluted share), compared to $34.9 million, or $0.54 per basic and diluted share, in 2016.

Mr. David M. Gandossi, the Chief Executive Officer, stated: “Our long-term strategy to build a platform for growth and invest in operating excellence is highlighted in our fourth quarter and full year 2017 financial performance: * we generated record Operating EBITDA of $89.1 million in the current quarter and $252.3 million in Operating EBITDA and $70.5 million in net income in 2017; * while we continued to invest in their plant, equipment and operations, our pulp mills generated near record production in the current quarter and the ramp up of the Friesau Facility is ahead of its plan. For the full year 2017, we achieved records for the production of pulp, energy and chemicals; and * we continued to reduce debt service costs and increase our financial flexibility through the issuance of $300 million of 5.5% senior notes due 2026 and in January 2018 the redemption of $300 million of our 7.75% senior notes due 2022.

At the end of 2017, list pulp prices were approximately $1,030, $890 and $1,205 per ADMT in Europe, China and North America, respectively. List prices increased in China in the second half of 2017, primarily due to steady growth in global demand. More recently, demand has tightened further as a result of a reduction in China’s imports of recovered or waste paper which resulted from a major environmental policy shift announced by China in the third quarter of 2017 to reduce and phase out imports of solid waste and scraps, including those within recovered or waste paper. Although NBSK pulp prices have improved recently, there can be no assurance that they will not decline in the future.

Currently, the NBSK market fundamentals are generally positive and we expect demand to remain steady in the first quarter of 2018 as supply and demand fundamentals are strong and customer inventories are at low levels. At year end, world producer inventories of NBSK pulp were balanced at about 30 days’ supply.

The new pulp production capacity that came online in 2017 has not materially impacted the market to date as a result of steady demand growth and diminishing supply and quality of recycled fiber. Our current expectations for 2018 include about one million ADMTs of new NBSK pulp capacity coming online mid-year. If current demand levels are maintained, we would not expect this new 2018 capacity increase to have a material negative impact on the market.

Mercer operates some of the largest and most modern NBSK facilities in the world and we invest in their continuous improvement. Our 2018 capital expenditure plan includes about $39 million for upgrades at the Friesau Facility focused on scanning, sorting and grading automation to increase lumber yields and grade outturn and reduce operating costs.”
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