Mercer International Inc. Reports Fourth Quarter and Year End 2023 Results

Fourth quarter Operating EBITDA* of $21.1 million and net loss of $87.2 million

Full year 2023 Operating EBITDA of $17.5 million and net loss of $242.1 million

Continued to ramp up and build out the order book of our mass timber business in 2023

Quarterly cash dividend of $0.075 per share

Mercer International Inc. reported that Operating EBITDA in the fourth quarter of 2023 was $21.1 million compared to $96.1 million in the same quarter of 2022 and $37.5 million in the third quarter of 2023.

In the fourth quarter of 2023, net loss was $87.2 million (or $1.31 per share), which included a non-cash impairment of $33.7 million (or $0.51 per share) relating to the classification of our sandalwood business as held for sale, compared to net income of $20.0 million (or $0.30 per share) in the fourth quarter of 2022 and net loss of $26.0 million (or $0.39 per share) in the third quarter of 2023.

In 2023, Operating EBITDA was $17.5 million compared to $536.5 million in 2022. Net loss was $242.1 million (or $3.65 per share) in 2023 compared to net income of $247.0 million (or $3.74 per basic share and $3.71 per diluted share) in 2022.

Mr. Juan Carlos Bueno, the Chief Executive Officer, stated: “In the fourth quarter, our operating results were positively impacted by an improved pulp pricing environment. However, our results decreased relative to the preceding quarter because of greater planned maintenance downtime in the fourth quarter and because in the third quarter there were positive impacts from the recognition of non-cash items and sales of previously impaired inventory.

In the fourth quarter, we saw improved pulp pricing for both NBSK and NBHK across all our markets as customers restocked inventories. We currently believe this pricing momentum will continue into 2024 with modest price increases expected in the first quarter. We continued to be negatively impacted by the overall weakness in the lumber market as slightly higher prices in the U.S. were offset by lower prices in Europe.

We recognized a non-cash impairment of $33.7 million against our sandalwood business in the fourth quarter of 2023 as we made the strategic decision to pursue a sale of this business to focus on our core strategy, resulting in these assets and associated liabilities being valued at fair market value and classified as held for sale as at the end of 2023.

In the fourth quarter of 2023, all our mills ran very efficiently and we had 23 days of scheduled maintenance downtime (approximately 31,600 ADMTs) at our pulp mills. In the first quarter of 2024, we have no scheduled maintenance downtime at our pulp mills.

Overall per unit fiber costs for our pulp segment were stable in the fourth quarter compared to the third quarter. Per unit fiber costs for our solid wood segment decreased due to the availability of lower cost beetle damaged wood in Germany.

In 2023, we saw strong growth in our mass timber business as we secured major customer contracts and continued to build out our order book. We began 2024 with a mass timber order book of almost $100 million. We are pleased that this business has exceeded our expectations to date, including by contributing positively to our Operating EBITDA in the fourth quarter.”

Mr. Bueno concluded: “We have seen pulp pricing and fiber supply conditions improve and currently expect this to continue in 2024. While market conditions have improved, our team remains disciplined on controlling costs, including by limiting discretionary spending and managing working capital to ensure our cash and liquidity levels remain healthy. We finished 2023 with approximately $610 million in aggregate liquidity and believe we are well positioned to ensure the integrity of our balance sheet through the business cycle.”

Current Market Environment

We currently expect improved pulp pricing in 2024, led by Europe, where third-party quoted list prices for NBSK pulp increased to $1,350 per ADMT in January 2024 with additional modest increases expected to continue in the first half of 2024 as a result of stronger demand due to the easing of inflationary pressures. For China and North America we currently expect prices to be generally stable in the first part of 2024, with reduced supply offset by continued weak demand. For NBHK pulp we currently expect stable prices in the first half of 2024.

In our solid wood segment, we currently expect a modest increase in U.S. lumber prices in the first half of 2024 driven by increased housing activity and low customer inventory levels. In Europe, we expect lumber prices to be relatively flat as demand remains weak due to continued high interest rates and economic uncertainty. We currently expect mass timber prices to be stable in the first half of 2024.

Consolidated – Three Months Ended December 31, 2023 Compared to Three Months Ended December 31, 2022

Total revenues in the fourth quarter of 2023 decreased by approximately 19% to $470.5 million from $583.1 million in the same quarter of 2022 primarily due to lower pulp and energy sales realizations partially offset by higher pulp sales volumes.

Costs and expenses in the fourth quarter of 2023 decreased modestly to $526.9 million from $535.8 million in the same quarter of 2022 primarily as a result of lower per unit fiber, energy, freight and chemical costs partially offset by a $33.7 million non-cash impairment recognized in connection with the classification of our sandalwood business as held for sale and higher pulp sales volumes.

In the fourth quarter of 2023, Operating EBITDA was $21.1 million compared to $96.1 million in the same quarter of 2022 primarily due to lower pulp and energy sales realizations partially offset by lower per unit production and freight costs.

Segment Results

Pulp

In the fourth quarter of 2023, pulp segment operating income was $1.2 million compared to $69.0 million in the same quarter of 2022 primarily as a result of lower pulp and energy sales realizations partially offset by lower per unit fiber, energy, chemical and freight costs.

Our pulp segment revenues decreased by approximately 21% to $364.2 million in the fourth quarter of 2023 from $463.2 million in the same quarter of 2022 primarily due to the relatively weaker pulp market and lower energy revenues.

Pulp revenues in the fourth quarter of 2023 decreased by approximately 20% to $340.7 million from $425.4 million in the same quarter of 2022 due to lower sales realizations partially offset by higher sales volumes.

In the fourth quarter of 2023, third party industry quoted average list prices for NBSK pulp were materially lower in all our markets compared to the same quarter of 2022. Our average NBSK pulp sales realizations decreased by approximately 22% to $709 per ADMT in the fourth quarter of 2023 from $913 per ADMT in the same quarter of 2022. In the fourth quarter of 2023, our average NBHK pulp sales realizations decreased by approximately 34% to $593 per ADMT from $896 per ADMT in the same quarter of 2022.

Total pulp sales volumes increased by approximately 6% to 491,156 ADMTs in the fourth quarter of 2023 from 465,318 ADMTs in the same quarter of 2022 primarily because of higher production.

Energy and chemical revenues decreased by approximately 38% to $23.5 million in the fourth quarter of 2023 from $37.8 million in the same quarter of 2022 as a result of lower sales realizations partially offset by higher sales volumes.

Costs and expenses in the fourth quarter of 2023 decreased by approximately 8% to $363.2 million from $394.3 million in the same quarter of 2022 primarily due to lower per unit fiber, energy, chemical and freight costs partially offset by higher pulp sales volumes.

In the fourth quarter of 2023, per unit fiber costs decreased by approximately 7% from the same quarter of 2022 driven by stable supply and the benefits from our Peace River woodroom. We currently expect modestly lower per unit fiber costs in the first quarter of 2024 due to stable supply.

Solid Wood

In the fourth quarter of 2023, solid wood segment operating loss was $18.4 million compared to $14.3 million in the same quarter of 2022 primarily due to lower solid wood products’ sales realizations, with the exception of manufactured products, partially offset by lower per unit fiber costs.

In the fourth quarter of 2023, solid wood segment revenues decreased by approximately 11% to $105.4 million from $118.4 million in the same quarter of 2022 primarily as a result of lower pallet, biofuels, energy and wood residuals sales realizations partially offset by higher manufactured products revenues.

In the fourth quarter of 2023, lumber revenues increased by approximately 6% to $47.8 million from $45.0 million in the same quarter of 2022 as higher sales volumes were only partially offset by modestly lower sales realizations. Average lumber sales realizations decreased by approximately 6% to $427 per Mfbm in the fourth quarter of 2023 from approximately $454 per Mfbm in the same quarter of 2022 as a result of weaker demand in the European market driven by higher interest rates and an uncertain economic outlook. In the U.S. market, sales realizations were flat in the fourth quarter of 2023 compared to the same quarter of 2022. The U.S. market accounted for approximately 49% of our lumber revenues and approximately 39% of our lumber sales volumes in the fourth quarter of 2023. The remaining balance of our lumber sales were primarily to Europe.

Lumber sales volumes increased by approximately 13% to 112.0 MMfbm in the fourth quarter of 2023 from 99.2 MMfbm in the same quarter of 2022 primarily due to the timing of sales.

In the fourth quarter of 2023, we continued to ramp up our mass timber operations and manufactured products revenues increased to $16.3 million from $5.6 million in the same quarter of 2022 as a result of both higher sales realizations and sales volumes. Manufactured products sales realizations increased to $1,234 per m³ in the fourth quarter of 2023 from $561 per m³ in the same quarter of 2022 as a result of higher cross-laminated timber and glulam sales volumes. 

Energy and wood residuals revenues in the fourth quarter of 2023 decreased by approximately 52% to $6.7 million from $14.0 million in the same quarter of 2022 primarily due to lower sales realizations.

Pallet revenues in the fourth quarter of 2023 decreased by approximately 34% to $23.8 million from $36.1 million in the same quarter of 2022 primarily due to lower sales realizations and sales volumes. Biofuels in the fourth quarter of 2023 decreased by approximately 38% to $10.9 million from $17.7 million in the same quarter of 2022 primarily due to lower sales volumes and realizations.

In the fourth quarter of 2023, lumber production decreased by approximately 5% to 111.6 MMfbm from 117.3 MMfbm in the same quarter of 2022 as a result of maintenance downtime.

Fiber costs were approximately 70% of our lumber cash production costs in the fourth quarter of 2023. In the fourth quarter of 2023, per unit fiber costs for lumber production decreased by approximately 19% compared to the same quarter of 2022 due to an increased supply of beetle damaged wood in Germany. We currently expect modestly lower per unit fiber costs in the first quarter of 2024 as a result of the continuing availability of beetle damaged wood partially offset by stronger demand.

Consolidated – Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Total revenues in 2023 decreased by approximately 13% to $1,993.8 million from $2,280.9 million in 2022 primarily due to lower pulp, lumber and energy sales realizations partially offset by the inclusion of Torgau for a full year and higher sales volumes.

Costs and expenses in 2023 increased by approximately 16% to $2,182.6 million from $1,888.6 million in 2022 primarily as a result of the inclusion of Torgau for a full year, higher per unit fiber costs, a $33.7 million impairment recognized in connection with the classification of our sandalwood business as held for sale and higher sales volumes. These increases were partially offset by lower per unit energy and freight costs and the receipt of $46.4 million of insurance proceeds in 2023 relating to the 2021 turbine downtime at the Rosenthal mill and the July 2022 fire at the Stendal mill. In 2022, we received insurance proceeds of $17.3 million related to the Stendal fire.

In 2023, Operating EBITDA was $17.5 million compared to $536.5 million in 2022 primarily due to lower pulp, lumber and energy sales realizations and higher per unit fiber costs partially offset by lower per unit energy and freight costs and higher insurance proceeds received.

For full fourth quarter results click here.

About Mercer International

Mercer International Inc. is a global forest products company with operations in Germany, USA and Canada with consolidated annual production capacity of 2.3 million tonnes of pulp, 960 million board feet of lumber, 210 thousand cubic meters of cross-laminated timber, 45 thousand cubic meters of glulam, 17 million pallets and 230,000 metric tonnes of biofuels. To obtain further information on the company, please visit its web site at https://www.mercerint.com.

Contact:

Jimmy S.H. Lee – Executive Chairman – (604) 684-1099

Source: Mercer International Inc.