Business News

Mercer International Inc. Reports Improved 2008 First Quarter Results Versus 2007 and Announces New Green Energy Project

Tuesday 06. May 2008 - Mercer International Inc. (NASDAQ:MERC) (NASDAQ:TSX:) (NASDAQ:MRI.U) today reported improved 2008 first quarter results. Revenues and Operating EBITDA in the first quarter of 2008 increased to euro 179.1 million (U.S.$268.8 million) and euro 32.8 million (U.S.$49.4 million) from euro 169.5 million (U.S.$222.1 million) and euro 28.3 million (U.S.$37.1 million), respectively, in the first quarter of 2007, primarily because of higher prices and sales volumes, along with lower wood costs partially offset by a weaker U.S. dollar. Operating EBITDA is defined on page 4 of this press release and reconciled to net income from continuing operations on page 6 of the financial tables in this press release.

President’s Comments
Mr. Jimmy S.H. Lee, President and Chairman, stated: “A U.S.$30 per ADMT increase in list prices in Europe in the current quarter was largely offset by a 3% weakening of the U.S. dollar versus the Euro compared to the prior quarter.” Mr. Lee added: “Fiber costs in Europe were lower over the prior year’s quarter because of increased availability from damage to forests from winter storms and production curtailments in the European board industry.”
He continued: “As part of our continued focus on energy production and sales, we are pleased to announce that our Board has authorized management to proceed with a new energy project at our Celgar mill to increase its production of “green energy” and optimize its power generation capacity. It is designed to be a high return capital project with an estimated cost of approximately euro 35.0 million. This project will take about two years to complete and includes the installation of a second turbo generator with a design capacity of 48 MW and upgrades to the mill’s bark boiler and steam facilities. Upon completion, the project is expected to provide the mill with between approximately 25 to 30 megawatts of incremental power that should be available for sale on a continuous basis. The Company has ordered the generator, which has a delivery lead time of approximately 18 months and costs approximately euro 7.0 million.”
Mr. Lee concluded: “In Europe, we currently expect to see continued downward pressure on fiber costs in the second and third quarters of 2008. Offsetting this is the slumping U.S. dollar, which negatively impacts both our revenues and operating margins. NBSK producers implemented a U.S.$20 price increase in April 2008 and we currently expect a further U.S.$20 price increase to be implemented in May 2008.
While the state of the global economy has created some uncertainty, world chemical market pulp demand has increased in 2008 to date and NBSK pulp operating rates are around 97%. As a result, we currently believe that the strength of this demand, along with the near capacity operating rates, should provide a strong basis for further price improvements later in the year.”
Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
Revenues for the three months ended March 31, 2008 increased by 5.7% to euro 179.1 million from euro 169.5 million in the comparative period of 2007, primarily due to higher pulp list prices, in large part offset by a 13% weakening of the U.S. dollar versus the Euro. Although list prices for NBSK pulp in Europe were approximately U.S.$120 higher in the current quarter from the prior year quarter, because of the slumping U.S. dollar, in Euro terms, the increase was only euro 8.
Pulp production was 360,881 ADMTs in the current quarter, compared to 347,256 in the same quarter of 2007 and 370,080 in the prior quarter. In the current quarter, all of our mills generally performed well and our Rosenthal mill had its highest first quarter production ever.
Pulp sales volume increased to 348,176 ADMTs in the first quarter of 2008 from 329,135 ADMTs in the comparative period of 2007. Average pulp sales realizations were euro 510 per ADMT in the first quarter of 2008 compared to euro 512 per ADMT in the first quarter of 2007, as higher prices were offset by the weakening of the U.S. dollar versus the Euro and the Canadian dollar.
Our Celgar mill pulp inventories were about 50% higher in the current quarter from the comparative quarter of 2007, as we and other producers work through a shipment backlog resulting from congestion and slowdowns at the Port of Vancouver in late 2007 which delayed shipments to China. This inventory is generally already committed to customer orders but we do not record the sale until the pulp is loaded. We currently expect to work through such shipping backlog and have our Celgar pulp inventories returned to normalized levels over the next two quarters.
Costs and expenses in the first quarter of 2008 increased to euro 160.5 million from euro 155.8 million in the comparative period of 2007, primarily due to higher production and sales volume.
On average, our fiber costs decreased by approximately 6% in the first quarter of 2008 from the same period of 2007. Our fiber costs in Germany were lower because of increased availability resulting from damage to forests caused by storms in Germany and Austria in the quarter and lower fiber demand caused by production curtailments in the European board industry. Fiber costs at our Celgar mill were also lower in the current quarter from the prior period of 2007 because of various initiatives to increase fiber supply including incremental whole log chipping and woodroom optimization. However, the deterioration of the housing and lumber markets in North America has sharply reduced sawmilling activity and residual chip supply in western Canada. This is expected to put slight upward pressure on the fiber costs for our Celgar mill during the balance of 2008.
During the first quarter of 2008, our raw material inventories were brought down to euro 29.0 million from euro 38.0 million at the end of 2007, as we drew down the large seasonal build up of fiber supply at our German mills following enhanced purchases of storm damaged wood in 2007.
In the current quarter, we had no sales of emission allowances compared to euro 0.7 million in the prior year period. In the current quarter, sales of surplus energy were largely unchanged from the first quarter of 2007.
For the first quarter of 2008, operating income from continuing operations increased by approximately 28% to euro 18.6 million from euro 14.5 million in the comparative quarter of 2007, primarily as a result of higher pulp prices and improved production.
Interest expense in the first quarter of 2008 decreased to euro 16.6 million from euro 20.1 million in the comparative quarter of 2007, primarily due to a lower level of borrowing and the absence of cross-currency swaps which were settled in the first quarter of 2007. During the current quarter, our Stendal mill made its scheduled repayment of euro 16.9 million of principal against its indebtedness.
We recorded an unrealized loss of euro 7.9 million before minority interests on our interest rate derivatives at the end of the current quarter as a result of a decrease in long-term interest rates, compared to a gain of euro 6.6 million on our outstanding foreign currency and interest rate derivatives in the same quarter of last year, of which a euro 6.8 million gain was realized upon the settlement of foreign currency swaps. We recorded unrealized foreign exchange gains of euro 6.0 million and euro 1.3 million on our debt in the current and prior year quarters, respectively.
In the first quarter of 2008, minority interest, representing the minority shareholder’s interest in the Stendal mill, was euro 3.2 million, compared to euro 1.0 million in the same quarter of last year.
Operating EBITDA increased by 16% to euro 32.8 million in the first quarter of 2008 from euro 28.3 million in the first quarter of 2007. Operating EBITDA is defined as operating income (loss) from continuing operations plus depreciation and amortization and non-recurring capital asset impairment charges. Management uses Operating EBITDA as a benchmark measurement of its own operating results, and as a benchmark relative to its competitors. Management considers it to be a meaningful supplement to operating income as a performance measure primarily because depreciation expense and non-recurring capital asset impairment charges are not an actual cash cost, and depreciation expense varies widely from company to company in a manner that management considers largely independent of the underlying cost efficiency of their operating facilities. In addition, we believe Operating EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.
Operating EBITDA does not reflect the impact of a number of items that affect our net income, including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income or income from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity. Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. For a reconciliation of net income to Operating EBITDA, see page 6 of the financial tables included in this press release.
We reported net income from continuing operations for the first quarter of 2008 of euro 2.9 million, or euro 0.08 per basic and diluted share, as compared to net income from continuing operations of euro 1.1 million, or euro 0.03 per basic and diluted share in the first quarter of 2007.