Mercer International reported 4.4% decrease of revenues and 33% increase of Operating EBITDA in 1Q2017 y-o-y. According to the announcement, the company’s revenues accounted for USD 221.7 million, generating Operating EBITDA of USD 60.2 million (24.8% margin vs 17.9% in the same period of 2016).
Mr. David M. Gandossi, Chief Executive Officer, commented:
“We are very pleased with our performance and results for the first quarter of 2017.
Our mills generally performed well and we had no scheduled maintenance in either the current or comparative quarter. Our strong operating performance generated USD 60.2 million in Operating EBITDA, compared to USD 45.3 million in the comparative quarter of 2016.
In the current quarter, we benefited from higher list pulp prices, lower fiber prices in Germany and the strength of the dollar versus the euro, compared to the same quarter of 2016. We issued, in two tranches, an aggregate USD 250.0 million of 6.5% senior notes due 2024 and utilized the proceeds primarily to redeem USD 227.0 million of our 2019 Senior Notes at a cost, including premium, of USD 234.9 million. This both extended our debt maturity and lowered ongoing interest costs over the term of the 2024 Senior Notes.
After giving effect to a loss of USD 10.7 million on the redemption of the 2019 Senior Notes, we reported net income of USD 9.7 million, compared to USD 8.8 million in the same quarter of 2016.
In April 2017, our wholly-owned subsidiary, Mercer Timber Products GmbH, acquired a sawmill and bio-mass power plant located near Friesau, Germany and, in conjunction therewith, we replaced our Rosenthal mill’s existing EUR 25.0 million revolving working capital facility with a joint EUR 70.0 million revolving working capital facility for both Rosenthal and MTP, with MTP’s borrowing not to exceed EUR 45.0 million.
The Friesau Facility is one of Germany’s largest sawmills with an annual production capacity of 550 million board feet (Mfbm) of lumber, 13 MW of electricity and 49.5 MW of thermal energy. It is a flexible production facility that produces over 200 products with multiple package sizes to meet customer requirements. Over the last three years, the facility sold approximately 40% of its production in Germany, 30% in the
rest of Europe and the balance in Asia and the Middle-East. Historically, the facility sold a significant portion of its production into the U.S. market.
Prior to our acquisition, the facility had been operated on a restricted basis, well below its capacity. We are in the process of ramping up lumber production at the facility. However, as major sawlog contracts in the facility’s fiber region are generally awarded on a yearly basis, we expect log purchases and deliveries will take two to three quarters to fully ramp up and reach our targeted levels in the fall of this year. We currently expect to ramp up production to approximately 90% of our annual planned production by the end of the third quarter of 2017. As a result of the initial integration and ramp-up period for the facility, we do not expect it to contribute to earnings for one or two quarters.
Lumber markets are currently strong with prices on an upward trend. The Random Lengths Lumber Composite averaged USD 385 per Mfbm during the recent quarter, compared to USD 354 per Mfbm in the
fourth quarter of 2016. The composite is currently over USD 400 per Mfbm.
We are pleased with this acquisition and look forward to realizing upon our forecasted synergies relating to the sharing of wood and bio-mass resources and the optimization of services and staffing. Also ramping up production should materially reduce per unit processing costs. As a result of the timing of ramping up production mid-year, we anticipate higher sawlog costs in the short term. However, we believe when new
sawlog contracts are let for 2018 that, because of our market presence and purchasing scale, long-term relationships with vendors and logistics capabilities, we will be able to achieve competitive pricing for sawlogs at least in line with our competitors.
We also see several opportunities to reduce costs and improve realizations at the Friesau Facility through targeted upgrades. With respect to sales, we currently intend to re-enter into the U.S. market
with a short- to mid-term goal to have about 25% of the facility’s production sold there. Currently, the NBSK market fundamentals are generally positive and we currently expect demand to remain steady in the second quarter of 2017. At the end of the current quarter, world producer inventories of NBSK pulp were generally balanced at about 29 days’ supply. List prices in Europe, China and North America increased to approximately USD 822, USD 645 and USD 1,033 per ADMT, respectively, during the current quarter.”
In 4Q2016 the company increased Operating EBITDA margin to 26.1%.
Earlier Mercer International Mercer International completed acquisition of assets of one of the largest sawmills in Germany.
About Mercer International Inc:
The company is a global pulp manufacturer. It operates three modern NBSK pulp mills in Germany and Canada with a consolidated annual production capacity of approximately 1.5Mt.