Mercer International Inc. Reports 1997 Fourth Quarter and Year-end Results and Restructuring Charges Wednesday March 18, 6:32 pm
Announces Approval for Conversion Project
ZURICH, Switzerland--(BUSINESS WIRE)--March 18, 1998--Mercer International Inc. (Nasdaq:MERCS, Easdaq:MERC) today reported results for the fourth quarter ended December 31, 1997. Included in the results are special charges related to the restructuring of the Company's packaging grade paper operations. The Company further announced that it has received permitting approval for the conversion of its Rosenthal pulp mill, the first permit of its type issued in Germany since 1945. Mercer is recording certain charges related to sulphite production, which will be discontinued after the conversion. The combined special charges in the fourth quarter of 1997 totaled $42.8 million.
Before one-time restructuring charges, income for the fourth quarter of 1997 increased to $3.8 million, or $0.25 per diluted share, compared with $3.7 million, or $0.25 per diluted share in the fourth quarter of 1996. After the charges, the net loss for the quarter was $39.1 million, or $2.59 per diluted share. Results for the quarter benefited from increased demand in all grades of the Company's paper and pulp production as well as a higher average selling price due to product mix. These results were achieved despite scheduled shutdowns associated with the holiday season and the continued weakness of the Deutsche mark against the dollar.
As previously contemplated, the Company identified certain paper production facilities related to packaging grade paper as non-strategic because of machine capacity, long-term outlook and profitability. Accordingly, the Company recognized certain non-recurring charges in regards to its operations at Greiz, Trebsen and the previously leased facility at Raschau.
The restructuring actions will allow Mercer to focus on its most profitable products in the paper production area. While this will reduce volume by approximately 48,000 tonnes per year, annual savings of cash and non-cash items are expected in the order of $3.0 million. The effect of these cost savings is expected to begin in 1998 and 1999. Proceeds from the disposals will be used to cover the restructuring costs as well as retire debt related to certain sites.
Mercer also announced that it has received the permitting necessary to convert its Rosenthal sulphite pulp facility with an annual capacity of 160,000 tonnes into a sulphate (Kraft) facility with an annual production capacity of 280,000 tonnes. The conversion will allow Mercer to produce both ECF and TCF grades of Kraft pulp. Financing for the project is still subject to both Federal and State loan guarantees, which the Company expects within the next 60 days. Upon receipt of this financing, construction is expected to begin during the end of the second quarter, and start-up of the new facility is projected for the fourth quarter of 1999. In conjunction with the receipt of this permit, the Company has decided to write-off certain assets associated with the sulphite production process, including those assets used in the area of sulphite recovery, the evaporation plant, and alcohol production.
For the full year 1997, Mercer's net income from continuing operations before restructuring charges was $15.8 million, $1.06 per diluted share, compared with $15.6 million or $1.12 per diluted share for the same period in 1996. Including restructuring charges, the 1997 net loss was $27.0 million, or $1.80 per diluted share. Factors benefiting the Company's full year results include strong demand for its market pulp products, decreasing raw material prices, and a one-time gain from the sale of the Company's excess pulp inventories, which were offset by the currency effect.
Commenting on results, Jimmy S.H. Lee, Chairman and President, said: ''Our 1997 results represent a turn around year for our Company in many areas. Demand in our pulp markets increased throughout the year, resulting in price increases in the second half of 1997. While some price weakness is expected in the first half of 1998, we are optimistic for a long-term recovery in the industry. While results on the paper side were disappointing, the Company has undertaken several strategic initiatives to strengthen the Company, namely the disposition of under-performing packaging paper mills and investments in the specialty and printing papers which will enhance future earnings and overall margins.''
''The restructuring we have undertaken in our packaging grade paper operations is part of a series of actions and investments we have made over the past three years to streamline our paper operations and allow us to focus on our higher margin paper grades. These changes greatly reduce Mercer's exposure to a market that has hindered the Company's profitability in the past, and have led to production increases in our specialty and printing papers. Pricing and sales volume in these higher margin products increased consistently throughout the year, driven mainly by increased demand in our Northern European markets.''
Commenting on the approval for the Rosenthal pulp mill conversion project, Mr. Lee said, ''We are very pleased that the State of Thuringia and the German government have approved this project, a milestone in achieving Mercer's long-term goals, and the first and only ECF/TCF Kraft pulp production license issued in Germany in over 50 years. The receipt of the sulphate construction and operating permit will enable us to convert Rosenthal from a medium-sized sulphite producer to a world-class producer of high quality, high margin Kraft pulp in the single largest European market for this product. With the financing expected to close in the second quarter, we remain optimistic that this project will be completed on schedule. Upon completion, Mercer will have a stable earnings base, and will be able to again focus its full attention on its acquisition program.'' |
