Mercer International Inc.

Good morning and welcome to Mercer International's fourth quarter 2022 earnings conference call. On the call today is Juan Carlos Bueno, President and Chief Officer of Mercer International with David Ure, Senior Vice President, Chief Financial Officer and Secretary. I will now hand the call over to David Ure.

Good morning, everyone. Thanks for joining us today. I will begin by touching on the financial and operating highlights of the fourth quarter before turning the call to Juan Carlos to further color on the markets, our capital plan, as well as our strategic initiatives. Also, for those of you that have joined today's call by telephone, there is a presentation material that we've attached to the investor section of our website. Before turning to our results, I'd like to remind you that in this morning's conference call, we will make forward-looking statements. And according to the safe harbor provisions of the Private Secure Litigation Reform Act of 1995, I'd like to call your attention to the risks related to these statements, which are more fully described in our press release and in the company's filings with the Securities and Exchange Commission. This quarter, we achieved EBITDA of approximately $96 million, compared to Q3 EBITDA of roughly $141 million. This solid Q4 was a consequence of improved pulp production at our Stendhal mill as we returned the mill to near full production after the Q3 wood yard fire, along with higher pulp and energy sales volumes. This was more than offset by lower energy sales realizations in Europe due to the recently implemented energy price cap, along with considerably higher pulp fiber and chemical costs. In the 2022 fiscal year, we achieved record EBITDA of almost $537 million, driven by strong pricing for our products through most of 2022, a relatively strong US dollar compared to the Euro and Canadian dollar, along with improved pulp sales volumes. Currently, Stendhal is approaching 100% of capacity and we expect the final repairs to the fire-damaged woodyard infrastructure to be complete in Q2. The loss is covered by our insurance program, and we expect it to be settled later in 2023 once permanent repairs are complete. As of today, we have received advance payments from our insurer totaling roughly $18 million. After giving consideration to our planned 21-day shut at Stendhal in November, Our mills ran well this quarter when compared to Q3, when we had 17 days of skid tenets at our Rosenthal mill. Our pulp segment contributed quarterly EBITDA of roughly $98 million, and our solid wood segment, which includes our freeze-out lumber operation, along with the newly acquired Torgau mill and our Spokane mass timber startup, contributed quarterly EBITDA of about $5 million. You can find additional segment disclosures in our form 10-K, which can be found on our website and that of the SEC. Supply constraints from Western Canadian producers, coupled with increased demand from China, helped keep Q4 pricing relatively stable in our markets, with only pricing declines. European NBSK list prices averaged $1,442 per ton in the current quarter, compared to $1,500 per ton in Q3. In China, the Q4 average NBSK net price was $920 per ton, down $49 from Q3. The price gap between NBSK and hardwood narrowed slightly in the quarter due to hardwood prices decreasing less than NBSK prices, with the average Q4 net eucalyptus hardwood price in China at $837 per ton. down $18 from Q3. In total, average pulp sales realization movements negatively impacted EBITDA by almost $7 million compared to the prior quarter. Overall, our average lumber realizations fell sharply in Q4 due to relative weakness in both the US and European markets. The random lengths US for Western SPF 2 and better averaged $410 per thousand board feet in Q4, which was down $170 from last quarter. Our average European sales realizations were down approximately $118 per thousand compared to Q3. Today, the benchmark lumber price in the US is currently $455 per thousand board feet. Our electricity sales reflect our strong generation along along with elevated prices in Europe, where Q4 prices were in the range of $200 per megawatt hour. Exports to the grid totaled about 222 gigawatt hours in the quarter, which was up relative to Q3, principally the result of Stendhal's return to near-full production and the addition of Torgau. The energy situation in Europe changed significantly in the quarter. The December implementation of an energy price cap effectively reduced the net realized price to about $120 per megawatt hour, which, while lower than Q3, remains much higher than our historical realizations prior to 2022. Q4 reflects a full quarter of results from the Q3 acquisition of the Torgau mill. However, the net earnings impact was nascent this quarter due to a gap requirement to mark-to-market acquired inventories and order books, in this case for pellets and pallets, to the current market price, a treatment that removes most of the margin from the first full quarter of ownership. While shipping pallet and heating pallet prices are currently somewhat depressed, we expect a modest contribution to earnings from Torgao in Q1. We reported consolidated net income of almost $20 million for the quarter, or 30 cents per basic share, compared to net income of $67 million, or $1.01 per basic share in Q3. For the full year, we are reporting record consolidated net income of $247 million, or $3.74 per basic share. We consumed about $8 million of cash in the quarter compared to Q3 cash generation, which totaled about $27 million after adjusting for the acquisition of the sawmill and the related draw on our German revolving green credit facility in Q3. The reduction in cash generation is due to lower EBITDA along with working capital movements that reflect higher inventories. Capital spending in the quarter was about $50 million and totaled $179 million for the full year. Looking ahead to 2023, we are targeting CapEx of about $175 to $200 million in our operations this year. Juan Carlos will provide more color on our CapEx program in a moment. At the end of the quarter, our liquidity position increased slightly from Q3 and totaled about $636 million, comprised of $354 million of cash and $282 million of undrawn revolvers, including our new €300 million sustainability linked facility. Our quarter end liquidity position was up about $15 million from the previous quarter due to increased availability on our credit facilities. And as you would have noticed from our press release, our board has approved a quarterly dividend of seven and a half cents per share for shareholders of record on March 29th to 23, for which payment will be made on April 5th, 2023. That ends my overview of the financial results and I'll now turn the call to Juan Carlos.

Thanks, Dave.