Investor Presentation. August 2018

Transcription

1 Investor Presentation August 2018

2 Notices Forward-Looking Statements & Non-IFRS Financial Information All financial references are expressed in US$ unless otherwise noted. This presentation contains forward-looking statements and estimates. Such statements and estimates are based on assumptions as to the future and on management s current expectations and are, naturally, subject to risks and uncertainties. Actual company results could differ materially from a conclusion, forecast or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Additional information can be found in the Company s annual information form, annual and quarterly MD&A, and on Norbord s website ( about the material factors that could cause actual results to differ materially from the conclusion, forecast or projection in the forward-looking information, and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. During the course of this presentation, certain non-ifrs financial information will be presented. Definitions and reconciliation of terms can be found in the Company s annual and quarterly MD&A. 2

3 Company Overview

4 Company Overview Norbord Snapshot Leading manufacturer of wood-based panel products Largest global producer of Oriented Strand Board (OSB) Stated OSB capacity of 8.4 Bsf-3/8 (1) Stated panel capacity (including particleboard & MDF) of 9.4 Bsf-3/8 (1) Approximately 2,750 employees at 17 plants across the US, Canada and Europe Listed on the NYSE and TSX ( OSB ) Report in US dollars and in accordance with IFRS Q2/18 LTM sales of $2.5 billion Panel Capacity by Region (1) North America Europe Oriented Strand Board (OSB) Particleboard Medium Density Fiberboard (MDF) Furniture (1) Based on stated annual capacity as of December 31,

5 Company Overview The Leading Global OSB Company Top 10 Global OSB Producers * * Excluding OSB siding capacity Enterprise Value Source: Company filings and Bloomberg. Enterprise values as at August 16,

6 Company Overview Norbord s Wood-Based Panel Products Norbord s operations include 15 OSB mills and two other plant locations in the UK producing particleboard, MDF and related value-added products OSB 90% of Capacity New home construction Repair and remodel Light commercial construction Industrial applications Particleboard 6% of Capacity New home construction Repair and remodel Furniture Fixtures MDF 4% of Capacity Furniture Fixtures Mill work 6

7 Industry Overview

8 Industry Overview Typical Uses for OSB Products OSB is an innovative, affordable and environmentally sustainable structural panel Serves many of the same uses as plywood, but produced at a lower cost Norbord expects OSB will continue to capture market share from plywood Currently, OSB represents 68% of total North American structural panel production Roof Window Header Webstock Wall Sheathing Garage Door Header Flooring Rimboard Door Header Source: APA, January

9 Industry Overview Global OSB Industry Industry OSB Capacity (MMsf-3/8 ) * * Excluding NA OSB siding capacity Norbord operates in the two significant global OSB producing regions Source: Company documents and other public filings, Wood Based Panels International (WBPI) 9

10 Industry Overview North American & European OSB Industries North American OSB Industry European OSB Industry * * * Excluding OSB siding capacity. Norbord is a significant player in both key markets Source: Company documents and other public filings stated industry capacity 10

11 Industry Overview Continuing US Housing Growth Source: Forest Economic Advisors, LLC (FEA) 11

12 2009 USD billions Bsf-3/8 basis Industry Overview Growing US Repair & Remodel Demand Source: Forest Economic Advisors, LLC (FEA) 12

13 Industry Overview North American Capacity Restarts Needed to Meet Growing Demand (in Bsf-3/8 ) Production Restarts/Idled New 1.2 =27% =14% North American OSB Installed Capacity: 37 Mills in Operation 7 Mills (Re)started in 2012/13 4 Mills Restarted/Available for Restart as of Greenfield Mills in Development Norbord Mill Norbord s Huguley, AL mill resumed production in October 2017 Note: Excludes OSB siding production and capacity. Source: APA, company documents and other public filings 13

14 Capacity (Bsf-3/8") Industry Overview Favourable Long-term OSB Industry Fundamentals North American OSB Demand and Capacity % % 80% 70% 60% 50% Effective Demand / Capacity % 30% Effective Capacity Mothballed Capacity Effective Demand / Capacity Source: Forest Economic Advisors, LLC (FEA) 14

15 Annual Average NC Price US$ per Msf 7/16" Industry Overview Attractive North American OSB Price OSB prices are tied to demand for building products, which is influenced by the general economy, demographics and the need for housing $400 North Central Benchmark OSB Price $350 $300 $ year average: $249 $200 $150 $ Q Q Q Q Average Source: Random Lengths 15

16 Industry Overview Europe: Strong Demand Growth OSB Share of Structural Panels European OSB Demand (million m 3 ) 75% North America 8% F CAGR 50% Europe 25% 0% Source: Forest Economic Advisors, LLC (FEA), European Panel Federation (EPF) and Norbord estimates Source: Eurostat, UN Comtrade Database, Destatis and Norbord estimates 16

17 Industry Overview Japan: Stable Housing Market Significant growth opportunity OSB accounts for only ~9% of the structural panel market in Japan compared to 68% in North America Japanese Housing Starts (000 s) Source: Japanese Ministry of Land, Infrastructure, Transport and Tourism and Company documents 17

18 Business Strategy

19 Business Strategy Norbord s Strategy Is Well Defined 1 Develop a world-class safety culture 2 Pursue growth in OSB 3 Own high-quality assets with low-cost positions Maintain a margin-focused operating culture Focus on growth customers through best-in-class service and product development Allocate capital with discipline 19

20 Business Strategy Norbord s Growth Focused on OSB Norbord OSB Capacity (Bsf-3/8 ) (1) (1) 2015 onwards reflects Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth. 20

21 Business Strategy Margin Improvement Is an Operational Priority Margin Improvement Program (MIP) gains help offset impact of industry-wide rising input costs: Increased productivity Reduced overhead costs Reduced raw material usage Improved product mix Margin Improvement Program Gains (US$ in millions) In Control of Our Controllables (1) MIP has delivered $331 million of margin improvements over the past 14 years 2017 MIP gains of $12 million (2) (3) (1) Measured relative to prior year at constant prices and exchange rates. (2) The benefits of improved productivity and a richer value-added product mix were offset by higher maintenance spending. (3) 2015 onwards reflects Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth. 21

22 Business Strategy Repositioning Business to Reduce Earnings Volatility Strong operating footprint Q2/18 LTM Sales Growing stable margin end-uses: North American industrial products Europe Asia-focused exports (1) Provides greater diversification than North American-based competitors (1) $2.5 billion sales Better positioned to weather market cycles (1) Exports to Asia are handled by Interex and sales are reported in the North American geographic segment. 22

23 Business Strategy Focused Customer Strategy Sets Norbord Apart New home construction sales volume growing as US housing starts increase Repair & remodel sales volume growing in step with R+R expenditures Industrial and export sales at more stable margins Q2/18 LTM North American Shipments 6.3 Bsf-3/8 23

24 Business Strategy Specialty Products Will Drive North American Substitution Growth Reduced dependence on new home construction More predictable, stable margins over business cycle Specialty Industrial & Export New home construction Repair & remodel Value-added Commodity 2017 Future 24

25 Business Strategy Significant OSB Substitution Opportunity in Industrial End Uses 2017 North American Panel Consumption Industrial New Home Repair & Remodel 17% 21% 50% 38% 33% 79% 62% OSB Plywood MDF & PB Furniture EWP Commercial Roofing Engineered Packaging Norbord is a leading supplier to current industrial end uses Source: APA The Engineered Wood Association, RISI, US Forest Products Annual Market Review and Prospects (USDA FS), US International Trade Commission, Norbord estimates 25

26 Business Strategy Recent Price Momentum Drives Strong European Results European Adjusted EBITDA (US$ millions) 26

27 Business Strategy Inverness Mill Expansion Supports Increasing European Customer Demand - New continuous press line started up in Q4/ Original two press lines demolished during Q2/ New finishing end will be installed during H2/

28 Business Strategy Asia The Next Big Growth Opportunity Wood Panel Consumption 250 <1% OSB 200 Million m % OSB 42% OSB 8% OSB Asia Europe North America South America Other (Plywood, PB, MDF/HDF) OSB Source: Food and Agriculture Organization of the United Nations (2016) 28

29 Business Strategy Diversifying Towards Stable Margin End Uses M US Housing Starts M US Housing Starts 4% NA Specialty 21% 63% Norbord shipments 5.1 Bsf-3/8 28% 23% Norbord shipments 7.9 Bsf-3/8 56% 5% (1) (1) Represents Norbord s North American non-osb business (fully divested in 2010). 29

30 Business Strategy Disciplined Capital Allocation Three main priorities: Capex Investment (US$ millions) Re-invest in the business Optimize capital structure Return cash to shareholders 2017 capex of $246 million (1) 2018 capex budget of $200 million Includes investments to prepare Chambord, Quebec mill for restart (when warranted by customer demand) and expand capacity at Grande Prairie, Alberta and Huguley, Alabama mills. Minimum Maintenance $25 million (2) (1) Excluding capitalized interest of $7 million. (2) 2015 onwards reflects Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth. 30

31 Financial Overview

32 Financial Overview Strong Operating Cash Flow Through The Cycle Total Adjusted EBITDA (US$ millions) (1) Norbord Sensitivity to realized North American OSB Price Changes: +$10/Msf 7/16 = +$52 million Adjusted EBITDA (2) 14-year average: $302 million North Central Benchmark OSB Price US Housing Starts (000s) $369 $320 $217 $161 $172 $163 $219 $186 $271 $315 $218 $209 $269 $353 $396 1,956 2,068 1,801 1, ,003 1,112 1,174 1,202 1,250 (1) As disclosed in Ainsworth s historical MD&As; converted to USD using annual average exchange rate. (2) Assumes operation at LTM production levels as of June 30,

33 Financial Overview Leverage Metrics Significantly Improved Adjusted EBITDA vs Net Debt Quarterly Adj. EBITDA (in US$ millions) Net Debt to LTM Adj. EBITDA 11.0x 0.3x 33

34 Repaid coupon 5.375% coupon 6.25% 6.25% Financial Overview Strong Balance Sheet & Liquidity Manageable Debt Maturities (US$ millions) Strong Liquidity Profile (US$ millions) (1) Q Cash $ 298 Bank Lines (2) 226 A/R Securitization (3) 125 Liquidity $ 649 Stable Issuer Credit Ratings Moody s S&P DBRS Ba1 (Stable) BB (Stable) BB (Stable) (1) Norbord permanently repaid the 2017 bonds at maturity on February 15, (2) $245 million of committed revolving bank lines less $19 million outstanding letters of credit and guarantees drawn at quarter-end. (3) $125 million of A/R Securitization limit undrawn at quarter-end. 34

35 Financial Overview Returning Cash to Shareholders Through Variable Dividend Policy Dividends Declared (US$ millions) (1) (1) Reflects dividend of C $4.50 per share (translated at C $1 = US $0.78) to be paid on September 21, 2018 to shareholders of record on September 1,

36 Financial Overview Track Record of Value Creation 15 Year Average ROCE % (1) 25% 24% 20% 15% 10% 5% 0% Norbord Peer1 Peer2 Peer3 Peer4 Peer5 Peer6 Peer7 Peer8 Source: Capital IQ $200M Debt permanently repaid >$1B Capital invested >$1B Dividends paid out (1) Return on capital employed (ROCE) is a measure of financial performance focusing on cash generation and the effective use of capital. ROCE is calculated as Adjusted EBITDA divided by average capital employed (operating working capital, PP&E, goodwill, intangibles, timberlands & licences). 36

37 Summary Attractive Investment Opportunity Favourable market fundamentals Clear strategic vision Strong operating expertise Track record of disciplined capital allocation Focus on shareholder value 37

38 Appendices

39 Appendices Shareholder Information Ticker Symbol NYSE: OSB TSX: OSB Common Shares 86.7 million outstanding (as at August 1, 2018) Quarterly Dividend (variable dividend policy) C $4.50 per share (declared August 1, 2018 to be paid on September 21, 2018 to shareholders of record on September 1, 2018) Largest Shareholder Brookfield Asset Management ~40% 39

40 Appendices Financial Sensitivities Exposure Change Adjusted EBITDA Impact (1) (US$ millions) North American OSB (2) $10 per Msf-7/16 + $59 European OSB 10 per 000 m 3 + $12 Canadian dollar (3) $0.01 per C$ + $5 Pound sterling 0.01 per < $1 (1) Assumes operation at full stated capacity levels (including the curtailed Chambord, Quebec mill). Impact on Adjusted EBITDA of a $10 per Msf-7/16 change is ± $52 million based on the last twelve months of production at June 30, Direct exposures only; before the impact of any cash flow currency hedges. Approximate operating loss carry-forwards for tax purposes (gross) as at December 31, 2017 US $149 million, Canada C$22 million, Belgium 32 million and UK 1 million. (2) Estimated impact of change in Norbord s realized North American OSB price. (3) Operating exposures only (excludes dividends on common shares). 40

41 Appendices Analyst Coverage Analyst Analyst Name Contact Bank of America Merrill Lynch John Babcock/George Staphos (646) BMO Capital Markets Ketan Mamtora / Mark Wilde (212) ketan.mamtora@bmo.com Buckingham Research Group Mark Weintraub (212) mweintraub@buckresearch.com CIBC World Markets Hamir Patel (604) hamir.patel@cibc.com Credit Suisse Andrew Kuske (416) andrew.kuske@credit-suisse.com ERA Forest Products Research Claire Huxtable (604) chuxtable@era-research.com John Tumazos Very Independent Research John Tumazos (732) john@veryindependentresearch.com Raymond James Daryl Swetlishoff (604) daryl.swetlishoff@raymondjames.ca RBC Capital Markets Paul Quinn (604) paul.c.quinn@rbccm.com Scotia Capital Benoit Laprade (514) benoit.laprade@scotiabank.com TD Securities Sean Steuart (416) sean.steuart@tdsecurities.com Vertical Research Partners Chip Dillon (212) cd@verticalresearchpartners.com 41

42 Appendices Forecast North American OSB Prices Norbord does not provide guidance regarding its expectations of future OSB prices. The following is a sample of price forecasts by analysts as at August 14, It is not exhaustive. Annual Average North Central Benchmark OSB Price US$ per Msf 7/16 Analyst 2018F 2019F TD Securities Bank of America Merrill Lynch Vertical Research Partners RBC Capital Markets CIBC World Markets BMO Capital Markets Scotiabank Buckingham Research Group Raymond James Average

43 Norbord Inc. Suite 600 One Toronto Street Toronto, Ontario, M5C 2W4 Canada Tel: