Investor Presentation. May 2017

Transcription

1 Investor Presentation May 2017

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 8.1 Bsf-3/8 Stated panel capacity (including particleboard & MDF) of 9.0 Bsf-3/8 Approximately 2,600 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 Q LTM sales of $1.8 billion US 43% Panel Capacity by Region Europe 20% North America Europe 9.0 Bsf-3/8" Canada 37% Oriented Strand Board (OSB) Particleboard Medium Density Fiberboard (MDF) Furniture 4

5 Enterprise Value ($USmm) OSB Capacity (Bsf-3/8") Company Overview The Leading Global OSB Company * Top 10 Global OSB Producers Norbord Louisiana-Pacific Georgia-Pacific Kronospan Weyerhaeuser Tolko Huber KronoSwiss Egger Martco * Excluding OSB siding capacity Enterprise Value $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $- West Fraser Louisiana-Pacific Norbord Canfor Corp. Interfor Western Forest Products Source: Bloomberg and company filings. Enterprise values as at May 4,

6 Company Overview Norbord s 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 67% of total North American structural panel production Roof Window Header Webstock Wall Sheathing Garage Door Header Flooring Rimboard Door Header Source: APA, July

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 9

10 Industry Overview North American & European OSB Industries North American OSB Industry European OSB Industry Huber 8% Weyerhaeuser 11% Martco 3% Other 4% Tolko 8% Industry Capacity 27 Bsf-3/8" Louisiana- Pacific 19% * Georgia- Pacific 19% 27% 8% Kalavela 3% Smartply 4% Sonae 5% Egger 10% Others 8% Industry Capacity 10 Bsf-3/8 SwissKrono 17% Kronospan 44% * 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 Demand Growth Ahead in Both Key Markets 75% OSB Share of Structural Panels 50% North America 25% Europe 0% Source: Forest Economic Advisors, LLC (FEA) and Norbord estimates 11

12 Capacity (Bsf-3/8") US Housing Starts (mm) Industry Overview US Housing Recovery Continues US Housing Starts and Underlying Demand mm Over-Built 2.0 >6 mm Under-Built F US Housing Starts Underlying Demand North American OSB Demand and Capacity F 2018F 2019F 100% 90% 80% 70% 60% 50% 40% 30% Effective Demand / Capacity Effective Capacity Mothballed Capacity Effective Demand / Capacity Source: US Census Bureau and Forest Economic Advisors, LLC (FEA) Favourable long-term OSB industry fundamentals 12

13 Industry Overview North American Capacity Restarts Needed to Meet Growing Demand (in Bsf-3/8 ) 2012 Q1/17 LTM Production Restarts/Idled =27% =14% North American OSB Installed Capacity: 37 Mills in Operation 7 Mills (Re)started in 2012/13 7 Mills Curtailed Norbord Mill Note: Excludes OSB siding capacity. Source: APA, company documents and other public filings 13

14 Annual Average NC Price US$ per Msf 7/16" Industry Overview Attractive North American OSB Price Outlook OSB prices are tied to demand for building products, which is influenced by the general economy, demographics and the need for housing North Central Benchmark OSB Price $400 Historical Price Forecasted Price (FEA) $350 $300 $ year average: $236 $200 $150 $ F 2018F Source: Random Lengths and Forest Economic Advisors, LLC (FEA); As of January

15 Industry Overview OSB Penetration Driving Strong Demand Growth in Europe European OSB Demand (million m 3 ) Source: Eurostat, UN Comtrade Database and Destatis 15

16 Industry Overview Japanese Housing Market Stable Significant growth opportunity OSB accounts for only ~10% of the structural panel market in Japan compared to >65% in North America Japanese Housing Starts (000 s) 1,236 1,285 Wooden All Other ,061 1, Source: Japanese Ministry of Land, Infrastructure, Transport and Tourism and Company documents 16

17 Business Strategy

18 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 18

19 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. 19

20 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 (1) ($ in millions) In Control of Our Controllables MIP has delivered $319 million of margin improvements over the past 13 years MIP gains of $15 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 in (3) 2015 onwards reflects Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth. 20

21 Business Strategy Diversification From European & Asian End Market Exposure Strong North American footprint Q Sales by Origin Stable margin operations: Europe Asia-focused exports (1) Provides greater diversification than North American-based competitors Better positioned to weather market cycles Europe 21% (1) Asia 3% North America North America 76% (1) Exports to Asia are handled by Interex and sales are reported in the North American geographic segment. 21

22 Business Strategy Focused Customer Strategy Sets Norbord Apart New housing sales volume growing as US housing starts recover Industrial and export sales at more stable margins Q LTM North American Shipments 6.0 Bsf-3/8 22

23 Business Strategy Disciplined Capital Allocation Capex Investment (US$ millions) Three main priorities: $250 Re-investing in the business Optimize capital structure Return cash to shareholders 2017 capex budget of $222 million: - $90 million regular capex - $102 million for Inverness project - $30 million for Huguley restart (when warranted by customer demand) $200 $150 $100 $50 $0 Minimum Maintenance $25 million Inverness, Scotland expansion - $135 million over two years. Capex Cordele Line 2 Expansion Inverness Expansion Huguley Restart (1) 2015 onwards reflects Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth. 23

24 Business Strategy Inverness: Expanding to Meet Growing European Demand Capex budget: Capacity once complete: $135 million ( 95 million) 720 MMsf-3/8 (640 km 3 ) Start-up target: H Press and forming line installation began in Q1 Foundations, buildings, heat energy and dryer systems progressing Existing production lines will run until new line ramps up, ensuring no disruption to customers 24

25 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 2016 Future 25

26 Business Strategy Significant OSB Substitution Opportunity in Industrial End Uses 2015 North American Industrial Panel Consumption Norbord is a leading supplier to current industrial end uses MDF EWP Commercial Roofing Particleboard HW Plywood Furniture Engineered Packaging SW Plywood 17% OSB Source: APA The Engineered Wood Association, RISI, US Forest Products Annual Market Review and Prospects (USDA FS) and US International Trade Commission 26

27 Financial Overview

28 Financial Overview Strong Operating Cash Flow Through The Cycle 921 Total Adjusted EBITDA (US$ millions) Norbord Combined Ainsworth (1) Norbord (excluding Ainsworth) Norbord Sensitivity to North American OSB Price Changes: +$10/Msf 7/16 = +$59 million Adjusted EBITDA (at full capacity) year average: $284 million North Central Benchmark OSB Price US Housing Starts (000s) Q1/17 LTM $369 $320 $217 $161 $172 $163 $219 $186 $271 $315 $218 $209 $269 $286 1,956 2,068 1,801 1, ,003 1,111 1,166 1,215 (1) As disclosed in Ainsworth s historical MD&As; converted to USD using annual average exchange rate. 28

29 Financial Overview Stable Results from European Operations Norbord s European operations provide greater sales and earnings diversification than other North American-based competitors European Adjusted EBITDA (US$ millions) Q1/17 LTM 29

30 Financial Overview Leverage Metrics Improving Rapidly Adjusted EBITDA vs Net Debt Quarterly Adj. EBITDA Net Debt to LTM Adj. EBITDA $ x 12x $100 9x $75 $50 6x $25 $0 1.4x Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 3x 0x 30

31 Repaid 5.375% 6.25% Financial Overview Strong Balance Sheet & Liquidity Manageable Debt Maturities (US$ millions) Strong Liquidity Profile (US$ millions) $200 (1) $240 $315 Q Cash $ (2) Bank Lines (2) 222 A/R Securitization (3) 64 Liquidity $ 284 Stable Issuer Credit Ratings Moody s Ba1 (Stable) (4) S&P DBRS BB- (Positive) BB (Negative) (1) Norbord permanently repaid the 2017 bonds at maturity on February 15, (2) $245 million of committed revolving bank lines less $23 million outstanding letters of credit drawn at quarter-end. (3) $125 million of A/R Securitization limit less $61 million drawn at quarter-end. (4) Moody s upgraded from Ba2 to Ba1 on March 24,

32 Financial Overview Returning Cash to Shareholders Through Variable Dividend Policy Dividends Declared (US$ millions) $ $ $ $ $ Quarterly dividends Special dividends Annualized current level 32

33 Financial Overview Top Quartile ROCE Among Peers Over Cycle 80% 15 Year Average ROCE % (Peak/Mean/Trough) (1) 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% Norbord Peer1 Peer2 Peer3 Peer4 Peer5 Peer6 Peer7 Peer8 Peer9 (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). Source: Capital IQ 33

34 Summary Attractive Investment Opportunity Leverage to unfolding US housing recovery Every +$10 in NA OSB price = +$59 million in Adjusted EBITDA at full capacity Diversification from European operations, North American industrial sales and Asian export sales High quality asset base with low operating costs Focused customer strategy and strong customer partnerships Superior margins versus peers Track record of disciplined capital allocation Strong financial liquidity and comfortable debt maturities 34

35 Appendices

36 Appendices Shareholder Information Ticker Symbol NYSE: OSB TSX: OSB Common Shares 86.1 million outstanding (as at May 1, 2017) Quarterly Dividend C $0.30 per share (declared May 1, 2017 to be paid on June 21, 2017 to shareholders of record on June 1, 2017) Majority Shareholder Brookfield Asset Management 53% 36

37 Annual Average NC Price US$ per Msf 7/16" Appendices OSB Prices Strong Over the Cycle North Central Benchmark OSB Price $400 $350 $300 $ year average $200 $150 $100 $50 $ Q Q Q Q Average Source: Random Lengths 37

38 Appendices Financial Sensitivities Direct Exposure Change Adjusted EBITDA Impact (1) (US$ millions) North American OSB $10 per Msf-7/16 + $59 European OSB 10 per 000 m 3 + $8 Canadian dollar (2) $0.01 per C$ + $3 Pound sterling 0.01 per < $1 (1) Assumes operation at full stated capacity levels (including the curtailed Huguley, Alabama and Chambord, Quebec mills). Direct exposures only; before the impact of any cash flow currency hedges. Approximate operating loss carry-forwards for tax purposes (gross) as at Dec. 31, 2016 US $132 million, Canada C $186 million, Belgium 32 million. (2) Operating exposures only (excludes dividends on common shares). 38

39 Appendices Analyst Coverage Analyst Analyst Name Contact Armstrong Investment Research BMO Capital Markets James Armstrong (917) Ketan Mamtora / Mark Wilde (212) ketan.mamtora@bmo.com CIBC World Markets Hamir Patel (416) hamir.patel@cibc.com Credit Suisse Andrew Kuske (416) andrew.kuske@credit-suisse.com ERA Forest Products Research John Tumazos Very Independent Research Claire Huxtable (604) chuxtable@era-research.com 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 39

40 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 May 3, It is not exhaustive. Annual Average North Central Benchmark OSB Price US$ per Msf 7/16 Analyst 2017F 2018F RBC Capital Markets Raymond James Armstrong Investment Research Vertical Research Partners TD Securities BMO Capital Markets Scotiabank CIBC World Markets Average $307 $304 40

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