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BMO Timber & Wood Products Summit Presentation May 10, 2016
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.
• 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 MD&A, and on Norbord’s website (www.norbord.com) 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
Notices
Company Overview
Norbord Snapshot
• Leading manufacturer of wood-based panel products
• Largest global producer of Oriented Strand Board (OSB) – Stated OSB capacity of 8.0 Bsf-3/8” (1) (2)
– Stated panel capacity (including particleboard & MDF) of 8.9 Bsf-3/8” (1) (2)
– 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
• LTM Q1-2016 sales of $1.5 billion
4
Company Overview
North America
Europe
Oriented Strand Board (OSB)
Particleboard
Medium Density Fiberboard (MDF)
Furniture
Panel Capacity by Region
(1) Excludes the incomplete 600 MMsf-3/8” Grande Prairie, Alberta Line 2 (“GP2”)
Europe 20%
Canada 37%
US 43%
8.9 Bsf-3/8"(1)(2)
The Leading Global OSB Company
5
Company Overview
Top 10 Global OSB Producers
Enterprise Value
Source: Bloomberg and company filings. Enterprise values as at May 4, 2016.
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
West Fraser Louisiana-Pacific Norbord Canfor Corp. Interfor Western Forest Products
Ente
rpris
e Va
lue
($U
Smm
)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Norbord Louisiana-Pacific Georgia-Pacific Weyerhaeuser Kronospan Tolko Huber KronoSwiss Egger Martco
OSB
Cap
acity
(Bsf
-3/8
")
Norbord’s Products
6
Company Overview
OSB – 90% of Capacity
• Norbord’s operations include 15 OSB mills and two other plant locations in the UK producing particleboard, MDF and related value-added products
• 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
Industry Overview
Typical Uses for OSB Products
8
Industry Overview
Wall Sheathing
Webstock
Flooring
Rimboard Door Header
Roof
Window Header
Garage Door Header
• 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 66% of total North American structural panel production
Source: APA, April 2016.
Global OSB Industry
9
Industry Overview
Industry OSB Capacity (MMsf-3/8”)
Norbord operates in the two significant global OSB producing regions
Source: Company documents and other public filings
0
10
20
30
North America Europe South America Asia
Kronospan 39%
KronoSwiss 20%
Egger 12%
Sonae 7%
Smartply 5%
Kalavela 4% Others
2%
Industry Capacity 8 Bsf-3/8"
North American & European OSB Industries
10
Industry Overview
North American OSB Industry
Source: Company documents and other public filings – stated industry capacity
European OSB Industry
Norbord is a significant player in both key markets
Louisiana-Pacific 22% Georgia-
Pacific 19%
Weyer- haeuser
11%
Huber 8%
Tolko 8%
Martco 3%
Other 3%
Industry Capacity 28 Bsf-3/8"
26%
11%
Demand Growth Ahead in Both Key Markets
11
Industry Overview
OSB Share of Structural Panels
Source: Forest Economic Advisors, LLC (FEA) and Norbord estimates
Europe
North America
0%
25%
50%
75%
1980 1985 1990 1995 2000 2005 2010 2015
US Housing Recovery is Real
12
Industry Overview
Favourable long-term OSB industry fundamentals
US Housing Starts and Underlying Demand
1.5 mm Over-Built
North American OSB Demand and Capacity
3.7 mm Under-Built
Source: US Census Bureau and Forest Economic Advisors, LLC (FEA)
0.5
1.0
1.5
2.0
2.5
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
U.S
. Hou
sing
Sta
rts (
mm
)
U.S. Housing Starts Underlying Demand
21.4 22.8 24.0 24.8 25.9 26.9 28.0 28.6 29.2 28.4 27.8 27.1 26.9 27.1 28.1 28.4 28.6 28.8 29.5
30%
40%
50%
60%
70%
80%
90%
100%
–
5.0
10.0
15.0
20.0
25.0
30.0
35.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F
Effective Demand / Capacity
Capa
city
(Bsf
-3/8
")
Effective Capacity Mothballed Capacity Effective Demand / Capacity
North American Capacity Restarted to Meet Growing Demand
13
Industry Overview
39 Mills in Operation
8 Mills Indefinitely Curtailed
North American OSB Installed Capacity:
Norbord Mill
6 Mills (Re)started in 2013
Source: Company documents and other public filings
Attractive North American OSB Price Outlook
14
Industry Overview
North Central Benchmark OSB Price
Source: Random Lengths and Forest Economic Advisors, LLC (FEA); As of April 2016
• OSB prices are tied to demand for building products, which is influenced by the general economy, demographics and the need for housing
• With US housing recovering, OSB prices are projected to rise above trend
$0
$50
$100
$150
$200
$250
$300
$350
$400
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F
Annu
al A
vera
ge N
C Pr
ice
US$
per
Msf
7/1
6"
Historical Price Forecasted Price
15-year average: $229
(FEA)
50
75
100
125
150
175
200
225
250
2009 2010 2011 2012 2013 2014 2015
Core European Housing Markets Recovering
15
Industry Overview
Housing Starts(1)
(000’s)
UK +6% in 2015
Germany +6% in 2015
European OSB Share of Structural Panels
(1) Values for Germany represent housing completions
Source: Euroconstruct and Norbord estimates
0%
10%
20%
30%
40%
50%
1980 1985 1990 1995 2000 2005 2010 2015
• Significant growth opportunity – OSB accounts for only ~10% of the structural panel market in Japan compared to >60% in North America
Japanese Housing Market Stable
16
Industry Overview
Japanese Housing Starts (000’s)
Source: Japanese Ministry of Land, Infrastructure, Transport and Tourism and Company documents
556 505 517 430 460 465 487 550 489 504
729
556 577
358 353 369 396 430
403 405
1,285
1,061 1,093
788 813 834 883
980 892 909
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Wooden All Other
Business Strategy
Norbord’s Strategy is Well Defined
18
Business Strategy
Pursue growth in OSB 2
Own high-quality assets with low-cost positions 3
Maintain a margin-focused operating culture 4
Focus on growth customers through best-in-class service and product development
5
Allocate capital with discipline 6
Develop a world-class safety culture 1
Norbord’s Growth Focused on OSB
19
Business Strategy
Norbord OSB Capacity (Bsf-3/8”)
0
1
2
3
4
5
6
7
8
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
(1) 2015 reflects Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth.
(1)
37
28
56
9
14
29
16
25 23
0
24
43
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Margin Improvement is an Operational Priority
20
Business Strategy
(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 2013 (3) 2015 reflects Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth.
(2)
Margin Improvement Program Gains ($ in millions) “In Control of Our Controllables”
• 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
• MIP has delivered $304 million of margin improvements over the past 12 years with minimal capital investments
• 2015 MIP gains of $43 million
• Q1-2016 MIP gains of $9 million
(1)
(3)
Further MIP Ahead Through Identified Merger Synergies
21
Business Strategy
Operational Best
Practices Corporate Overhead
Sales & Logistics
Purchasing Savings
Product Specialization
Single Public Company
$45 Million in Annual Merger Synergies (1)
Captured $22 million in synergies ($32 million annualized) as of Q1-2016
Ainsworth’s Forming Technology
Operational Standardization
Continuous Press Experience
Order File Optimization
(1) Costs to achieve ~50%; Achievable by year-end 2016.
Diversification From European & Asian End Market Exposure
22
Business Strategy
LTM Q1-2016 Shipments by Origin
(1) Exports to Asia are included in North American shipments. Net sales to Asian markets were $50 million for LTM Q1-2016.
• Strong North American footprint
• Stable margin operations: – Europe – Asia-focused exports(1)
• Provides greater diversification than North American-based competitors
• Better positioned to weather market cycles
Europe North
America North America
76%
Europe 24%
7.3 Bsf-3/8"
Focused Customer Strategy Sets Norbord Apart
23
Business Strategy
LTM Q1-2016 North American Shipments
• New housing sales volume growing as US housing starts recover • Industrial and export sales at more stable margins
New Home Construction (Pro-Dealers)
55%
Repair & Remodel (Big Box)
25%
Industrial 15%
Export 5%
5.6 Bsf-3/8"
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Target
Capex Greenfield Expansion Inverness Expansion
24
Business Strategy
Capex Investment (US$ millions) • Three main priorities:
– Investing in our mills
–Optimizing debt profile
–Returning cash to
shareholders
Business Strategy
(1,2)
(1) 2015 and 2016 numbers reflect Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth. (2) Total strategic investment of $135 million in Inverness, Scotland OSB mill over next two years.
(1)
Inverness: Expanding to Meet Growing European Demand
25
Business Strategy
Capex budget: $135 million (£95 million)
Capacity once complete:
720 mmsf-3/8” (640 km3)
Start-up target: H2-2017
• Existing production lines will run until new line ramps up ensuring no disruption to customers
2015 Future
Specialty Products Will Drive North American Substitution Growth
26
Business Strategy
Specialty
Value added
Commodity
New home construction
Repair & remodel
Industrial & export
• Reduced dependence on new home construction • More predictable, stable margins over business cycle
Financial Overview
631
495
247
42 -60
107 45
188 287
290
307
48
-23 5
58
13
106
145
921
802
295
19
165
58
294
432
115 122 167
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 LTM Q1-2016
Norbord Combined Adjusted EBITDA
Ainsworth Adjusted EBITDA
Norbord (excluding Ainsworth) Adjusted EBITDA
Strong Operating Cash Flow Through The Cycle
28
Financial Overview
North Central Benchmark OSB Price $369 $320 $217 $161 $172 $163 $219 $186 $271 $315 $218 $209 $216
US Housing Starts (000s) 1,956 2,068 1,801 1,355 906 554 587 609 781 925 1,003 1,111 1,089
Total Adjusted EBITDA (US$ millions)
12-year average: $264 million
(1) As disclosed in Ainsworth’s historical MD&As; converted to USD using annual average exchange rate
Norbord Sensitivity to North American OSB Price Changes:
+$10/Msf 7/16” = +$58 million
Adjusted EBITDA (at full capacity)
(1)
32 35
81
4
17
37
44 39
46 47
38 41
0
10
20
30
40
50
60
70
80
90
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 LTM Q1-2016
Stable Results from European Operations
29
Financial Overview
• Norbord’s European operations provide greater sales and earnings diversification than other North American-based competitors
European Adjusted EBITDA (US$ millions)
Leverage Metrics Improving Rapidly
30
Financial Overview
0x
2x
4x
6x
8x
10x
12x
$0
$25
$50
$75
$100
Q2 15 Q3 15 Q4 15 Q1 16 Q2 16F Q3 16F Q4 16F
Adjusted EBITDA vs Net Debt
Analyst Forecast
Quarterly Adj. EBITDA
Net Debt to LTM Adj. EBITDA
Source: Analyst reports
11.7x
4.8x
3.4x
$200
$240
$315
2015 2016 2017 2018 2019 2020 2021 2022 2023
Strong Balance Sheet & Liquidity
31
Financial Overview
Q1 2016
Cash $ 14
Bank Lines (1) 237
A/R Securitization(2) 70
Liquidity $321
Manageable Debt Maturities (US$ millions) Strong Liquidity Profile (US$ millions)
Moody’s Ba2 (Stable)
S&P BB- (Stable)
DBRS BB (Negative)
Stable Issuer Credit Ratings
7.70
%
5.37
5%
6.25
%
(1) $245 million of bank lines less $8 million outstanding letters of credit drawn at quarter-end (2) $125 million of A/R Securitization limit less $55 million drawn at quarter-end
Attractive Investment Opportunity
32
Summary
Leverage to unfolding US housing recovery Every +$10 in NA OSB price = +$58 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
Appendices
Shareholder Information
34
Appendices
Ticker Symbol NYSE: OSB TSX: OSB
Common Shares 85.5 million outstanding (as at April 28, 2016)
Quarterly Dividend CAD $0.10 per share (declared April 29, 2016, to be paid on June 21, 2016 to shareholders of record on June 1, 2016)
Majority Shareholder Brookfield Asset Management – 53%
OSB Prices Strong Over the Cycle
35
Appendices
Historical North Central Benchmark OSB Price
Source: Random Lengths
$0
$50
$100
$150
$200
$250
$300
$350
$400
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Annu
al A
vera
ge N
C Pr
ice
US$
per
Msf
7/1
6"
Q1 163 175 423 364 285 145 137 154 212 198 203 417 219 193 226
Q2 159 215 443 297 238 156 179 146 295 173 235 347 219 193
Q3 159 381 351 303 181 177 201 178 180 184 313 252 216 204
Q4 156 401 264 317 166 165 170 172 191 190 332 245 216 242
Average 159 293 369 320 217 161 172 163 219 186 271 315 218 209
15-year average
Financial Sensitivities
36
Appendices
(1) Assumes operation at full stated capacity levels (including the indefinitely curtailed Huguley, Alabama and Val-d’Or, 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, 2015 – US $186 million, Canada C$483 million, Belgium €33 million
(2) Operating exposures only (excludes dividends on common shares)
Exposure Change
Adjusted EBITDA Impact (1)
(US$ millions)
North American OSB $10 per Msf-7/16” + $58
European OSB €10 per 000 m3 + $8
Canadian dollar (2) $0.01 per C$ + $3
Pound sterling £0.01 per € < $1
Analyst Coverage
37
Appendices
Analyst Analyst Name Contact
BMO Capital Markets Ketan Mamtora / Mark Wilde (212) 883-5121 [email protected]
CIBC World Markets Hamir Patel (416) 956-6729 [email protected]
Credit Suisse Andrew Kuske (416) 352-4561 [email protected]
Dundee Capital Markets Stephen Atkinson (514) 396-0321 [email protected]
ERA Forest Products Research Claire Huxtable (604) 886-5741 [email protected]
John Tumazos Very Independent Research John Tumazos (732) 444-1083 [email protected]
Raymond James Daryl Swetlishoff (604) 659-8246 [email protected]
RBC Capital Markets Paul Quinn (604) 257-7048 [email protected]
Scotia Capital Benoit Laprade (514) 287-3627 [email protected]
TD Securities Sean Steuart (416) 308-3399 [email protected]
Vertical Research Partners James Armstrong (212) 256-6157 [email protected]
Forecast OSB Pricing – North Central 7/16”
38
Appendices
Norbord does not provide guidance regarding its expectations of future OSB prices. The following is a sample of price forecasts by analysts as at May 2, 2016. It is not exhaustive.
Annual Average North Central
Benchmark OSB Price US$ per Msf 7/16”
Analyst 2016F 2017F
Dundee Capital Markets 231 236
Scotia Capital 240 258
CIBC 240 280
Vertical Research Partners 240 300
Raymond James 245 280
TD Securities 246 275
BMO 247 268
RBC Capital Markets 270 300
Average $245 $275
Norbord Inc.
Suite 600 One Toronto Street
Toronto, Ontario, M5C 2W4 Canada
Tel: 416-365-0705 Fax: 416-365-3292
www.norbord.com