investor presentation - norbord.com · investor presentation may 11, 2020. forward-looking...
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Investor PresentationMay 11, 2020
Forward-Looking Statements & Non-IFRS Financial Information
2
Notices
• 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 (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.
Company Overview
Norbord Snapshot
• Leading manufacturer of wood-based panel products
• Largest global producer of Oriented Strand Board (OSB)
– Stated OSB capacity of 9.0 Bsf-3/8”(1)
– Stated panel capacity (including particleboard & MDF) of 9.9 Bsf-3/8”(1)
– Approximately 2,400 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 2020 sales of $1.7 billion
4
Company Overview
North America
Europe
Oriented Strand Board (OSB)
Particleboard
Medium Density Fiberboard (MDF)
Furniture
Panel Capacity by Region(1)
(1) Based on stated annual capacity as of December 31, 2019.
The Leading Global OSB Company
5
Company Overview
Top 10 Global OSB Producers
Enterprise Value
Source: Company filings and Bloomberg. Enterprise values as at May 6, 2020.
* Excluding OSB siding capacity
*
Norbord’s Wood-Based Panel 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
Sustainability: Core to Our Business
7
Company Overview
Wood is a renewable resource
OSB sequesterscarbon
We utilize 100% of the tree
We use biomassto generate heat energy
Committed to Reducing Green House Gas (GHG) Emissions
8
Company Overview
Source: Norbord 2019 Annual Report
• Norbord’s global operations accounted for < 700 kilotonnes of CO2e Scope 1 and 2 GHG emissions in 2019
• These are modest emissions levels compared to ~6,000 kilotonnes of CO2e sequestered in our products
Industry Overview
Typical Uses for OSB Products
10
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 69% of total North American structural panel production
Source: APA, May 2020
Global OSB Industry
11
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, Wood Based Panels International (WBPI)
* Excluding NA OSB siding capacity
*
North American & European OSB Industries
12
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
* Excluding OSB siding capacity.
*
Kronospan 41%
SwissKrono 16%
10%
Egger8%
Sonae-Arauco
4%
Smartply 4%
Other17%
Industry Capacity12 Bsf-3/8"
US Housing Starts Are the Single Biggest End Use for OSB
13Source: U.S. Census Bureau and Forest Economic Advisors, LLC (FEA)
Industry Overview
–
0.5
1.0
1.5
2.0
2.5
2002 2005 2008 2011 2014 2017 2020F 2023F
US
Ho
usi
ng
Star
ts (
mill
ion
s)
US Housing Starts Underlying Demand
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US OSB consumption in R&R US expenditure in R&R
US Repair & Remodel Demand Also Drives OSB Consumption
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Industry Overview
Bsf
-3/8
” b
asis
US$
bill
ion
s
(1) Forecasts of OSB consumption in R&R are as of Feb 2020 and do not reflect expected impact of COVID-19Source: Forest Economic Advisors, LLC (FEA); expenditures in 2012 US$
(1)
North American OSB Industry Stated Capacity of 27 Bsf
15
Industry Overview
(1) Only Line 1 is indefinitely curtailed at the Cordele, GA mill
Note: Excludes OSB siding production and capacity.
Source: APA, company documents and other public filings
33 Mills in Operation
5 Mills Idle(1)
North American OSB Installed Capacity:
11 Mills (Re)started in 2012/13 & 2017/18
Norbord Mill
Favourable Long-term OSB Industry Fundamentals
16
Industry Overview
North American OSB Demand
Source: Forest Economic Advisors, LLC (FEA)
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-3/8
")
Historical North American OSB Prices
17
Industry Overview
North Central Benchmark OSB Price
Source: Random Lengths
• OSB prices are tied to demand for building products, which is influenced by the general economy, demographics and the need for housing
Q1 163 175 423 364 285 145 137 154 212 198 203 417 219 193 226 293 370 211 271
Q2 159 215 443 297 238 156 179 146 295 173 235 347 219 193 264 330 426 188
Q3 159 381 351 303 181 177 201 178 180 184 313 252 216 204 301 409 363 217
Q4 156 401 264 317 166 165 170 172 191 190 332 245 216 242 285 379 243 223
Average 159 293 369 320 217 161 172 163 219 186 271 315 218 209 269 353 351 210
-
1,000
2,000
3,000
4,000
5,000
6,000
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8,000
9,000
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Europe: Strong Demand Growth Driven by Substitution
18
Industry Overview
OSB Share of Structural Panels
Source: Forest Economic Advisors, LLC (FEA), European Panel Federation (EPF) and Norbord estimates
European OSB Demand (000 m3)
Source: Eurostat, UN Comtrade Database, Destatis and Norbord estimates
~10%2002-2019 CAGR
North America
EuropeIndicative Average OSB Price
Source: Random Lengths and Company documents
• Significant growth opportunity – OSB accounts for only ~8% of the structural panel market in Japan compared to 69% in North America
Japan: Stable Housing Market
19
Industry Overview
Japanese Housing Starts (000’s)
Source: Japanese Ministry of Land, Infrastructure, Transport and Tourism and Company documents
Business Strategy
Norbord’s Strategy Is Well Defined
21
Business Strategy
Pursue growth in OSB2
Own high-quality assets with low-cost positions3
Maintain a margin-focused operating culture4
Focus on growth customers through best-in-class service and product development
5
Allocate capital with discipline6
Develop a world-class safety culture 1
0
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92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Norbord’s Growth Focused on OSB
22
Business Strategy
Norbord OSB Capacity (Bsf-3/8”)
(1) 2015 onwards reflects Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth.(2) Norbord's total OSB capacity increased by 560 MMsf-3/8" effective December 31, 2018 based on recent capital investments and improved efficiency.
(1) (2)
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36 37
28
56
9
14
29
16
2523
0
24
43
1512
0 0
21
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020YTD
Margin Improvement Remains an Operational Priority
23
Business Strategy
(1) Measured relative to prior year at constant prices and exchange rates.(2) 2013 MIP gains from richer product mix and improved productivity were offset by higher maintenance-related costs. (3) 2015 onwards reflects Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth.(4) 2018 MIP was negatively impacted by higher raw material usages and costs associated with executing on strategic capital and sales growth initiatives. Further, the excellent ramp up of the Huguley, Alabama and Inverness,
Scotland mills were excluded from 2018 MIP calculations. (5) 2019 MIP gains from improved productivity and product mix were offset by the efficiency impact of significant production curtailments across the North American mills.
(3)
Margin Improvement Program Gains (US$ in millions)
• 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 nearly $400 million of margin improvements over the past 18 years
(1)
(5)(4)(2)
Average: $22
North America69%
Europe27%
Asia4%
Repositioning Business to Reduce Earnings Volatility
24
Business Strategy
Q1/20 LTM Sales
(1) Exports to Asia are handled by Interex and sales are reported in the North American geographic segment.
• Strong operating footprint
• Growing stable margin end-uses:
– North American industrial products
– European panels
– Asia-focused exports(1)
• Provides greater diversification than North American-based competitors
• Better positioned to weather market cycles
(1)
$1.7 billion
Focused Customer Strategy Sets Norbord Apart
25
Business Strategy
Q1/20 LTM North American Shipments
• New home construction sales volume tied to US housing starts• Repair & remodel sales volume growing in step with R+R expenditures• Industrial and export sales volume growing through substitution, has more stable margins
6.0 Bsf-3/8”
Commodity
26
North American Industrial Panel Consumption
EWP
Furniture Commercial
Source: APA – The Engineered Wood Association, FEA, RISI, US Forest Products Annual Market Review and Prospects (USDA FS), US International Trade Commission, Norbord estimates
Business Strategy
Norbord is a leading supplier to current industrial end uses
~21 Bsf-3/8”
Transportation
Specialty Products Will Drive North American Substitution Growth
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More Stable Results from European Operations
27
Business Strategy
European Adjusted EBITDA (US$ millions)
• European panel prices have rolled over from the well above-average levels of the past two years
• Future margin growth is expected from the ramp-up of Inverness phase 1 and 2 investments
Average: $42
Inverness Mill Expansion Supports Increasing European Customer Demand
28
Business Strategy
Phase 1 investment of US$147 million
• New continuous press line started up in Q4/2017
• New finishing end commissioned in Q1/2019
Phase 2 investment of US$46 million (£35 million)
• 2nd wood room and dryer approved in January 2019
• Completion expected by end of H2/2020
395
720
945
2016 Phase 1expansion
Phase 2expansion
+139%
Inverness Capacity (in MMsf-3/8”) Inverness Investments
58%23%
19%
63%
4%
28%
5%
Diversifying Towards Stable Margin End Uses
29
Norbord shipments(1)
5.1 Bsf-3/8”
(1) Reflects Norbord excluding Ainsworth.(2) Represents Norbord’s North American non-OSB business (fully divested in 2010).
Business Strategy
20041.96M US Housing Starts
20191.29M US Housing Starts
Norbord shipments
8.0 Bsf-3/8”
(2)
NA Specialty
$0
$50
$100
$150
$200
$250
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Budget
All Other Capex Inverness Expansion
30
Business Strategy
Capex Investment (US$ millions)• Three main priorities:– Re-invest in the business– Optimize capital structure– Return cash to shareholders
• 2020 capex budget of $75 million– Includes Inverness, Scotland
phase 2 project completion
Disciplined Capital Allocation
(1)
(1) 2015 onwards reflects Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth.(2) Annual maintenance capex increased due to lease accounting change under IFRS 16.
Minimum Maintenance $35 million
(2)
Financial Overview
Strong Operating Cash Flow Through The Cycle
32
Financial Overview
North Central Avg. Benchmark OSB
Price$159 $293 $369 $320 $217 $161 $172 $163 $219 $186 $271 $315 $218 $209 $269 $353 $351 $210 $225
US Housing Starts(mln)
1.71 1.85 1.95 2.07 1.81 1.34 0.90 0.55 0.59 0.61 0.78 0.93 1.00 1.11 1.18 1.21 1.25 1.29 1.36
Total Adjusted EBITDA (US$ millions)
Average: $319
(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 April 4, 2020.
Norbord sensitivity to realized North American OSB price changes:
+$10/Msf 7/16” = +$49 million Adjusted EBITDA(2)
(1)
Source: Random Lengths, US Census Bureau
Manageable Leverage
33
Financial Overview
Adjusted EBITDA vs Net Debt
• Comfortable headroom versus revolver financial covenants
Q1 2020 Covenant
Net debt to capitalization 40% 65% (max)
Tangible net worth (book basis) $986 million $500 million (min)
Strong Balance Sheet & Liquidity
34
Financial Overview
Q1 2020
Cash $ 30
Bank Lines(1) 217
A/R Securitization(2) -
Liquidity $ 247
Comfortable Debt Maturities (US$ millions) Strong Liquidity Profile (US$ millions)
Moody’s Ba1 (Stable)
S&P BB (Stable)
Stable Issuer Credit Ratings
cou
po
n 6
.25
%
(1) $245 million of committed revolving bank lines less $8 million of outstanding letters of credit and guarantees and $20 million drawn as cash at quarter-end.(2) $95 million was the maximum available under the A/R securitization program and $95 million was recorded as drawings under the program at quarter end.
cou
po
n 5
.75
%
Returning Cash to Shareholders Through Variable Dividend Policy
35
Financial Overview
Dividends Declared (US$ millions)
(2)
(1) 2015 onwards reflects Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth.(2) Reflects dividend of C $0.05 per share (translated at C $1 = US $0.71) to be paid on June 22, 2020 to shareholders of record on June 1, 2020.
(1)
0%
5%
10%
15%
20%
25%
Peer1 Peer2 Peer3 Peer4 Peer5 Peer6 Peer7 Peer8
Strong Track Record of Value Creation in Forest Products
36
Financial Overview
Average ROCE %(1) (2002-2019)
Source: Capital IQ, Bloomberg, Company reports
(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, intangible assets of timberlands & licences).
(2) Only includes shares repurchased during 2018 and 2019 Normal Course Issuer Bid programs.
>$1.4BCapital invested
>$1.5BDividends paid out
$168Mto repurchase 6.4M shares
24%
(2)
-1%
-5%
4%
4%
12%
9%
2%
-5%
4%
5%
12%
14%
Total Annualized Return (incl. reinvested dividends)
Share Price Return
37
Value Leader in the Wood Building Materials IndustryFinancial Overview
Peer1
Peer3
Peer2
Peer4
TSX Composite
~8-Year Annualized Total Return (in US$)*
Source: Bloomberg*Annual return measured from December 30, 2011 to April 30, 2020.
38
Superior operating and cost performance
Diversification strategy supports growth and stable margins
Disciplined approach to capital allocation
Shareholder-friendly track record
Strong ESG credentials
Attractive Investment Opportunity Summary
Appendices
Shareholder Information
40
Appendices
Ticker Symbol NYSE: OSB
TSX: OSB
Common Shares 80.6 million outstanding(as at May 5, 2020)
Quarterly Dividend(variable dividend policy)
C $0.05 per share (declared May 6, 2020 to be paid on June 22, 2020 to shareholders of record on June 1, 2020)
Largest Shareholder Brookfield Asset Management – ~43%(as at May 5, 2020)
Financial Sensitivities
41
Appendices
Exposure Change
Adjusted EBITDA Impact
(US$ millions)
North American OSB (1) (2) $10 per Msf-7/16” + $64
European OSB €10 per 000 m3 + $11
Canadian dollar (1),(3) $0.01 per C$ + $6
Pound sterling £0.01 per € < $1
(1) Assumes operation at full stated capacity levels (including the curtailed Chambord, Quebec and 100 Mile House, British Columbia mills and Line 1 at the Cordele, Georgia mill). Impact on Adjusted EBITDA of a $10 per Msf-7/16” change is ± $49 million based on the last twelve months of production at April 4, 2020. 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, 2019 – Canada C$15 million and Belgium €30 million.
(2) Estimated impact of change in Norbord’s realized North American OSB price.
(3) Operating exposures only (excludes dividends on common shares and income tax payments).
Analyst Coverage
42
Appendices
Analyst Analyst Name Contact
Bank of America John Babcock/George Staphos (646) 743-0046 [email protected]
BMO Capital Markets Ketan Mamtora/Mark Wilde (212) 883-5121 [email protected]
CIBC World Markets Hamir Patel (604) 331-3047 [email protected]
Credit Suisse Andrew Kuske (416) 352-4561 [email protected]
ERA Forest Products Research John Cooney (604) 267-3021 [email protected]
John Tumazos Very Independent Research
John Tumazos (732) 444-1083 [email protected]
Raymond James Daryl Swetlishoff (604) 659-8246 [email protected]
RBC Capital Markets Paul Quinn (604) 257-7048 [email protected]
Scotia Capital Benoit Laprade (514) 287-3627 [email protected]
Seaport Global Securities Mark Weintraub (646) 264-5602 [email protected]
TD Securities Sean Steuart (416) 308-3399 [email protected]
Norbord does not provide guidance regarding its expectations of future OSB prices. The following is a sample of price forecasts by analysts as at May 8, 2020. It is not exhaustive.
Forecast North American OSB Prices
43
Appendices
Annual Average
North Central
Benchmark OSB Price US$ per Msf 7/16”
Analyst 2020E 2021E
Scotiabank 255 279
RBC Capital Markets 249 265
CIBC World Markets 249 260
TD Securities 240 265
Seaport Global 238 300
Bank of America 234 235
BMO Capital Markets 233 275
Raymond James 220 270
Average 240 269
Norbord Inc.
Suite 600One Toronto Street
Toronto, Ontario, M5C 2W4Canada
Tel: 416-365-0705
www.norbord.com