Q2 2014 Investor Presentation - Norbord─ Total assets of $1,196million ─ LTM sales of $1,227...
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Q2 2014 Investor Presentation August 2014
Transcript of Q2 2014 Investor Presentation - Norbord─ Total assets of $1,196million ─ LTM sales of $1,227...
Q2 2014
Investor Presentation
August 2014
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• All financial references are expressed in US$ unless otherwise noted.
• Financial numbers prior to 2010 were prepared in accordance with CGAAP, while numbers from 2010 onward have been prepared in accordance with IFRS.
• 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.
Forward-Looking Statements and
Non-IFRS Financial Information
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Company Snapshot
• Norbord is a leading manufacturer of wood-based panel
products and one of the largest global producers of OSB
─ Installed OSB capacity of over 5 Bsf
─ 1,950 employees at 13 plants across the US, Europe
and Canada
• Listed on TSX (“NBD”)
• Reports in US dollars and in accordance with IFRS
• As at June 28, 2014:
─ Total assets of $1,196million
─ LTM sales of $1,227 million
─ LTM EBITDA of $134 million
I. COMPANY OVERVIEW
US
61%
Europe
27%
Canada
12%
6.1 Bsf
Panel Capacity by Region
484453_1.WOR (NY007FJI)
UNITED STATES
CANADA
BAHAMAS
BERMUDA
CAYMAN ISLANDS
CUBADOMINICAN REPUBLICHAITI
MEXICO
RUSSIAN FEDERATION
TURKS AND CAICOS ISLANDS
North
America
484453_1.WOR (NY007FJI)
GERMANY
BELGIUM
FRANCE
UNITED
KINGDOM
Europe
Medium Density Fibreboard
Oriented Strand Board
Furniture
Particleboard
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Norbord’s Products
• New home construction
• Repair and remodel
• Light commercial construction
• Industrial applications
OSB – 84% of Capacity
Particleboard – 10% of Capacity
MDF – 6% of Capacity
• New home construction
• Repair and remodel
• Furniture
• Fixtures
• Furniture
• Fixtures
• Mill work
• Norbord’s operations include 11 OSB mills, two particleboard mills, one
medium density fibreboard (“MDF”) mill and one furniture plant
I. COMPANY OVERVIEW
Typical Uses for OSB Products II. INDUSTRY OVERVIEW
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Walls
Flooring
Roof
Norbord Operates in the Two Significant
Global OSB Markets
0
10
20
30
North America
Europe South America
Asia
Industry OSB Capacity (MMsf 3/8”)
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II. INDUSTRY OVERVIEW
Source: Company Documents and Other Public Filings
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Kronospan
33%
Kronoswiss
24%
Norbord
12%
Egger
12%
Sonae
8%
Smartply
6%
Kalavela
5%
Norbord a Significant Player in
Both Key Markets
Louisiana-
Pacific22%
Georgia-
Pacific19%
Norbord
16%
Weyer-
haeuser11%
Ainsworth
9%
Huber
8%
Tolko
8%
Other
7%
Source: Company Documents and Other Public Filings - Installed Capacity
Industry
Capacity
28 Bsf
Industry
Capacity
6 Bsf
North American OSB Industry European OSB Industry
II. INDUSTRY OVERVIEW
Demand Growth Ahead in Both Key Markets
0%
25%
50%
75%
80 85 90 95 00 05 10
North America
Europe
OSB Share of Structural Panels
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II. INDUSTRY OVERVIEW
Source: FEA and Norbord Estimates
US Housing Starts (millions)
0.0
0.5
1.0
1.5
2.0
2.5
Housing Starts
Underlying Demand
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US Housing Starts Recovery is Real
Source: FEA
• Leverage to US housing recovery
• Favourable long-term OSB industry fundamentals
OVER
built
UNDER
built
II. INDUSTRY OVERVIEW
10 Source: Company Documents and Other Public Filings
II. INDUSTRY OVERVIEW Additional OSB Capacity Restarted
to Meet Growing Demand
38 Mills in Operation
8 Mills Indefinitely Curtailed
North American OSB Installed Capacity:
Norbord Mill
6 Mills (Re)started in 2013
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Attractive OSB Outlook II. INDUSTRY OVERVIEW
Sources: Random Lengths and FEA
• 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 remain above trend
North Central Benchmark OSB Price
100
150
200
250
300
350
400
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F 2015F 2016F
An
nu
al A
vera
ge N
C P
rice
US
$ p
er
Msf
7/1
6"
10 year average
50
100
150
200
250
300
2009 2010 2011 2012 2013 2014F
UK +30% in 2013
Germany +12% per year
Core European Housing Markets Recovering
Housing Starts (000s)
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II. INDUSTRY OVERVIEW
Source: National House Builder Confederation (NHBC) , Construction Products Association (CPA) & Bundesbank
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Norbord’s Strategy is Well Defined
• Pursue growth in OSB
• Own highest-quality assets with
lowest cost position
• Maintain a margin-focused operating
culture
• Focus on growth customers through
best-in-class service and product
development
• Allocate capital with discipline
III. BUSINESS STRATEGY
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Norbord’s Growth Focused on OSB
0
1
2
3
4
5
6
'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Norbord OSB Capacity (Billion Square Feet 3/8”)
III. BUSINESS STRATEGY
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
2005 2006 2007 2008 2009 2010 2011 2012 2013 LTM
Norbord North American peer (1)
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-30%-20%-10%0%10%20%30%40%50%
2005 2006 2007 2008 2009 2010 2011 2012
Norbord North American peer (1)
Low Cost Margin-Focused
Operating Platform
• Low cost operating platform providing superior margins versus peers
Source: Company Documents and Other Public Filings
(1) North American peer = Louisiana-Pacific
III. BUSINESS STRATEGY
North American OSB EBITDA Margin %
16
37
28
56
914
29
16
25 23
0$0
$10
$20
$30
$40
$50
$60
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Margin Improvement is an
Operational Priority
• Margin Improvement Program
(MIP) gains help offset impact of
industry-wide rising input costs,
without capex investment:
─ Increased productivity
─ Reduced overhead costs
─ Reduced raw material usage
─ Improved product mix
III. BUSINESS STRATEGY
MIP Gains (US$ millions)
(1) The benefits of improved productivity and a richer value-added product mix were offset by higher maintenance spending in 2013.
(1)
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Customer Strategy Sets Norbord Apart
• New housing sales volume growing as US housing starts recover
• Pro-dealer shipments now represent 50% of Norbord sales volume
50%
30%
20%
35%
35%
30%New Home
Construction
(Pro-dealers)
Repair & Remodel
(Big Box)
Industrial
NA
Shipments
2.9 Bsf
NA
Shipments
3.4 Bsf
III. BUSINESS STRATEGY
2011 Q2 2014 (annualized)
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Disciplined Capital Allocation
• Track record of disciplined capital
allocation
─ Accretive acquisitions
─ Low cost capacity additions
─ Divestment of non-core assets
─ Deleverage on cyclical upturns
─ Dividends
─ Share buybacks
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F
Capex Greenfield Expansion
III. BUSINESS STRATEGY
Capex Investment (US$ millions)
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Strong Operating Cash Flow
Through Cycle
631
495
247
42
(60)
0
107
45
188
287
134
($100)
$0
$100
$200
$300
$400
$500
$600
$700
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 LTM
10 year average
$198 million
North Central
Benchmark OSB Price 369 320 217 161 172 163 219 186 271 315 234
Norbord Sensitivity to North American
OSB Price Changes:
+$10/Msf 7/16” = +$36 million EBITDA
(at full capacity)
Total EBITDA (US$ millions)
IV. FINANCIAL OVERVIEW
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Stable Results Continue from
European Operations
• Norbord’s European operations provide greater sales and earnings
diversification than other North American-based competitors
58
32 35
81
4
17
3744
3946 49
$0
$20
$40
$60
$80
$100
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 LTM
IV. FINANCIAL OVERVIEW
European EBITDA (US$ millions)
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245
200
240
0
50
100
150
200
250
300
2015 2016 2017 2018 2019 2020
Pri
nc
ipa
l V
alu
e -
US
$ m
illio
ns
5.375%
Bonds
Revolving
Bank Lines
(Undrawn) 7.70%
Bonds
Strong Liquidity
US$ millions Q2 2014
Cash 83
Bank Lines 242
A/R Sec. (1) 100
Liquidity
425
(1) In addition, the Company has an undrawn $100 million 1-year evergreen A/R securitization program.
Moody’s Ba2 (Stable)
S&P BB- (Positive)
DBRS BB (Stable)
Norbord’s Financial House Is In Order IV. FINANCIAL OVERVIEW
Manageable Debt Maturities (1) Strong Liquidity
Stable Issuer Credit Ratings
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Attractive Investment Opportunity
• Leverage to unfolding US housing recovery
─ Every +$10 in NA OSB price = +$36 million in EBITDA at full capacity
• Stable EBITDA contribution from European operations
• Low-cost operating platform
• Superior margins versus peers
• Track record of disciplined capital allocation
• Strong financial liquidity and comfortable debt maturities
• Dividend yield of 10% (at August 27th C$23.19 closing share price)
V. SUMMARY
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Appendices
Ticker Symbol TSX: NBD
Common Shares 53.4 million outstanding (as at July 31, 2014)
Quarterly Dividend CAD $0.60 per share (payable on September 21, 2014 to shareholders of record on
September 1, 2014)
Majority Shareholder Brookfield Asset Management – 52%
Shareholder Information
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25
0
50
100
150
200
250
300
350
400
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
An
nu
al A
vera
ge N
C P
rice
US
$ p
er
Msf
7/1
6"
Source: Random Lengths
15 year average
OSB Prices Strong Over the Cycle
Historical North Central Benchmark OSB Price
Q1 217 261 132 163 175 423 364 285 145 137 154 212 198 203 417 219
Q2 291 240 190 159 215 443 297 238 156 179 146 295 173 235 347 219
Q3 301 171 180 159 381 351 303 181 177 201 178 180 184 313 252
Q4 230 155 140 156 401 264 317 166 165 170 172 191 190 332 245
Average 260 207 160 159 293 369 320 217 161 172 163 219 186 271 315
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(1) Assumes operation at full capacity levels
Direct exposures only; before the impact of any cash flow currency hedges
Tax operating loss carry-forwards (gross) as at Dec. 31, 2013 – US $71 million, Canada C$49 million,
Belgium €30 million
(2) Excluding dividends on common shares
Exposure Change
EBITDA
Impact (1)
($ millions)
North American OSB $10 per Msf 7/16” + $36
European OSB €10 per m3 + $7
Canadian dollar(2) $0.01 per Cdn$ < $1
Pound sterling £0.01 per € < $1
Financial Sensitivities
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Analyst Analyst Name Contact
CIBC Mark Kennedy (403) 221-4133 [email protected]
Credit Suisse Andrew Kuske (416) 352-4561 [email protected]
Dundee Capital Markets Stephen Atkinson (514) 396-0321 [email protected]
ERA Forest Products
Research Claire Huxtable (604) 886-5741 [email protected]
John Tumazos Very
Independent Research John Tumazos (732) 444-1083 [email protected]
Raymond James Daryl Swetlishoff (604) 659-8246 [email protected]
RBC Capital Markets Paul Quinn (604) 257-7048 [email protected]
Salman Partners Rajiv Mukhi (604) 622-5289 [email protected]
Scotia Capital Benoit Laprade (514) 287-3627 [email protected]
TD Securities Sean Steuart (416) 308-3399 [email protected]
Vertical Research Partners James Armstrong (212) 256-6157 [email protected]
Analyst Coverage of Norbord
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• Norbord does not provide guidance regarding its expectations of future OSB prices. The following is a
sample of price forecasts by analysts as at August 27, 2014. It is not exhaustive.
Annual Average
North Central Benchmark OSB Price US$ per Msf 7/16” 2014F 2015F
CIBC 222 260
Dundee Capital Markets 220 225
Raymond James 245 280
RBC Capital Markets 225 250
Salman Partners 230 260
Scotia Capital 231 293
TD Securities 221 255
Vertical Research Partners 225 230
Average $227 $257
Forecast OSB Pricing – North Central 7/16”
