Jan 28, 2011 | Posted in Corporate News
President & CEO
January 28, 2011
To our Shareholders,
I am pleased to report our first positive earnings since 2006. Norbord generated earnings
of $0.39 per share on EBITDA of $105 million in 2010, a meaningful improvement on
the breakeven result of the prior year. This reflects much stronger performance from our
European business, better OSB prices in North America and higher capacity utilization
across all of the Company’s operations.
After a slower start in the first quarter, 2010 turned out to be a much better year for
Norbord. North American OSB prices improved, particularly in the second quarter when
they peaked at almost $400. Panel demand was stronger allowing our North American
mills to operate more of their capacity and our European mills to run flat out. Our
European operations had an excellent year, generating more than double the cash flow of
last year. And we continued to tightly manage working capital, finishing the year at our
I believe the worst is behind us. Today, we have a strong balance sheet, we are cash flow
positive and have successfully managed through the toughest downturn in our industry’s
history. Our share price has recovered significantly over the last two years, but it still
values Norbord’s assets well below their replacement cost. We have put in place a
normal course issuer bid that allows us to buy back up to 5% of our outstanding common
shares, a sound investment should our cash flow support it.
Norbord’s House is in Order
Our balance sheet is solid. Our efforts over the past three years to stabilize our finances
are largely complete. We extended our bank lines, added a seventh lender and put in
place a more flexible accounts receivable securitization program. Today, we have
unutilized bank lines and cash on hand totalling $348 million, which is sufficient liquidity
to support our operating initiatives and fund our capital allocation priorities.
Our focus as a low-cost OSB producer is sharper. We have continued to streamline our
North American operations by exiting non-core businesses. We sold our Deposit MDF
mill late in 2009 and we wrote down our investment in the Cochrane hardwood plywood
joint venture at year-end. Today, our North American operations consist solely of highquality, well-located OSB facilities.
Continuous improvement drives productivity and margin gains. In 2010, we
implemented new resin technology across all of our North American OSB operations.
We expect the full benefit of this margin improvement initiative to flow through to our
2011 results through faster line operating speeds, higher sales margins and a richer value-
1added product mix. Initial feedback from customers suggests that these changes have
been well received in the market.
Diversified sales minimize exposure to cyclical new home construction. Today, almost
two-thirds of Norbord’s North American OSB is directed to home improvement centres
and industrial customers and away from the new home construction sector. This
diversification strategy has served us well through the downturn, allowing Norbord to
operate 70% of its OSB capacity in 2010, compared to the industry-wide operating rate of
The time is right to re-invest. We appropriately constrained capital investments to
minimal levels for the last three years. Now, our improving cash flows and more positive
near-term outlook support a modest ramp up in capital spending. A significant project to
upgrade our European particleboard assets will be complete by mid-2011, enabling
Norbord to reposition its product offering and compete on an equal footing with the
newest generation of particleboard capacity.
We are closer to our goal of world-class safety performance. Last year, Norbord
achieved a best-ever safety incident rate of 0.96. This year, our days lost due to injury -
an important injury severity measure – decreased by 80% to just 82 days across the entire
company, another best-ever result. Our Guntown, Cordele and Nacogdoches mills
achieved Safety Star certifications, a program based on OSHA’s Voluntary Protection
Program (VPP). Four more of our facilities will meet this rigorous safety standard in
2011. And both our Cordele and Nacogdoches mills completed their second calendar
year without a single recordable injury, an exceptional, industry-leading achievement.
Proactive succession planning further strengthens our management team. In September,
we promoted Peter Wijnbergen to the newly-created position of Chief Operating Officer
with responsibility for our North American operations. As well, Nigel Banks joined our
team in November as a successor to Bob Kinnear who will retire from his role as Senior
Vice President, Corporate Services this year. Both these appointments ensure
organizational continuity as we execute on our strategic priorities.
Outlook for 2011
The housing market in North America is improving, but slowly. Experts are not yet
predicting a sharp rebound in housing starts and more recently have adjusted their
forecasts down, closer to 2010 levels. We expect that overall OSB demand in 2011 will
look very similar to last year. Good working capital practices are keeping inventories
low across the supply chain. Small changes in either supply or demand are likely to
result in ongoing price volatility. It’s my view that the general economic news will
improve and unemployment levels will fall throughout this year, leading to better new
home construction activity and improving OSB demand and prices in the second half.
In Europe, the bull market for OSB peaked late in 2010. However, prices are holding and
we expect this positive panel market dynamic to continue well into this year. A
favourable exchange rate continues to support our UK-based manufacturing by limiting
competing imports and providing a unique opportunity to export our panels to the
Continent. We expect to run our European mills at capacity in 2011.
There are some industry developments that we are watching closely. In North America,
the broader economic recovery could drive higher raw material prices that may be
difficult to pass on should the housing recovery lag. In Europe, government biomass
energy incentive programs could put further pressure on wood fibre prices. We will
continue to ‘push the envelope’ on controllable costs to mitigate this potential input cost
Norbord is Well-Positioned
The recovery phase of this housing cycle is approaching and Norbord will enter it a
stronger company. We have high-quality, low-cost facilities that are running at relatively
higher operating rates. We have strong customer partnerships. We have continued to
grow our sales with key customers throughout the cyclical downturn. Our European
operations are providing meaningful and stable earnings. The long-term fundamentals
supporting housing demand are favourable. Norbord is well-positioned to generate
superior returns once the recovery takes hold.
On behalf of everyone at Norbord, I thank you for your continued support. I look
forward to reporting on our progress throughout the year.
This letter includes forward-looking statements, as defined by applicable securities legislation including
statements related to our strategy, projects, plans, future financial or operating performance and other
statements that express management’s expectations or estimates of future performance. Often, but not
always, forward-looking statements can be identified by the use of words such as “believe,” “should,”
“expect,” “suggest,” “likely,” “would,” or variations of such words and phrases or statements that
certain actions “may,” “could,” “must,” “would,” “might,” or “will” be undertaken, occur or be
achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance or achievements of Norbord to be materially different from
any future results, performance or achievement expressed or implied by the forward-looking statements.
See the cautionary language in the Forward-Looking Statements section of the 2010 Management’s
Discussion and Analysis dated January 28, 2011.
NORBORD REPORTS STRONGER 2010 RESULTS; GENERATES POSITIVE EARNINGS ON IMPROVED EBITDA
Note: Financial references in US dollars unless otherwise indicated
- Achieved positive EBITDA of $105 million vs. break-even in 2009
- European EBITDA more than doubled from $17 million in 2009 to $36 million
- Ramped up North American OSB production in improved pricing environment
- North Central benchmark OSB price increased 34% vs. the prior year to levels not seen since 2006
- Indicative European OSB price increased 25% from 2009
- Employee days lost due to injury down 80%, a best-ever result
TORONTO, ON (January 28, 2011) – Norbord Inc. (TSX: NBD, NBD.WT) today reported positive
EBITDA of $105 million versus break-even EBITDA in 2009. The year-over-year improvement is due
largely to higher North American OSB and European panel prices and higher shipment volumes. North
American OSB generated a year-over-year EBITDA improvement of $90 million driven by strong second
quarter results, while Norbord’s European panel operations generated a $19 million year-over-year
EBITDA improvement. In the fourth quarter, Norbord recorded positive EBITDA of $13 million versus
$12 million in the previous quarter and $6 million in the fourth quarter of 2009.
Norbord recorded earnings of $17 million or $0.39 per share (basic) for the full year versus a loss of $58
million or $1.35 per share in 2009. The Company recorded a loss of $2 million or $0.05 per share in the
fourth quarter, excluding the impact of a $6 million after-tax or $0.14 per share non-cash write-down of
its investment in a non-core business. In the fourth quarter of 2009, the Company incurred a loss of $11
million or $0.25 per share.
“Our 2010 results exceeded our expectations,” said Barrie Shineton, President and CEO. “In North
America, our customer and product strategy enabled us to run more capacity and to benefit from a
stronger pricing environment throughout the year. In Europe, our EBITDA more than doubled on the
back of particularly robust OSB markets. While I’m pleased that Norbord generated positive annual
earnings for our shareholders this year, we recognize that we still have a long way to go before our
financial performance is back to acceptable levels.”
“We expect the overall business environment in 2011 to generally mirror Norbord’s experience in the past
year. We are seeing the beginnings of a slow recovery for the US housing market, which should start
taking hold in the second half of the year. Norbord will be well-positioned to generate stronger results
once that occurs.”
US housing starts were 0.59 million in 2010, up modestly from 0.55 million in 2009, but significantly
below the long-term annual average of 1.5 million.
For the full year, the North Central benchmark OSB price averaged $219 per Msf (7⁄16-inch basis)
compared to $163 per Msf in 2009. In the South East region, where approximately 55% of Norbord’s 5
North American OSB capacity is located, prices were somewhat lower than in the North Central region,
averaging $198 per Msf, compared to $148 per Msf last year. In the fourth quarter, North Central benchmark OSB prices averaged $191, up $11 from the third quarter and up $19 from the fourth quarter of 2009. South East prices averaged $165 in the quarter, up $9 from the third quarter and up $11 from the fourth quarter of 2009.
In 2010, the US housing market remained challenging while OSB demand and prices continued to be
volatile. The first half of the year saw surging North Central benchmark OSB prices that peaked at $395
per Msf in May before retreating to more sustainable levels in the second half of the year. The first-half
price run-up was largely influenced by several unique factors that resulted in overall demand outstripping
the ability of both producers and distributors to respond in a timely manner. Second-half housing activity
was softer as the May expiry of the US first-time home buyer tax credit pulled home buying demand
forward into the first half of the year. In the UK, where the majority of Norbord’s European assets are located, housing starts increased by 30% over 2009 as house builders replenished their inventories of new homes.
The European OSB market was particularly robust in 2010, building on the recovery that began at the end
of 2009. The 25% year-over-year increase in average indicative OSB prices was driven by firmer end-use
demand, inventory re-stocking and substitution for plywood. Particleboard and MDF prices also
strengthened during the year, increasing a more modest 5% and 6%, respectively, reflecting the recovery
of higher input costs. MDF exports to Continental Europe increased by 46%. Although the Euro weakened somewhat during the year versus the Pound Sterling, the currency remained in a range that continued to benefit Norbord’s UK-based operations.
Norbord’s operating North American OSB mills ran at approximately 90% of their capacity in 2010
compared to 80% in 2009. Including the indefinitely closed mills, North American operations ran at 70%
of capacity in 2010, compared to 60% in 2009. In Europe, mills operated at approximately 95% of
capacity in 2010, up 15% from the previous year.
For the full year, Norbord’s North American per unit OSB cash production costs increased 8% over the
prior year. The benefit of higher production volume was offset by higher resin and fibre prices, higher
supplies and maintenance costs as a result of running more production in 2010, employee profit share
payouts, and the foreign exchange impact of the strengthening Canadian dollar.
In the fourth quarter, North American per unit OSB cash production costs decreased by 1% over the third
quarter of 2010 due to higher production volume and lower key input prices and usages. OSB cash
production costs increased by 3% over the fourth quarter of 2009 as improved key input usages and
higher production volume were offset by higher resin and fibre prices, supplies and maintenance costs.
Resin, fibre and energy, which account for approximately 65% of Norbord’s cash production costs,
increased sharply over the five-year period preceding 2009. Margin Improvement Program gains of $16
million in 2010 limited the impact that higher raw material prices had on earnings.
At year-end, Norbord had unutilized liquidity of $348 million, comprising $235 million in undrawn
revolving bank lines and $113 million in cash and cash equivalents. The Company’s tangible net worth
was $352 million and net debt to total capitalization on a book basis was 49%.
Capital investments were constrained to essential capital projects totaling $16 million in 2010. Norbord’s
2011 capital investments are planned at $25 million, which includes an infrastructure investment at the
Cowie, Scotland particleboard mill that is expected to increase production capacity and reduce
In January 2011, True North Hardwood Plywood Inc. announced the winding-down of its hardwood
plywood operation in Cochrane, Ontario. In the fourth quarter, Norbord recorded a $6 million after-tax
($0.14 per share) non-cash provision for its 50% investment in this business.
Norbord’s year-end 2010 letter to shareholders, news release, management’s discussion & analysis,
annual consolidated audited financial statements and notes to the financial statements have been filed on
SEDAR (www.sedar.com) and are available in the investor section of the Company’s website at
www.norbord.com. Shareholders are encouraged to read this material.
Norbord will hold a conference call for analysts and institutional investors on Friday, January 28, 2011 at
11:00 a.m. ET. The call will be broadcast live over the Internet via www.norbord.com and
www.newswire.ca. A replay number will be available approximately one hour after completion of the
call and will be accessible until February 28, 2011 by dialing 1-888-203-1112 or 647-436-0148. The
passcode is 6532094. Audio playback and a written transcript will be available on the Norbord website.
Norbord Inc. is an international producer of wood-based panels with assets of $1.0 billion, employing
approximately 2,030 people at 13 plant locations in the United States, Europe and Canada. Norbord is
one of the world’s largest producers of oriented strand board (OSB). In addition to OSB, Norbord
manufactures particleboard, medium density fibreboard (MDF) and related value-added products.
Norbord is a publicly traded company listed on the Toronto Stock Exchange under the symbols NBD and