Norbord Reports Third Quarter 2011 Results

Oct 28, 2011 | Posted in Corporate News, News

October 28, 2011

To our Shareholders,

Norbord’s third quarter EBITDA result of $12 million is a modest improvement over the previous quarter and the ninth consecutive quarter that we’ve delivered positive EBITDA. This result reflects both the steady performance of our European operations and significant new benefits from our company-wide Margin Improvement Program (MIP).

Our North American operations delivered better financial performance this quarter, due in part to higher OSB prices. The North Central benchmark price improved somewhat, averaging $184/Msf, an $11 increase over the previous quarter. At the same time, quarterly shipments were up and our home improvement, industrial and export sales are strong. Our strategic shift away from new home construction and toward these alternative end-users is enabling us to maintain our volumes despite the stagnant housing market.

InEurope, our panel business had another solid quarter, generating $10 million of EBITDA. Sales continued to outperform – panel prices were 11% higher on average and volume was up 6% over last year. These price increases are necessary as we continue to experience escalating energy and wood costs across our European operations.

My last three shareholder letters highlighted the importance of Norbord’s Margin Improvement Program. These initiatives continue to deliver significant productivity gains and manufacturing cost reductions. Our company-wide MIP target for 2011 is $30 million and I am pleased to report that, as of Q3, our operations have delivered more than 70% of this goal.

The biggest single contributor to this year’s MIP effort was the new resin technology we introduced early in 2010. The result has been a steady improvement in both production line speeds and raw materials usage across all of our North American OSB mills. The bottom-line impact of these benefits has pushed down manufacturing costs, effectively offsetting any negative impact from higher raw material input prices. Looking to the next opportunity, in 2012 we will make our first investment in more extensive fines screening equipment at our mill inNacogdoches,Texas. This pilot initiative, if implemented across the Company, has the same potential upside as our resin conversion.

In our third quarter disclosure documents, you will find reference to our upcoming July 2012 bond maturity. Our intention is to refinance prior to the July maturity date. However, recognizing that financial markets are volatile, we have also put in place a backup arrangement. If needed, this will provide an option to repay up to half of the $240 million bond maturity from our bank lines and the other half from a $120 million


J. Barrie Shineton

President & CEO



term loan commitment fromBrookfield, Norbord’s largest shareholder. This commitment is in addition to Norbord’s more than $300 million of liquidity at quarter-end. At the same time, our bank lines have been amended to widen the net debt to capitalization covenant from 60% to 65%. This covenant amendment and the loan commitment will provide the flexibility and the liquidity Norbord needs to manage through what appears to be an extended timeline for economic recovery.

Little has changed in the North American housing market. TotalUShousing starts for 2011 are now forecast to finish in the 570,000 range, slightly lower than 2010’s levels. I am becoming increasingly bearish about any near-term rebound in new home construction. Weak employment numbers persist, house prices have not yet stabilized and the current mortgage lending environment discourages potential new home buyers.

Although our European panel business has been a solid performer all year, I do expect the very robust demand of the past two years to ease. Norbord’s customers in both theUKand across the Eurozone have become cautious as they react to the economic uncertainty stemming from the sovereign debt crisis. In spite of this,UKhouse builders, who are Norbord’s largest customer group, are in good financial shape and remain optimistic about next year. They are well positioned to respond to an expected increase in demand, driven by unprecedented low new home inventory levels.

While our business environment over the next two quarters will be challenging, I continue to be pleased with Norbord’s progress. InNorth America, margin improvement initiatives are delivering solid results, our manufacturing costs are dropping and we are successfully repositioning sales away from new home construction. InEurope, our operations are performing well and are running at capacity. And finally, our modified bank arrangements give us comfort that we have the financial flexibility we need over the longer term.

I still believe the underlying demographics support an eventual housing recovery. The longer we remain in this trough, the stronger the recovery will be when it takes hold. And Norbord will benefit when it does.

I look forward to reporting on our progress next quarter.

This letter includes forward-looking statements, as defined by applicable securities legislation including statements related to our strategy, projects, plans, margin improvements, 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 and Q3 2011 Management’s Discussion and Analysis dated October 28, 2011.



News Release


Note: Financial references in US dollars unless otherwise indicated. All prior period comparative figures have been restated for IFRS.


Achieved positive EBITDA of $12 million

Margin improvement benefits accelerating; $21 million in gains year-to-date

Record productivity at North American & European OSB mills in the quarter

Backup refinancing plan put in place for 2012 bonds

Nacogdoches, Texas mill achieved 1 million hours without a recordable injury


TORONTO, ON (October 28, 2011) – Norbord Inc. (TSX: NBD, NBD.WT) today reported positive EBITDA of $12 million in the third quarter of 2011 compared to $10 million in the second quarter of 2011 and $13 million in the third quarter of 2010. North American operations generated EBITDA of $5 million this quarter versus break-even in the prior quarter and $4 million in the same quarter last year. European operations generated EBITDA of $10 million this quarter versus $13 million in the prior quarter and $11 million in the same quarter last year.

Norbord recorded a loss of $1 million or $0.02 per share in the third quarter of 2011 compared to earnings of $1 million or $0.03 per share in the second quarter of 2011 and a loss of $4 million or $0.09 per share in the third quarter of 2010.

“We delivered positive EBITDA results again this quarter in spite of persistently difficult markets,” said Barrie Shineton, President and CEO. “I am especially pleased that our Margin Improvement Program continues to deliver better mill productivity and lower raw materials usage. Both are key to offsetting the negative impact of higher raw material input prices. In addition, our European business delivered another solid quarter. Panel prices have held up in the face of ongoing economic uncertainty across Europe and slowing consumer discretionary spending in theUK.”

“While I still expect panel markets inEuropeto soften, we did not see any meaningful impact on our business in the third quarter. InNorth America, we continue to respond to the stagnant housing market by shifting more of our sales volume to alternate end-uses.”

“I’m also pleased with the modified financing arrangements we put in place this month. This gives us the financial flexibility we need to manage through what is clearly becoming an extended timeline for a housing recovery.”

Market Conditions

In theUS, year-to-date housing starts, including multi-family, are approximately 2% lower than last year. The single family component, which is more important to the OSB industry, is down 12% year-over-year. Despite this, OSB prices held up during the third quarter. The North Central benchmark OSB price



averaged $184 per thousand square feet (Msf) (7⁄16-inch basis) compared to $173 per Msf in the prior quarter and $180 per Msf during the same quarter last year. US housing starts are expected to end the year below 0.6 million, marginally lower than the prior year and well below the 25-year historical annualized average of 1.5 million.

InEurope, overall panel demand softened slightly due to slowing construction and retail spending. Overall panel prices, however, continued their upward trend compared to both the prior quarter and the same quarter last year, reflecting the ongoing increases to wood, resin and energy costs. Quarter-over-quarter, particleboard and MDF prices increased by 7% and 3%, respectively, while OSB prices eased 2%. Year-over-year, average particleboard, MDF and OSB prices increased by 20%, 16% and 6%, respectively, in order to recover input cost escalation. Management expects European panel prices to moderate somewhat from the very robust levels of the past two years as both business and consumers react to the evolving sovereign debt crisis and increasing economic uncertainty.


InNorth America, third quarter OSB shipment volumes were 4% higher than the prior quarter. Norbord’s operating OSB mills continued to run at approximately 85% of their capacity. Including the two indefinitely closed mills inHuguley,AlabamaandJefferson,Texas, the North American operations ran at approximately 65% of estimated capacity in both the third and second quarters of 2011, slightly lower than the 70% in the third quarter of 2010.

Norbord’s North American OSB unit cash production costs decreased by 1% versus both the prior quarter and the same quarter last year. Excluding the impact of higher key input prices, unit costs decreased by 2% quarter-over-quarter and 4% year-over-year, the result of improved manufacturing productivity and lower raw materials usage.

InEurope, third quarter panel shipments were 6% lower versus the prior quarter but year-to-date shipments increased 15% compared to last year. Norbord’s European mills continued to run at capacity. European operations have generated EBITDA of $34 million year-to-date versus $25 million in 2010, a $9 million increase. Higher shipment volumes and lower raw materials usage delivered the improvement while higher selling prices offset the impact of higher costs for all key inputs.

Margin Improvement Program benefits continue to accelerate. The $21 million year-to-date gains come from a richer sales mix, improved production efficiencies as well as reduced raw materials usage and, in North America, have more than offset the impact of higher raw material prices.

Capital investments totaled $4 million in the third quarter and $16 million year-to-date. Norbord’s total 2011 capital investment is expected to be $25 million. This is modestly higher than last year due to the completion of the Cowie,Scotlandparticleboard mill upgrade in the second quarter.

Operating working capital was $65 million at period-end compared to $52 million in the prior quarter and $49 million in the prior year. The quarter-over-quarter increase was primarily due to the timing of sales and collections of accounts receivable. Accounts receivable performance is in line with prior periods.

At quarter-end, the Company’s tangible net worth for financial covenant purposes was $352 million and net debt to total capitalization on a book basis was 53%.




Norbord intends to refinance its 2012 debentures prior to their July 1st maturity, subject to favourable financial market conditions. However, recognizing the current state of financial markets and to provide additional flexibility should this be required, Norbord put in place a backup refinancing plan for this bond maturity subsequent to quarter-end. If needed, Norbord has the option to repay up to half of this $240 million maturity from its bank lines and the other half from a $120 million standby lending commitment from its largest shareholder, Brookfield Asset Management Inc. (Brookfield). If utilized, theBrookfield loan would be secured pari passu with the bank lines and 2017 bonds, contain market standard terms and would be pre-payable at any time without penalty, so long asBrookfield is the holder. In addition, the Company amended its $270 million committed revolving bank lines so that the net debt to total capitalization covenant is increased from 60% to 65%.

At quarter-end, Norbord had unutilized liquidity of $317 million, consisting of $262 million in revolving bank lines and $55 million in cash and cash equivalents. This is in addition to the $120 millionBrookfieldstandby commitment.

Lastly, Norbord intends to apply to the Toronto Stock Exchange (TSX) for approval to renew its normal course issuer bid for up to 5% of its Common Shares in accordance with TSX rules. The bid will be subject to TSX acceptance and full details will be announced upon receipt of TSX consent.

Additional Information

Norbord’s Q3 2011 letter to shareholders, news release, management’s discussion & analysis, consolidated unaudited financial statements and notes to the financial statements have been filed on SEDAR ( and are available in the investor section of the Company’s website at Shareholders are encouraged to read this material.

Conference Call

Norbord will hold a conference call for analysts and institutional investors on Friday, October 28, 2011 at 10:00 a.m. ET. The call will be broadcast live over the Internet via and A replay number will be available approximately one hour after completion of the call and will be accessible until November 27, 2011 by dialing 1-888-203-1112 or 647-436-0148. The passcode is 1896904. Audio playback and a written transcript will be available on the Norbord website.

Norbord Profile

Norbord Inc. is an international producer of wood-based panels with assets of $1 billion, employing approximately 2,030 people at 13 plant locations in theUnited States, Europe andCanada. 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 NBD.WT.

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