Investor PresentationNovember 2019
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 2,500 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 Q3 2019 sales of $1.9 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, 2018.
The Leading Global OSB Company
5
Company Overview
Top 10 Global OSB Producers
Enterprise Value
Source: Company filings and Bloomberg. Enterprise values as at November 1, 2019.
* 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
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 69% of total North American structural panel production
Source: APA, October 2019
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, Wood Based Panels International (WBPI)
* Excluding NA OSB siding capacity
*
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
* Excluding OSB siding capacity.
*
US Housing Starts Are the Single Biggest End Use for OSB
11Source: U.S. Census Bureau and Forest Economic Advisors, LLC (FEA)
Industry Overview
US Repair & Remodel Demand Also Drives OSB Consumption
12
Industry Overview
Bsf-
3/8”
bas
is
US$
bill
ions
Source: Forest Economic Advisors, LLC (FEA); in billions of 2012 US$
Norbord announced indefinite curtailment of Cordele, GA Line 1 (440 MMsf) effective mid-November 2019
The picture can't be displayed.
The picture can't be displayed.
North American OSB Industry Stated Capacity of 27 Bsf
13
Industry Overview
Note: Excludes OSB siding production and capacity.
Source: APA, company documents and other public filings
35 Mills in Operation
5 Mills (Re)started in 2017/18
North American OSB Installed Capacity:
Norbord Mill
6 Mills (Re)started in 2012/13
3 Mills Idle
Georgie-Pacific announced indefinite curtailment of Allendale, SC mill (800 MMsf) effective December 2019
Favourable Long-term OSB Industry Fundamentals
14
Industry Overview
North American OSB Demand
Source: Forest Economic Advisors, LLC (FEA)
$100
$150
$200
$250
$300
$350
$400
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Annu
al A
vera
ge N
C Pr
ice
US$
per
Msf
7/1
6"Historical North American OSB Prices
15
Industry Overview
North Central Benchmark OSB Price
Source: Random Lengths
15-year average: $253
• OSB prices are tied to demand for building products, which is influenced by the general economy, demographics and the need for housing
Q1 423 364 285 145 137 154 212 198 203 417 219 193 226 293 370 211
Q2 443 297 238 156 179 146 295 173 235 347 219 193 264 330 426 188
Q3 351 303 181 177 201 178 180 184 313 252 216 204 301 409 363 217
Q4 264 317 166 165 170 172 191 190 332 245 216 242 285 379 243
Average 369 320 217 161 172 163 219 186 271 315 218 209 269 353 351
0
2
4
6
8
10
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Europe: Strong Demand Growth Driven by Substitution
16
Industry Overview
OSB Share of Structural Panels
Source: Forest Economic Advisors, LLC (FEA), European Panel Federation (EPF) and Norbord estimates
European OSB Demand (million m3)
Source: Eurostat, UN Comtrade Database, Destatis and Norbord estimates
8%2005-2018 CAGR
North America
Europe Indicative average OSB price
Source: Random Lengths and Company documents
• Significant growth opportunity – OSB accounts for only ~9% of the structural panel market in Japan compared to 69% in North America
Japan: Stable Housing Market
17
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
19
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
Norbord’s Growth Focused on OSB
20
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)
Margin Improvement Is an Operational Priority
21
Business Strategy
(1) Measured relative to prior year at constant prices and exchange rates.(2) The benefits from richer product mix and improved productivity were offset by higher maintenance-related costs. In addition, 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 calculation. (3) 2015 onwards reflects Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth.
(2)
Margin Improvement Program Gains (US$ 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 $331 million of margin improvements over the past 15 years
(1)
(3)
(2)
Repositioning Business to Reduce Earnings Volatility
22
Business Strategy
Q3/19 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)
$1.9 billionsales
Focused Customer Strategy Sets Norbord Apart
23
Business Strategy
Q3/19 LTM North American Shipments
• New home construction sales volume tied to US housing starts• Repair & remodel sales volume growing in step with R+R expenditures• Industrial and export sales volume growing through substitution, has more stable margins
6.4 Bsf-3/8”
Commodity
Specialty Products Will Drive North American Substitution Growth
24
Business Strategy
• Reduced dependence on new home construction
• More predictable, stable margins over business cycle
2015 Target2018
~400 MMsf
Specialty Products Volume (MMsf-3/8”)
New Industrial End Uses, New Growth Opportunities
25
North American Industrial Panel Consumption
EWP
Furniture Commercial
Source: APA – The Engineered Wood Association, FEA, RISI, US Forest Products Annual Market Review and Prospects (USDA FS), US International Trade Commission, Norbord estimates
Business Strategy
Norbord is a leading supplier to current industrial end uses
~21 Bsf-3/8”
Transportation
More Stable Results from European Operations
26
Business Strategy
European Adjusted EBITDA (US$ 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
Inverness Mill Expansion Supports Increasing European Customer Demand
27
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$46 million (£35 million)
• 2nd wood room and dryer approved in January 2019
• Completion expected H2/2020
395
720945
2016 Phase 1expansion
Phase 2expansion
+139%
Inverness Capacity (in MMsf-3/8”) Inverness Investments
58%22%
20%
63%
4%
28%
5%
Diversifying Towards Stable Margin End Uses
28
Norbord shipments(1)
5.1 Bsf-3/8”
(1) Reflects Norbord excluding Ainsworth.(2) Represents Norbord’s North American non-OSB business (fully divested in 2010).
Business Strategy
20041.96M US Housing Starts
20181.25M US Housing Starts
Norbord shipments8.3 Bsf-3/8”
(2)
NA Specialty
29
Business Strategy
Capex Investment (US$ millions)• Three main priorities:– Re-invest in the business– Optimize capital structure– Return cash to shareholders
• 2019 capex forecast of $150 million
– Includes investments to prepare Chambord, Quebec mill for restart (when warranted by customer demand) and Inverness, Scotland phase 2 project
• 2020 capex budget of $100 million
– Includes investments in Chambord and Inverness phase 2
Disciplined Capital Allocation
(1)
(1) 2015 onwards reflects Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth.
Minimum Maintenance $25 million
Financial Overview
Strong Operating Cash Flow Through The Cycle
31
Financial Overview
North Central Avg. Benchmark OSB Price $369 $320 $217 $161 $172 $163 $219 $186 $271 $315 $218 $209 $269 $353 $351 $215
US Housing Starts(000s) 1,956 2,068 1,801 1,355 906 554 587 609 781 925 1,003 1,112 1,174 1,202 1,250 1,237
Total Adjusted EBITDA (US$ millions)
15-year average:$330 million
(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 October 5, 2019.
Norbord sensitivity to realized North American OSB price changes:
+$10/Msf 7/16” = +$52 million Adjusted EBITDA(2)
(1)
Manageable Leverage
32
Financial Overview
Adjusted EBITDA vs Net Debt
Quarterly Adj. EBITDA
(in US$ millions)
Net Debt toLTM Adj. EBITDA
• Comfortable headroom versus revolver financial covenantsQ3 2019 Covenant
Net debt to capitalization 40% 65%
Tangible net worth (book basis) $1,028 million $500 million
Strong Balance Sheet & Liquidity
33
Financial Overview
Q3 2019
Cash $ 3
Bank Lines(1) 234
A/R Securitization(2) 49
Liquidity $ 286
Comfortable Debt Maturities (US$ millions) Strong Liquidity Profile (US$ millions)
Moody’s Ba1 (Stable)
S&P BB (Stable)
Stable Issuer Credit Ratings
coup
on 6
.25%
(1) $245 million of committed revolving bank lines less $11 million outstanding letters of credit and guarantees drawn at quarter-end.(2) $76 million was the maximum available under the A/R securitization program and $27 million was recorded as drawn under the program at quarter end.
coup
on 5
.75%
Returning Cash to Shareholders Through Variable Dividend Policy
34
Financial Overview
Dividends Declared (US$ millions)
(1)
(1) Reflects dividend of C $0.20 per share (translated at C $1 = US $0.76) to be paid on December 23, 2019 to shareholders of record on November 29, 2019.
0%
5%
10%
15%
20%
25%
30%
Norbord Peer1 Peer2 Peer3 Peer4 Peer5 Peer6 Peer7 Peer8
Strong Track Record of Value Creation
35
Financial Overview
15-Year Average ROCE %(1)
Source: Capital IQ
(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 November 2018 to January 2019 of Normal Course Issuer Bid Program.
>$1BCapital invested
$1.4BDividends paid out
$141Mto repurchase 5.2M shares
(6% of outstanding)
24%
(2)
36
Value Leader in the OSB IndustryFinancial Overview
Peer1
Peer3
Peer2
Peer4
TSX Composite
~8-Year Annualized Total Return (in US$)*
Source: Bloomberg*Annual return measured from December 30, 2011 to November 1, 2019.
37
Superior operating and cost performance
Diversification strategy supports growth and stable margins
Disciplined approach to capital allocation
Shareholder-friendly track record
Attractive Investment Opportunity Summary
Appendices
Shareholder Information
39
Appendices
Ticker Symbol NYSE: OSB
TSX: OSB
Common Shares 81.7 million outstanding(as at October 31, 2019)
Quarterly Dividend(variable dividend policy)
C $0.20 per share (declared October 31, 2019 to be paid on December 23, 2019 to shareholders of record on November 29, 2019)
Largest Shareholder Brookfield Asset Management – ~43%(as at October 31, 2019)
Financial Sensitivities
40
Appendices
Exposure Change
Adjusted EBITDA Impact (1)
(US$ millions)
North American OSB (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 to be curtailed mid-November 2019). Impact on Adjusted EBITDA of a $10 per Msf-7/16” change is ± $52 million based on the last twelve months of production at October 5, 2019.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, 2018 – Canada C$8 million and Belgium €32 million.
(2) Estimated impact of change in Norbord’s realized North American OSB price.
(3) Operating exposures only (excludes dividends on common shares and income tax payments).
Analyst Coverage
41
Appendices
Analyst Analyst Name Contact
Bank of America Merrill Lynch John Babcock/George Staphos (646) 743-0046 [email protected]
BMO Capital Markets Ketan Mamtora/Mark Wilde (212) 883-5121 [email protected]
CIBC World Markets Hamir Patel (604) 331-3047 [email protected]
Credit Suisse Andrew Kuske (416) 352-4561 [email protected]
ERA Forest Products Research John Cooney (604) 267-3021 [email protected]
John Tumazos Very Independent Research John Tumazos (732) 444-1083 [email protected]
Raymond James Daryl Swetlishoff (604) 659-8246 [email protected]
RBC Capital Markets Paul Quinn (604) 257-7048 [email protected]
Scotia Capital Benoit Laprade (514) 287-3627 [email protected]
Seaport Global Securities Mark Weintraub (646) 264-5602 [email protected]
TD Securities Sean Steuart (416) 308-3399 [email protected]
Vertical Research Partners Chip Dillon (212) 257-6159 [email protected]
Norbord does not provide guidance regarding its expectations of future OSB prices. The following is a sample of price forecasts by analysts as at November 1, 2019. It is not exhaustive.
Forecast North American OSB Prices
42
Appendices
Analyst 2019F 2020E
Seaport Global 211 294
TD Securities 215 289
BMO Capital Markets 213 285
Vertical Research Partners 207 285
Scotiabank 213 276
CIBC World Markets 215 275
Raymond James 215 270
RBC Capital Markets 210 250
Bank of America Merrill Lynch 206 238
Average 212 274
Annual AverageNorth Central
Benchmark OSB Price US$ per Msf 7/16”
Sustainability: Core to Our Business
43
Appendices
Wood is a renewable resource
OSB sequesterscarbon
We utilize 100% of the tree
We use biomassto generate heat energy
Norbord’s North American net carbon sink = offsetting annual emissions from >700k vehicles
Source: Norbord estimates based on 2017 production
Norbord Inc.
Suite 600One Toronto Street
Toronto, Ontario, M5C 2W4Canada
Tel: 416-365-0705
www.norbord.com
Top Related