Investor Presentation - Norbord · 2019-02-20 · North America Europe ... Medium Density Fiberboard (MDF) Furniture Panel Capacity by Region(1) (1) Based on estimated annual capacity

Investor PresentationFebruary 2018

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 8.4 Bsf-3/8”

– Stated panel capacity (including particleboard & MDF) of 9.4 Bsf-3/8”

– Approximately 2,750 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

• 2017 sales of $2.2 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 estimated annual capacity at year-end 2017

The Leading Global OSB Company

5

Company Overview

Top 10 Global OSB Producers

Enterprise Value

Source: Bloomberg and company filings. Enterprise values as at February 8, 2018.

* Excluding OSB siding capacity

*

Norbord’s 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 67% of total North American structural panel production

Source: APA, January 2018

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

0

10

20

30

North America Europe Asia South America*

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.

*

Substitution a Big Driver of OSB Demand Growth

11

Industry Overview

OSB Share of Structural Panels

Source: Forest Economic Advisors, LLC (FEA), European Panel Federation (EPF) and Norbord estimates

Europe

North America

US Housing Recovery Continues

12

Industry Overview

Favourable long-term OSB industry fundamentals

US Housing Starts and Underlying Demand

1.5 mm Over-Built

North American OSB Demand and Capacity

>6 mm Under-Built

Source: US Census Bureau and Forest Economic Advisors, LLC (FEA)

North American Capacity Restarts Needed to Meet Growing Demand

13

Industry Overview

37 Mills in Operation

4 Mills Available for Restart(1)

North American OSB Installed Capacity:

Norbord Mill

7 Mills (Re)started in 2012/13

Note: Excludes OSB siding production and capacity.

Source: APA, company documents and other public filings

(in Bsf-3/8”)

2012 2017

Production 16.2 22.1

Restarts/Idled 4.4 2.0

New 1.2

=27% =14%

(1)Norbord’s Huguley, AL mill resumed production

in October 2017

2 Greenfield Mills in Development

Attractive North American OSB Price Outlook

14

Industry Overview

North Central Benchmark OSB Price

Source: Random Lengths and Forest Economic Advisors, LLC (FEA); As of January 29, 2018.

• OSB prices are tied to demand for building products, which is influenced by the general economy, demographics and the need for housing

$100

$150

$200

$250

$300

$350

$400

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F

An

nu

al A

vera

ge N

C P

rice

US$

pe

r M

sf 7

/16

"

Historical Price Forecasted Price (FEA)

15-year average:$243

OSB Penetration Driving Strong Demand Growth in Europe

15

Industry Overview

European OSB Demand (million m3)

Source: Eurostat, UN Comtrade Database, Destatis and Norbord estimates

• Significant growth opportunity – OSB accounts for only ~9% of the structural panel market in Japan compared to 67% in North America

Japanese Housing Market Stable

16

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

18

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

19

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.

(1)

Margin Improvement Is an Operational Priority

20

Business Strategy

(1) Measured relative to prior year at constant prices and exchange rates.(2) The benefits of improved productivity and a richer value-added product mix were offset by higher maintenance spending in 2013.(3) 2015 onwards reflects Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth.

(2)

Margin Improvement Program Gains ($ 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 14 years

• 2017 MIP gains of $12 million

(1)

(3)

Diversification From European & Asian End Market Exposure

21

Business Strategy

2017 Sales by Origin

(1) Exports to Asia are handled by Interex and sales are reported in the North American geographic segment.

• Strong North American footprint

• Stable margin operations:

– Europe

– Asia-focused exports(1)

• Provides greater diversification than North American-based competitors

• Better positioned to weather market cycles

(1)

$2.2 billionsales

Focused Customer Strategy Sets Norbord Apart

22

Business Strategy

2017 North American Shipments

• New housing sales volume growing as US housing starts recover• Industrial and export sales at more stable margins

6.1 Bsf-3/8”

23

Business Strategy

Capex Investment (US$ millions)

• Three main priorities:

– Re-invest in the business– Optimize capital structure– Return cash to shareholders

• 2017 capex of $253 million:

- $108 million regular capex

- $37 million for Huguley restart

- $101 million for Inverness project

- $7 million capitalized interest

• 2018 capex budget of $175 million

Disciplined Capital Allocation

(1)

Inverness, Scotland expansion - $135 million over two

years

(1) 2015 onwards reflects Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth.

Minimum Maintenance $25 million

Inverness: Expansion Completed to Meet Growing European Demand

24

Business Strategy

Capex: $135 million

Capacity: 720 MMsf-3/8” (640 km3)

• Produced first board in September 2017 • Started production in October 2017• Increased stated annual capacity by 325 MMsf (3/8-inch basis)

Specialty Products Will Drive North American Substitution Growth

25

Business Strategy

• Reduced dependence on new home construction

• More predictable, stable margins over business cycle

New home construction

Repair & remodel

Value-added

Commodity

Specialty

Industrial &Export

2017 Future

Significant OSB Substitution Opportunity in Industrial End Uses

26

Business Strategy

17%

EWP

Furniture

Commercial Roofing

Engineered Packaging

MDF

Particleboard

HW Plywood

SW Plywood

OSB

2015 North American Industrial Panel Consumption

Norbord is a leading supplier to current industrial end uses

Source: APA – The Engineered Wood Association, RISI, US Forest Products Annual Market Review and Prospects (USDA FS) and US International Trade Commission

Financial Overview

631

495

247

42

-60

10745

188

287

290

307

48

-23 5

58

13

106

145

921

802

295

19

-60

5

165

58

294

432

115 125

385

672

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Norbord Combined

Ainsworth

Norbord (excluding Ainsworth)

Strong Operating Cash Flow Through The Cycle

28

Financial Overview

North Central Benchmark OSB Price

$369 $320 $217 $161 $172 $163 $219 $186 $271 $315 $218 $209 $269 $353

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

Total Adjusted EBITDA (US$ millions)

14-year average:$302 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 December 31, 2017.

Norbord Sensitivity to realized North American OSB Price Changes:

+$10/Msf 7/16” = +$50 million Adjusted EBITDA(2)(1)

Stable Results from European Operations

29

Financial Overview

• Norbord’s European operations provide greater sales and earnings diversification than other North American-based competitors

European Adjusted EBITDA (US$ millions)

Leverage Metrics Significantly Improved

30

Financial Overview

Adjusted EBITDA vs Net Debt

Quarterly Adj. EBITDA

Net Debt toLTM Adj. EBITDA

11.0x

0.5x

Strong Balance Sheet & Liquidity

31

Financial Overview

Q4 2017

Cash $ 241

Bank Lines(2) 226

A/R Securitization(3) 125

Liquidity $ 592

Manageable Debt Maturities (US$ millions) Strong Liquidity Profile (US$ millions)

Moody’s Ba1 (Stable)

S&P BB (Stable)

DBRS BB (Stable)

Stable Issuer Credit Ratings

Rep

aid

5.3

75

%

6.2

5%

(1) Norbord permanently repaid the 2017 bonds at maturity on February 15, 2017.(2) $245 million of committed revolving bank lines less $19 million outstanding letters of credit drawn at quarter-end.(3) $125 million of A/R Securitization limit undrawn at quarter-end.

(1)

cou

po

n 5

.37

5%

cou

po

n 6

.25

%

Returning Cash to Shareholders Through Variable Dividend Policy

32

Financial Overview

Dividends Declared (US$ millions)

Annualized current level(1)

(1) Reflects current quarterly dividend level of C $0.60 per share (translated at C $1 = US $0.80).

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Norbord Peer1 Peer2 Peer3 Peer4 Peer5 Peer6 Peer7 Peer8 Peer9

Top Quartile ROCE Among Peers Over CycleFinancial Overview

15 Year Average ROCE % (Peak/Mean/Trough) (1)

(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, intangibles, timberlands & licences).

Source: Capital IQ 33

Attractive Investment Opportunity

34

Summary

Leverage to unfolding US housing recoveryEvery +$10 in Norbord’s realized OSB price = +$50 million in Adjusted EBITDA(1)

Diversification from European operations, North American industrial sales and Asian export sales

High quality asset base with low operating costs

Focused customer strategy and strong customer partnerships

Superior margins versus peers

Track record of disciplined capital allocation

Strong financial liquidity and comfortable debt maturities

(1) Assumes operation at LTM production levels as of December 31, 2017.

Appendices

Shareholder Information

36

Appendices

Ticker Symbol NYSE: OSB

TSX: OSB

Common Shares 86.4 million outstanding(as at February 1, 2018)

Quarterly Dividend C $0.60 per share (declared February 2, 2018 to be paid on March 21, 2018 to shareholders of record on March 1, 2018)

Largest Shareholder Brookfield Asset Management – ~40%

Historical North American OSB Prices

37

Appendices

North Central Benchmark OSB Price

Source: Random Lengths

15-year average: $243

Q1 163 175 423 364 285 145 137 154 212 198 203 417 219 193 226 293

Q2 159 215 443 297 238 156 179 146 295 173 235 347 219 193 264 330

Q3 159 381 351 303 181 177 201 178 180 184 313 252 216 204 301 409

Q4 156 401 264 317 166 165 170 172 191 190 332 245 216 242 285 379

Average 159 293 369 320 217 161 172 163 219 186 271 315 218 209 269 353

Financial Sensitivities

38

Appendices

Exposure Change

Adjusted EBITDA Impact (1)

(US$ millions)

North American OSB (2) $10 per Msf-7/16” + $59

European OSB €10 per 000 m3 + $12

Canadian dollar (3) $0.01 per C$ + $5

Pound sterling £0.01 per € < $1

(1) Assumes operation at full stated capacity levels (including the curtailed Chambord, Quebec mill). Impact on Adjusted EBITDA of a $10 per Msf-7/16” change is ± $50 million based on the last twelve months of production at December 31, 2017.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, 2017 – US $149 million, Canada C$22 million, Belgium €32 million and UK £1 million.

(2) Estimated impact of change in Norbord’s realized North American OSB price.

(3) Operating exposures only (excludes dividends on common shares).

Analyst Coverage

39

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]

Buckingham Research Group Mark Weintraub (212) 922-2029 [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 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]

Scotia Capital Benoit Laprade (514) 287-3627 [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 February 6, 2018. It is not exhaustive.

Forecast North American OSB Prices

40

Appendices

Annual Average North Central

Benchmark OSB Price US$ per Msf 7/16”

Analyst 2018F 2019F

Vertical Research Partners 345 320

Bank of America Merrill Lynch 335 308

Raymond James 330 -

RBC Capital Markets 325 300

Scotiabank 305 314

CIBC World Markets 302 290

Buckingham Research Group 300 -

BMO Capital Markets 293 290

TD Securities 293 280

Average 314 300

Norbord Inc.

Suite 600One Toronto Street

Toronto, Ontario, M5C 2W4Canada

Tel: 416-365-0705

www.norbord.com