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Q2 2016 Earnings Presentation July 26, 2016
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Q2 2016 Earnings Presentation - norbord.com · Q2 2016 Q2 2016 6 mos 2016 vs. vs. vs. Q1 2016 Q2 2015 6 mos 2015 Adjusted EBITDA –current period $ 94 $ 94 $ 155 Adjusted EBITDA

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Page 1: Q2 2016 Earnings Presentation - norbord.com · Q2 2016 Q2 2016 6 mos 2016 vs. vs. vs. Q1 2016 Q2 2015 6 mos 2015 Adjusted EBITDA –current period $ 94 $ 94 $ 155 Adjusted EBITDA

Q2 2016Earnings PresentationJuly 26, 2016

Page 2: Q2 2016 Earnings Presentation - norbord.com · Q2 2016 Q2 2016 6 mos 2016 vs. vs. vs. Q1 2016 Q2 2015 6 mos 2015 Adjusted EBITDA –current period $ 94 $ 94 $ 155 Adjusted EBITDA

Forward-Looking Statements & Non-IFRS Financial Information

• All financial references are expressed in US$ unless otherwise noted.

• 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 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.

2

Notices

Page 3: Q2 2016 Earnings Presentation - norbord.com · Q2 2016 Q2 2016 6 mos 2016 vs. vs. vs. Q1 2016 Q2 2015 6 mos 2015 Adjusted EBITDA –current period $ 94 $ 94 $ 155 Adjusted EBITDA

Q2 2016 Financial and Operational Highlights

• Adjusted earnings of $0.49 per diluted share, a $0.63 improvement over Q2 2015

• Adjusted EBITDA of $94 million, $75 million higher than Q2 2015

• Captured $32 million in cumulative merger synergies ($39 million annualized), 87% of

$45 million total commitment

• Realized Margin Improvement Program gains of $14 million year-to-date

• Record quarterly production at four mills

– North American operating mills produced at 96% of stated capacity

– European mills produced at 104% of stated capacity

• North American manufacturing costs decreased 6% year-to-date

• Declared CAD $0.10/share quarterly dividend payable September 21, 2016

3

Page 4: Q2 2016 Earnings Presentation - norbord.com · Q2 2016 Q2 2016 6 mos 2016 vs. vs. vs. Q1 2016 Q2 2015 6 mos 2015 Adjusted EBITDA –current period $ 94 $ 94 $ 155 Adjusted EBITDA

US Housing Starts

4

Source: US Department of Commerce, except where otherwise noted

0.61

0.78

0.931.00

1.11

1.20

2011 2012 2013 2014 2015 2016F

June YTD data: housing starts up 7% and single family starts up 13% YoY

(in millions)

(1) Based on US housing economist forecasts

(1)

Page 5: Q2 2016 Earnings Presentation - norbord.com · Q2 2016 Q2 2016 6 mos 2016 vs. vs. vs. Q1 2016 Q2 2015 6 mos 2015 Adjusted EBITDA –current period $ 94 $ 94 $ 155 Adjusted EBITDA

193

204

242

226

264

174 176

221215

245

152158

204

191

242

100

150

200

250

300

Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

North Central

South East

Western Canada

North American Benchmark OSB Prices

5

US

$/M

sf-7

/16

Source: Random Lengths

Spread SE vs NC 19 28 21 11 19

Spread WC vs NC 41 46 38 35 22

Page 6: Q2 2016 Earnings Presentation - norbord.com · Q2 2016 Q2 2016 6 mos 2016 vs. vs. vs. Q1 2016 Q2 2015 6 mos 2015 Adjusted EBITDA –current period $ 94 $ 94 $ 155 Adjusted EBITDA

218220

226

230

237

200

210

220

230

240

Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

European Indicative OSB Prices(1)

6

€/m

3

(1) European indicative average OSB price represents the gross delivered price to the largest continental market

Page 7: Q2 2016 Earnings Presentation - norbord.com · Q2 2016 Q2 2016 6 mos 2016 vs. vs. vs. Q1 2016 Q2 2015 6 mos 2015 Adjusted EBITDA –current period $ 94 $ 94 $ 155 Adjusted EBITDA

(US $ millions, except per share information)

Q2 Q1 Q2 6 mos 6 mos2016 2016 2015 2016 2015

Sales $ 447 $ 384 $ 365 $ 831 $ 716

Adjusted EBITDA

North America 85 53 11 138 22

Europe 11 10 10 21 17

Unallocated (2) (2) (2) (4) (4)

Total 94 61 19 155 35

Earnings (loss) $ 44 $ 23 $ (23) $ 67 $ (60)Adjusted for:

Merger transaction costs - - 1 - 8

Costs to achieve merger synergies 2 1 3 3 4Costs related to High Level Fire 1 - - 1 -

Costs on early debt extinguishment - - 25 - 25Foreign exchange loss on Ainsworth Notes - - - - 28Gain on derivative financial instrument on

Ainsworth Notes - - - - (4)Reported income tax expense (recovery) 10 3 (22) 13 (36)

Adjusted pre-tax earnings (loss) 57 27 (16) 84 (35)

Income tax (expense) recovery at statutory rate(1) (15) (7) 4 (22) 9

Adjusted earnings (loss) 42 20 (12) 62 (26)

Adjusted EPS, basic and diluted 0.49 0.23 (0.14) 0.72 (0.30)

Financial Summary

7(1) Represents Canadian combined federal and provincial statutory rate

Page 8: Q2 2016 Earnings Presentation - norbord.com · Q2 2016 Q2 2016 6 mos 2016 vs. vs. vs. Q1 2016 Q2 2015 6 mos 2015 Adjusted EBITDA –current period $ 94 $ 94 $ 155 Adjusted EBITDA

Adjusted EBITDA Variance

8

(US $ millions)

Q2 2016 Q2 2016 6 mos 2016vs. vs. vs.

Q1 2016 Q2 2015 6 mos 2015

Adjusted EBITDA – current period $ 94 $ 94 $ 155

Adjusted EBITDA – comparative period 61 19 35

Variance 33 75 120

Mill nets(1) 24 62 82

Volume(2) 13 10 19

Key input prices(3) 3 5 13

Key input usage(3) 5 4 9

Mill profit share and bonus (2) (3) (4)

Other operating costs and foreign exchange(4) (10) (3) 1

Total $ 33 $ 75 $ 120

(1) The mill nets variance represents the estimated impact of change in realized pricing across all products. Mill nets are calculated as sales (net of outbound freight costs) divided by shipment volume.

(2) The volume variance represents the impact of shipment volume changes across all products.(3) The key inputs include wood fibre, resin, wax and energy.(4) The other operating costs and foreign exchange category covers all remaining variances including labour and benefits, and maintenance.

Page 9: Q2 2016 Earnings Presentation - norbord.com · Q2 2016 Q2 2016 6 mos 2016 vs. vs. vs. Q1 2016 Q2 2015 6 mos 2015 Adjusted EBITDA –current period $ 94 $ 94 $ 155 Adjusted EBITDA

Liquidity and Capital Resources

9

(US $ millions, except per share information)

Q2 2016

Q1 2016

Q2 2015

6 mos2016

6 mos2015

Cash provided by (used for) operating activities $ 83 $ 3 $ (3) $ 86 $ (55)

Cash provided by (used for) operating activities per share 0.97 0.04 (0.04) 1.01 (0.64)

Operating working capital 163 172 151

Investment in property, plant and equipment & intangible assets

23 11 15 34 28

• 2016 regular capex budget is $75 million

• 2016 estimated capex of $45 million on $135 million Inverness project

Page 10: Q2 2016 Earnings Presentation - norbord.com · Q2 2016 Q2 2016 6 mos 2016 vs. vs. vs. Q1 2016 Q2 2015 6 mos 2015 Adjusted EBITDA –current period $ 94 $ 94 $ 155 Adjusted EBITDA

Balance Sheet

10

(US $ millions, unless otherwise noted)

BankCovenant

Jun 25,

2016

Mar 26,

2016

Dec 31,

2015

Jun 27,

2015

Long-term debt, principal value $ 755 $ 755 $ 755 $ 755

Add: Other long-term debt(1) - 55 30 50

Less: Cash (12) (14) (9) (10)

Net debt 743 796 776 795

Less: Other long-term debt(1) - (55) (30) (50)

Add: Letters of credit 8 8 5 4

Net debt for financial covenant purposes 751 749 751 749

Tangible net worth Min. $500(2) 799 740 724 738

Net debt to capitalization, book basis Max. 65% 48% 50% 51% 50%

Liquidity of $374 million = $12 million in cash + $237 million in unused credit lines+ $125 million undrawn A/R securitization

(1) Drawings under A/R securitization program (carved out of Net debt for financial covenant purposes)

(2) TNW was reset to $500 million from $450 million when the bank lines were renewed in June 2016.

Page 11: Q2 2016 Earnings Presentation - norbord.com · Q2 2016 Q2 2016 6 mos 2016 vs. vs. vs. Q1 2016 Q2 2015 6 mos 2015 Adjusted EBITDA –current period $ 94 $ 94 $ 155 Adjusted EBITDA

Appendices

Page 12: Q2 2016 Earnings Presentation - norbord.com · Q2 2016 Q2 2016 6 mos 2016 vs. vs. vs. Q1 2016 Q2 2015 6 mos 2015 Adjusted EBITDA –current period $ 94 $ 94 $ 155 Adjusted EBITDA

$0

$50

$100

$150

$200

$250

$300

$350

$400

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

An

nu

al A

vera

ge N

C P

rice

US$

pe

r M

sf7

/16

"

OSB Prices Strong Over the Cycle

12

Appendices

Historical North Central Benchmark OSB Price

Source: Random Lengths

15-year average

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

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

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

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

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

Page 13: Q2 2016 Earnings Presentation - norbord.com · Q2 2016 Q2 2016 6 mos 2016 vs. vs. vs. Q1 2016 Q2 2015 6 mos 2015 Adjusted EBITDA –current period $ 94 $ 94 $ 155 Adjusted EBITDA

Forecast OSB Pricing – North Central 7/16”

13

Appendices

Norbord does not provide guidance regarding its expectations of future OSB prices. The following is a sample of price forecasts by analysts as at July 20, 2016. It is not exhaustive.

Annual Average North Central

Benchmark OSB Price US$ per Msf 7/16”

Analyst 2016F 2017F

Dundee Capital Markets 231 236

Vertical Research Partners 240 300

Raymond James 245 280

Scotia Capital 247 258

BMO 253 270

CIBC 254 280

TD Securities 257 285

RBC Capital Markets 270 300

Average $250 $276

Page 14: Q2 2016 Earnings Presentation - norbord.com · Q2 2016 Q2 2016 6 mos 2016 vs. vs. vs. Q1 2016 Q2 2015 6 mos 2015 Adjusted EBITDA –current period $ 94 $ 94 $ 155 Adjusted EBITDA

North American Capacity Restarted to Meet Growing Demand

14

Appendices

39 Mills in Operation

8 Mills Indefinitely Curtailed

North American OSB Installed Capacity:

Norbord Mill

6 Mills (Re)started in 2013

Source: Company documents and other public filings

Page 15: Q2 2016 Earnings Presentation - norbord.com · Q2 2016 Q2 2016 6 mos 2016 vs. vs. vs. Q1 2016 Q2 2015 6 mos 2015 Adjusted EBITDA –current period $ 94 $ 94 $ 155 Adjusted EBITDA

Financial Sensitivities

15

Appendices

(1) Assumes operation at full stated capacity levels (including the indefinitely curtailed Huguley, Alabama and Val-d’Or, Quebec mills)Direct exposures only; before the impact of any cash flow currency hedgesApproximate operating loss carry-forwards for tax purposes (gross) as at Dec. 31, 2015 – US $186 million, Canada C$483 million, Belgium €33 million

(2) Operating exposures only (excludes dividends on common shares)

Direct Exposure Change

Adjusted EBITDA Impact (1)

(US$ millions)

North American OSB $10 per Msf-7/16” + $58

European OSB €10 per 000 m3 + $8

Canadian dollar (2) $0.01 per C$ + $3

Pound sterling £0.01 per € < $1