Norbord's earnings increase to US$67M in Q1 from break-even a year earlier, on sales up 44% to US$365M; company highlights average benchmark OSB price for quarter at nine-year high of US$417/msf, double year-ago level
Wendy Lisney
TORONTO
,
April 30, 2013
(press release)
–
Note: Financial references in US dollars unless otherwise indicated.
Q1 2013 HIGHLIGHTS
Norbord Inc. (TSX: NBD, NBD.WT) today reported EBITDA of $111 million in the first quarter of 2013, a $90 million improvement over the first quarter of 2012 and a $41 million improvement over the prior quarter. North American operations generated EBITDA of $106 million in the first quarter of 2013 versus $14 million and $67 million in the first and fourth quarters of 2012, respectively. European operations generated EBITDA of $10 million in the first quarter of 2013 versus $11 million and $9 million in the first and fourth quarters of 2012, respectively.
Norbord recorded $67 million of earnings ( $1.26 per share diluted) in the first quarter of 2013 compared to break-even in the first quarter of 2012 and $38 million ( $0.76 per share diluted) in the fourth quarter of 2012.
"Our strong first quarter results reflect a broad-based US housing recovery that is accelerating," said Barrie Shineton, President and CEO. "Average North American OSB prices climbed to their highest level in nine years during what is normally the weakest season of the year. We are working hard to bring our Jefferson, Texas mill back up by mid-year in spite of persistent equipment delays and the challenge of recruiting a new workforce. While we will likely see increasing market volatility, I believe improving OSB demand will continue to outstrip supply for at least the rest of this year."
"In Europe , our panel business delivered another quarter of strong numbers in spite of uncertainty in the Eurozone economies. OSB demand in particular is strengthening and we continue to run all our panel mills full out."
"The variable dividend policy we are announcing today reflects the improvement in our operating cash flow over the past year. Norbord now has strong liquidity and is deleveraging quickly with our net debt to total capitalization moving towards the bottom of our target range. We expect to continue delivering significant free cash flow in the near term as the US housing recovery supports increasing demand for OSB."
Market Conditions
First quarter US housing starts were 36% higher than the same quarter last year and permits were 22% higher. The seasonally adjusted US housing starts number for March was 1,036,000, 47% higher than the year-ago pace. In this rapidly improving demand environment, the North American North Central benchmark OSB price averaged $417 per thousand square feet (Msf) (7⁄16-inch basis) in the first quarter compared to $203 per Msf in the same quarter last year and $332 per Msf in the prior quarter. In the South East region, where approximately 55% of Norbord's North American capacity is located, prices averaged $396 per Msf, compared to $190 per Msf in the same quarter last year and $296 per Msf in the prior quarter. The consensus forecast from US housing economists is for 1.0 million starts in 2013, which would be a 28% improvement over 2012.
In Europe , despite continuing macroeconomic uncertainty, panel markets remain steady. Average panel prices increased in the first quarter, rising 2% year-over-year and 5% quarter-over-quarter. OSB and particleboard markets were strong and MDF markets remain stable. The Pound Sterling remained in a range versus the Euro that continues to support Norbord's primarily UK-based manufacturing.
Performance
In North America , OSB shipment volumes increased 4% year-over-year and decreased 3% versus the prior quarter. The quarter-over-quarter decrease is due to scheduled annual maintenance shuts and fewer fiscal days in the first quarter. Norbord's OSB mills produced at approximately 70% of capacity, up 5% versus the first quarter of 2012 and unchanged from the fourth quarter of 2012.
In response to increased customer demand for OSB, Norbord continues to staff up and prepare its curtailed mill in Jefferson, Texas for restart by mid-2013. The mill has been mothballed since the first quarter of 2009 and represents 9% of the Company's 4.4 billion square feet (3/8-inch basis) of North American OSB capacity. Norbord will continue to monitor market conditions, but does not currently expect to restart its curtailed mills in Huguley, Alabama or Val-d'Or, Quebec in 2013.
Norbord's North American OSB cash production costs per unit (excluding mill profit share) increased by 12% year-over-year and 8% quarter-over-quarter. Excluding the impact of higher input prices, the scheduled annual maintenance shuts and Jefferson, Texas restart costs, unit costs increased by 4% and 3%, respectively, compared to the prior quarter and prior year. The remaining increase in unit costs was driven primarily by higher resin and fibre prices.
In Europe , shipments were 3% lower than the same quarter last year due to lower retail furniture sales over the holiday period, but shipments increased by 5% over the prior quarter. Norbord's European panel mills produced at approximately 100% of capacity in the quarter, compared to 95% in the same quarter last year and 90% in the prior quarter.
Norbord did not generate any gains from its Margin Improvement Program (MIP) due to the impact of the first quarter scheduled annual maintenance shuts. Lower production volumes and shutdown-related costs effectively offset any raw material usage and productivity gains.
Capital investments totaled $12 million , $9 million higher year-over-year due to capital spending to prepare the Jefferson, Texas mill for restart, and in line with the prior quarter. Norbord's 2013 planned capital expenditures are targeted at $70 million .
Operating working capital was $101 million compared to $71 million at the end of the same quarter last year and $50 million at year-end. Both the year-over-year and quarter-over-quarter increases were primarily driven by the impact of higher North American OSB prices on accounts receivable. In addition, seasonal logging in the northern mills increased inventories quarter-over-quarter. Finished goods inventory remains at minimal levels and accounts receivable performance is in line with prior periods.
Taking into account an increase in the accounts receivable securitization program subsequent to quarter-end, Norbord had unutilized liquidity of $500 million , including $158 million of cash. The Company's tangible net worth was $488 million and net debt to total capitalization on a book basis was 37%, well within bank covenants.
Developments
Capital Plan
Norbord announces today that its Board of Directors (the Board) has approved a new variable dividend policy which targets the pay-out to shareholders of a portion of expected future free cash flow through the cycle. For 2013, the dividend is targeted at CAD $0.60 per share per quarter, which amounts to an annualized dividend of CAD $2.40 per share. Norbord's liquidity is improving, with cash of $158 million on the balance sheet and undrawn bank and securitization lines of $342 million at quarter-end. The Company's balance sheet is deleveraging quickly with net debt of just $285 million , representing 37% of total capitalization, and rapidly approaching the bottom of the Company's target range over the cycle.
The decision to introduce a dividend policy at this point in the cycle demonstrates the Board's and management's confidence that Norbord has sufficient capital resources in the near term and the ability to generate strong cash flow over the next few years. However, the Company operates in highly cyclical markets, and the Board will review the pay-out as the cycle progresses and adjust the dividend as appropriate.
Dividends are declared at the discretion of the Board. In determining its ability to distribute capital to its shareholders, the Company considers current and anticipated capital needs and its ability to generate free cash flow in the future, subject to the covenants in its bank line agreements and bond indentures.
Dividend
Under the new dividend policy, the Board declared a quarterly dividend of CAD $0.60 per common share, payable on June 21, 2013 to shareholders of record on June 1, 2013 .
Warrant Indenture Amendment
Effective March 25, 2013 , Norbord amended certain terms of the Warrant Indenture dated December 24, 2008 to include a cashless exercise feature. This feature allows warrant holders to elect to exercise their warrants on a cashless basis, and receive common shares based on the in-the-money amount of their warrants. The Board approved this amendment on the recommendation of an independent committee comprised of the five members of the audit committee.
On March 25, 2013 , Brookfield Asset Management Inc. (Brookfield) exercised all their warrants on a cashless basis, receiving an additional 8.2 million common shares and increasing their ownership of the Company to 59%.
Secondary Offering
On March 25, 2013 , Brookfield and the Company entered into an agreement with a syndicate of investment dealers to complete a secondary offering of Norbord's common shares. Under the agreement, the syndicate agreed to purchase 3.3 million common shares at a purchase price of CAD $33.00 per common share. Brookfield offered 2.75 million shares and the Company's senior management offered 0.55 million shares. Brookfield also granted the underwriters an over-allotment option to purchase up to an additional 0.5 million shares, which was exercised in full prior to the closing. On April 16, 2013 , upon closing of the offering, Brookfield sold a total of 3.25 million shares to the underwriters, decreasing their ownership of the Company to 53%. Norbord did not receive any proceeds from the offering.
Additional Information
Norbord's Q1 2013 letter to shareholders, news release, management's discussion and analysis, consolidated unaudited 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.
Conference Call
Norbord will hold a conference call for analysts and institutional investors on Tuesday, April 30, 2013 at 2:00 p.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 May 29, 2013 by dialing 1-888-203-1112 or 647-436-0148. The passcode is 5721346. 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 1,900 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 NBD.WT.
This news release contains forward-looking statements, as defined in applicable 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, words such as "expect," "believe," "forecast," "likely," "support," "target," "consider," "continue," "suggest," "intend," "should," "appear," "would," "will," "will not," "plan," "can," "may," and other expressions which are predictions of or indicate future events, trends or prospects and which do not relate to historical matters identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Norbord to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
Although Norbord believes it has a reasonable basis for making these forward-looking statements, readers are cautioned not to place undue reliance on such forward-looking information. By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predictions, forecasts and other forward-looking statements will not occur. Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements include: general economic conditions; risks inherent with product concentration; effects of competition and product pricing pressures; risks inherent with customer dependence; effects of variations in the price and availability of manufacturing inputs; risks inherent with a capital intensive industry; and other risks and factors described from time to time in filings with Canadian securities regulatory authorities.
Except as required by applicable laws, Norbord does not undertake to update any forward-looking statements, whether as a result of new information, future events or otherwise, or to publicly update or revise the above list of factors affecting this information. See the "Caution Regarding Forward-Looking Information" statement in the March 1, 2013 Annual Information Form and the cautionary statement contained in the "Forward-Looking Statements" section of the 2012 Management's Discussion and Analysis dated January 30, 2013 and Q1 2013 Management's Discussion and Analysis dated April 29, 2013 .
April 30, 2013
To Our Shareholders,
I'm pleased to report a very positive first quarter result. Norbord generated earnings of $1.26 per share on EBITDA of $111 million , a more than $40 million improvement from the previous quarter. In fact, this was our best quarterly EBITDA result in the past seven years. Our improved performance reflects increasing North American OSB demand and prices, driven by the strength of the US housing recovery. And while our North American business was the biggest contributor this quarter, our European operations also delivered a solid performance.
In my previous shareholder letter I said that capital allocation had become a priority. Today in our press release, we announced that the Board of Directors approved a new variable dividend policy. We also declared the first quarterly dividend payout in four and a half years, reflecting confidence in our financial position and future cash flow generation. This equates to an annualized dividend of CAD $2.40 per share. We know our business is cyclical and the level of payout will vary over time. However, the US housing recovery has momentum and I believe Norbord's peak earning years are still ahead.
In March, our major shareholder Brookfield exercised their warrants on a cashless basis and sold some of the new shares through a secondary offering. This is a positive development, as there are now almost four million more shares in our trading float available to other investors.
All US housing indicators point to a broad-based recovery. The key metrics - home prices, new and existing home sales, affordability and the foreclosure inventory - are improving. The seasonally-adjusted 1 million housing starts number for March is more than double the pace when housing bottomed in 2009. And underlying pent-up demand will support a return to the 1.5 million normalized level over the next few years.
Heading into the second quarter, I remain positive about the rest of this year. In April, North American OSB prices corrected - the result of weather related delays in spring construction, some new capacity and a build in inventory in the supply chain. We expect pricing volatility to continue. However, I am not concerned and expect overall pricing to remain at above-trend levels, particularly as we move toward the peak demand summer months. To this end, we are working hard to bring our idled mill in Jefferson, Texas back on-line by mid-year. So far, we are on track and all of the volume from this mill is already spoken for by existing Norbord customers.
In Europe , our UK-based manufacturing is benefitting from an ongoing currency advantage. We have extended order files for all our panel products and OSB markets, in particular, are strengthening. Barring any significant currency swings, I expect continued steady performance from our European business.
Norbord's liquidity is strong and our balance sheet is deleveraging quickly. And I'm pleased that we're now in a position to start returning some of our cash to our shareholders. The US housing recovery is accelerating, but given that we're only halfway back to a longer-term sustainable trend, I continue to see strong earnings potential ahead for Norbord.
I look forward to reporting our results as the year progresses.
[signed]
J. Barrie Shineton
President & CEO
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 "expect," "suggest," "support," "believe," "should," "potential," "likely," "continue," "forecast," "point to," "plan," "indicate," "consider," "future," 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 2012 Management's Discussion and Analysis dated January 30, 2013 and Q1 2013 Management's Discussion and Analysis dated April 29, 2013 .
IndustryIntel Editor's note: In an omitted table, the company reported sales of US$365 million in Q1, 2013 and US$253 million in Q1, 2012.
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