Investor Presentation November 2019 Notices Forward-Looking - - PowerPoint PPT Presentation

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Investor Presentation November 2019 Notices Forward-Looking - - PowerPoint PPT Presentation

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Investor Presentation November 2019 Notices Forward-Looking Statements & Non-IFRS Financial Information All financial references are expressed in US$ unless otherwise noted. This presentation contains forward-looking statements and

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SLIDE 1

Investor Presentation

November 2019

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SLIDE 2

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.

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SLIDE 3

Company Overview

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SLIDE 4

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)

  • f 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.

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SLIDE 5

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

*

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SLIDE 6

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
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SLIDE 7

Industry Overview

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SLIDE 8

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

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SLIDE 9

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

*

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SLIDE 10

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.

*

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SLIDE 11

US Housing Starts Are the Single Biggest End Use for OSB

11

Source: U.S. Census Bureau and Forest Economic Advisors, LLC (FEA)

Industry Overview

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SLIDE 12

US Repair & Remodel Demand Also Drives OSB Consumption

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Industry Overview

Bsf-3/8” basis US$ billions

Source: Forest Economic Advisors, LLC (FEA); in billions of 2012 US$

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SLIDE 13

Norbord announced indefinite curtailment of Cordele, GA Line 1 (440 MMsf) effective mid- November 2019

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North American OSB Industry Stated Capacity of 27 Bsf

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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

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SLIDE 14

Favourable Long-term OSB Industry Fundamentals

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Industry Overview

North American OSB Demand

Source: Forest Economic Advisors, LLC (FEA)

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SLIDE 15

$100 $150 $200 $250 $300 $350 $400

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Annual Average NC Price US$ per Msf 7/16"

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

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SLIDE 16

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

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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

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SLIDE 17
  • 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

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SLIDE 18

Business Strategy

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SLIDE 19

Norbord’s Strategy Is Well Defined

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Business Strategy

Pursue growth in OSB

2

Own high-quality assets with low-cost positions

3

Maintain a margin-focused operating culture

4

Focus on growth customers through best-in-class service and product development

5

Allocate capital with discipline

6

Develop a world-class safety culture

1

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SLIDE 20

Norbord’s Growth Focused on OSB

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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)

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SLIDE 21

Margin Improvement Is an Operational Priority

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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)

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SLIDE 22

Repositioning Business to Reduce Earnings Volatility

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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 billion sales

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SLIDE 23

Focused Customer Strategy Sets Norbord Apart

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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

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SLIDE 24

Specialty Products Will Drive North American Substitution Growth

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Business Strategy

  • Reduced dependence on new home construction
  • More predictable, stable margins over business cycle

2015 Target 2018

~400 MMsf

Specialty Products Volume (MMsf-3/8”)

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SLIDE 25

New Industrial End Uses, New Growth Opportunities

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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

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SLIDE 26

More Stable Results from European Operations

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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

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SLIDE 27

Inverness Mill Expansion Supports Increasing European Customer Demand

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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

395 720 945 2016 Phase 1 expansion Phase 2 expansion +139%

Inverness Capacity (in MMsf-3/8”) Inverness Investments

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SLIDE 28

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

2004

1.96M US Housing Starts

2018

1.25M US Housing Starts

Norbord shipments

8.3 Bsf-3/8”

(2)

NA Specialty

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SLIDE 29

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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

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SLIDE 30

Financial Overview

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SLIDE 31

Strong Operating Cash Flow Through The Cycle

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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)

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SLIDE 32

Manageable Leverage

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Financial Overview

Adjusted EBITDA vs Net Debt

Quarterly

  • Adj. EBITDA

(in US$ millions) Net Debt to LTM Adj. EBITDA

  • Comfortable headroom versus revolver financial covenants

Q3 2019 Covenant Net debt to capitalization 40% 65% Tangible net worth (book basis) $1,028 million $500 million

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SLIDE 33

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 coupon 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.

coupon 5.75%

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SLIDE 34

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.

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SLIDE 35

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.

>$1B

Capital invested

$1.4B

Dividends paid out

$141M

to repurchase 5.2M shares (6% of outstanding)

24%

(2)

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SLIDE 36

36

Value Leader in the OSB Industry

Financial 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.

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SLIDE 37

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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

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SLIDE 38

Appendices

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SLIDE 39

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

  • f record on November 29, 2019)

Largest Shareholder Brookfield Asset Management – ~43%

(as at October 31, 2019)

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SLIDE 40

Financial Sensitivities

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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).

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SLIDE 41

Analyst Coverage

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Appendices

Analyst Analyst Name Contact Bank of America Merrill Lynch John Babcock/George Staphos (646) 743-0046 john.p.babcock@baml.com BMO Capital Markets Ketan Mamtora/Mark Wilde (212) 883-5121 ketan.mamtora@bmo.com CIBC World Markets Hamir Patel (604) 331-3047 hamir.patel@cibc.com Credit Suisse Andrew Kuske (416) 352-4561 andrew.kuske@credit-suisse.com ERA Forest Products Research John Cooney (604) 267-3021 jcooney@era-research.com John Tumazos Very Independent Research John Tumazos (732) 444-1083 john@veryindependentresearch.com Raymond James Daryl Swetlishoff (604) 659-8246 daryl.swetlishoff@raymondjames.ca RBC Capital Markets Paul Quinn (604) 257-7048 paul.c.quinn@rbccm.com Scotia Capital Benoit Laprade (514) 287-3627 benoit.laprade@scotiabank.com Seaport Global Securities Mark Weintraub (646) 264-5602 mweintraub@seaportglobal.com TD Securities Sean Steuart (416) 308-3399 sean.steuart@tdsecurities.com Vertical Research Partners Chip Dillon (212) 257-6159 cd@verticalresearchpartners.com

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SLIDE 42

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 Average North Central Benchmark OSB Price

US$ per Msf 7/16”

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Sustainability: Core to Our Business

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Appendices

Wood is a renewable resource OSB sequesters carbon We utilize 100% of the tree We use biomass to generate heat energy

Norbord’s North American net carbon sink =

  • ffsetting annual emissions from >700k vehicles

Source: Norbord estimates based on 2017 production

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SLIDE 44

Norbord Inc. Suite 600 One Toronto Street Toronto, Ontario, M5C 2W4 Canada Tel: 416-365-0705 www.norbord.com