Note: Financial references in US dollars unless otherwise indicated. All prior period comparative figures have been restated for IFRS.
Q3 2011 HIGHLIGHTS
- Achieved positive EBITDA of $12 million
- Margin improvement benefits accelerating; $21 million in gains year-to-date
- Record productivity at North American & European OSB mills in the quarter
- Backup refinancing plan put in place for 2012 bonds
- Nacogdoches, Texas mill achieved 1 million hours without a recordable injury
TORONTO Norbord Inc. (TSX: NBD, NBD.WT) today reported positive EBITDA of $12 million in the third quarter of 2011 compared to $10 million in the second quarter of 2011 and $13 million in the third quarter of 2010. North American operations generated EBITDA of $5 million this quarter versus break-even in the prior quarter and $4 million in the same quarter last year. European operations generated EBITDA of $10 million this quarter versus $13 million in the prior quarter and $11 million in the same quarter last year.
Norbord recorded a loss of $1 million or $0.02 per share in the third quarter of 2011 compared to earnings of $1 million or $0.03 per share in the second quarter of 2011 and a loss of $4 million or $0.09 per share in the third quarter of 2010.
"We delivered positive EBITDA results again this quarter in spite of persistently difficult markets," said Barrie Shineton, President and CEO. "I am especially pleased that our Margin Improvement Program continues to deliver better mill productivity and lower raw materials usage. Both are key to offsetting the negative impact of higher raw material input prices. In addition, our European business delivered another solid quarter. Panel prices have held up in the face of ongoing economic uncertainty across Europe and slowing consumer discretionary spending in the UK."
"While I still expect panel markets in Europe to soften, we did not see any meaningful impact on our business in the third quarter. In North America, we continue to respond to the stagnant housing market by shifting more of our sales volume to alternate end-uses."
"I'm also pleased with the modified financing arrangements we put in place this month. This gives us the financial flexibiity we need to manage what is clearly becoming an extended timeline for a housing recovery."
In the US, year-to-date housing starts, including multi-family, are approximately 2% lower than last year. The single family component, which is more important to the OSB industry, is down 12% year-over-year. Despite this, OSB prices held up during the third quarter. The North Central benchmark OSB price averaged $184 per thousand square feet (Msf) (7⁄16-inch basis) compared to $173 per Msf in the prior quarter and $180 per Msf during the same quarter last year. US housing starts are expected to end the year below 0.6 million, marginally lower than the prior year and well below the 25-year historical annualized average of 1.5 million.
In Europe, overall panel demand softened slightly due to slowing construction and retail spending. Overall panel prices, however, continued their upward trend compared to both the prior quarter and the same quarter last year, reflecting the ongoing increases to wood, resin and energy costs. Quarter-over-quarter, particleboard and MDF prices increased by 7% and 3%, respectively, while OSB prices eased 2%. Year-over-year, average particleboard, MDF and OSB prices increased by 20%, 16% and 6%, respectively, in order to recover input cost escalation. Management expects European panel prices to moderate somewhat from the very robust levels of the past two years as both business and consumers react to the evolving sovereign debt crisis and increasing economic uncertainty.
In North America, third quarter OSB shipment volumes were 4% higher than the prior quarter. Norbord's operating OSB mills continued to run at approximately 85% of their capacity. Including the two indefinitely closed mills in Huguley, Alabama and Jefferson, Texas, the North American operations ran at approximately 65% of estimated capacity in both the third and second quarters of 2011, slightly lower than the 70% in the third quarter of 2010.
Norbord's North American OSB unit cash production costs decreased by 1% versus both the prior quarter and the same quarter last year. Excluding the impact of higher key input prices, unit costs decreased by 2% quarter-over-quarter and 4% year-over-year, the result of improved manufacturing productivity and lower raw materials usage.
In Europe, third quarter panel shipments were 6% lower versus the prior quarter but year-to-date shipments increased 15% compared to last year. Norbord's European mills continued to run at capacity. European operations have generated EBITDA of $34 million year-to-date versus $25 million in 2010, a $9 million increase. Higher shipment volumes and lower raw materials usage delivered the improvement while higher selling prices offset the impact of higher costs for all key inputs.
Margin Improvement Program benefits continue to accelerate. The $21 million year-to-date gains come from a richer sales mix, improved production efficiencies as well as reduced raw materials usage and, in North America, have more than offset the impact of higher raw material prices.
Capital investments totaled $4 million in the third quarter and $16 million year-to-date. Norbord's total 2011 capital investment is expected to be $25 million. This is modestly higher than last year due to the completion of the Cowie, Scotland particleboard mill upgrade in the second quarter.
Operating working capital was $65 million at period-end compared to $52 million in the prior quarter and $49 million in the prior year. The quarter-over-quarter increase was primarily due to the timing of sales and collections of accounts receivable. Accounts receivable performance is in line with prior periods.
At quarter-end, the Company's tangible net worth for financial covenant purposes was $352 million and net debt to total capitalization on a book basis was 53%.
Norbord intends to refinance its 2012 debentures prior to their July 1st maturity, subject to favourable financial market conditions. However, recognizing the current state of financial markets and to provide additional flexibility should this be required, Norbord put in place a backup refinancing plan for this bond maturity subsequent to quarter-end. If needed, Norbord has the option to repay up to half of this $240 million maturity from its bank lines and the other half from a $120 million standby lending commitment from its largest shareholder, Brookfield Asset Management Inc. (Brookfield). If utilized, the Brookfield loan would be secured pari passu with the bank lines and 2017 bonds, contain market standard terms and would be pre-payable at any time without penalty, so long as Brookfield is the holder. In addition, the Company amended its $270 million committed revolving bank lines so that the net debt to total capitalization covenant is increased from 60% to 65%.
At quarter-end, Norbord had unutilized liquidity of $317 million, consisting of $262 million in revolving bank lines and $55 million in cash and cash equivalents. This is in addition to the $120 million Brookfield standby commitment.
Lastly, Norbord intends to apply to the Toronto Stock Exchange (TSX) for approval to renew its normal course issuer bid for up to 5% of its Common Shares in accordance with TSX rules. The bid will be subject to TSX acceptance and full details will be announced upon receipt of TSX consent.
Norbord Inc. is an international producer of wood-based panels with assets of $1 billion, employing approximately 2,030 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.
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