Norbord Reports Stronger 2010 Results; Generates Positive Earnings on Improved Ebitda
Achieved positive EBITDA of $105 million vs. break-even in 2009
European EBITDA more than doubled from $17 million in 2009 to $36 million
Ramped up North American OSB production in improved pricing environment
North Central benchmark OSB price increased 34% vs. the prior year to levels not seen since 2006
Indicative European OSB price increased 25% from 2009
Employee days lost due to injury down 80%, a best-ever result
TORONTO, Jan. 28, 2011 / - Norbord Inc. (TSX: NBD, NBD.WT) today reported positive EBITDA of $105 million versus break-even EBITDA in 2009. The year-over-year improvement is due largely to higher North American OSB and European panel prices and higher shipment volumes. North American OSB generated a year-over-year EBITDA improvement of $90 million driven by strong second quarter results, while Norbord's European panel operations generated a $19 million year-over-year EBITDA improvement. In the fourth quarter, Norbord recorded positive EBITDA of $13 million versus $12 million in the previous quarter and $6 million in the fourth quarter of 2009.
Norbord recorded earnings of $17 million or $0.39 per share (basic) for the full year versus a loss of $58 million or $1.35 per share in 2009. The Company recorded a loss of $2 million or $0.05 per share in the fourth quarter, excluding the impact of a $6 million after-tax or $0.14 per share non-cash write-down of its investment in a non-core business. In the fourth quarter of 2009, the Company incurred a loss of $11 million or $0.25 per share.
"Our 2010 results exceeded our expectations," said Barrie Shineton, President and CEO. "In North America, our customer and product strategy enabled us to run more capacity and to benefit from a stronger pricing environment throughout the year. In Europe, our EBITDA more than doubled on the back of particularly robust OSB markets. While I'm pleased that Norbord generated positive annual earnings for our shareholders this year, we recognize that we still have a long way to go before our financial performance is back to acceptable levels."
"We expect the overall business environment in 2011 to generally mirror Norbord's experience in the past year. We are seeing the beginnings of a slow recovery for the US housing market, which should start taking hold in the second half of the year. Norbord will be well-positioned to generate stronger results once that occurs."
US housing starts were 0.59 million in 2010, up modestly from 0.55 million in 2009, but significantly below the long-term annual average of 1.5 million.
For the full year, the North Central benchmark OSB price averaged $219 per Msf (7/16-inch basis) compared to $163 per Msf in 2009. In the South East region, where approximately 55% of Norbord's North American OSB capacity is located, prices were somewhat lower than in the North Central region, averaging $198 per Msf, compared to $148 per Msf last year.
In the fourth quarter, North Central benchmark OSB prices averaged $191, up $11 from the third quarter and up $19 from the fourth quarter of 2009. South East prices averaged $165 in the quarter, up $9 from the third quarter and up $11 from the fourth quarter of 2009.
In 2010, the US housing market remained challenging while OSB demand and prices continued to be volatile. The first half of the year saw surging North Central benchmark OSB prices that peaked at $395 per Msf in May before retreating to more sustainable levels in the second half of the year. The first-half price run-up was largely influenced by several unique factors that resulted in overall demand outstripping the ability of both producers and distributors to respond in a timely manner. Second-half housing activity was softer as the May expiry of the US first-time home buyer tax credit pulled home buying demand forward into the first half of the year.
In the UK, where the majority of Norbord's European assets are located, housing starts increased by 30% over 2009 as house builders replenished their inventories of new homes.
The European OSB market was particularly robust in 2010, building on the recovery that began at the end of 2009. The 25% year-over- year increase in average indicative OSB prices was driven by firmer end-use demand, inventory re-stocking and substitution for plywood. Particleboard and MDF prices also strengthened during the year, increasing a more modest 5% and 6%, respectively, reflecting the recovery of higher input costs. MDF exports to Continental Europe increased by 46%.
Although the Euro weakened somewhat during the year versus the Pound Sterling, the currency remained in a range that continued to benefit Norbord's UK-based operations.
Norbord's operating North American OSB mills ran at approximately 90% of their capacity in 2010 compared to 80% in 2009. Including the indefinitely closed mills, North American operations ran at 70% of capacity in 2010, compared to 60% in 2009. In Europe, mills operated at approximately 95% of capacity in 2010, up 15% from the previous year.
For the full year, Norbord's North American per unit OSB cash production costs increased 8% over the prior year. The benefit of higher production volume was offset by higher resin and fibre prices, higher supplies and maintenance costs as a result of running more production in 2010, employee profit share payouts, and the foreign exchange impact of the strengthening Canadian dollar.
In the fourth quarter, North American per unit OSB cash production costs decreased by 1% over the third quarter of 2010 due to higher production volume and lower key input prices and usages. OSB cash production costs increased by 3% over the fourth quarter of 2009 as improved key input usages and higher production volume were offset by higher resin and fibre prices, supplies and maintenance costs.
Resin, fibre and energy, which account for approximately 65% of Norbord's cash production costs, increased sharply over the five- year period preceding 2009. Margin Improvement Program gains of $16 million in 2010 limited the impact that higher raw material prices had on earnings.
At year-end, Norbord had unutilized liquidity of $348 million, comprising $235 million in undrawn revolving bank lines and $113 million in cash and cash equivalents. The Company's tangible net worth was $352 million and net debt to total capitalization on a book basis was 49%.
Capital investments were constrained to essential capital projects totaling $16 million in 2010. Norbord's 2011 capital investments are planned at $25 million, which includes an infrastructure investment at the Cowie, Scotland particleboard mill that is expected to increase production capacity and reduce manufacturing costs.
In January 2011, True North Hardwood Plywood Inc. announced the winding-down of its hardwood plywood operation in Cochrane, Ontario. In the fourth quarter, Norbord recorded a $6 million after-tax ($0.14 per share) non-cash provision for its 50% investment in this business.
Norbord's year-end 2010 letter to shareholders, news release, management's discussion & analysis, annual consolidated audited 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.
Norbord will hold a conference call for analysts and institutional investors on Friday, January 28, 2011 at 11:00 a.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 February 28, 2011 by dialing 1-888-203- 1112 or 647-436-0148. The passcode is 6532094. Audio playback and a written transcript will be available on the Norbord website.
Norbord Inc. is an international producer of wood-based panels with assets of $1.0 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.
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," "should," "will," "will not," "forecasts," "suggest," "expects," "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, 2010 Annual Information Form and the cautionary statement contained in the "Forward-Looking Statements" section of the 2010 Management's Discussion and Analysis dated January 28, 2011.
January 28, 2011
To our Shareholders,
I am pleased to report our first positive earnings since 2006. Norbord generated earnings of $0.39 per share on EBITDA of $105 million in 2010, a meaningful improvement on the breakeven result of the prior year. This reflects much stronger performance from our European business, better OSB prices in North America and higher capacity utilization across all of the Company's operations.
After a slower start in the first quarter, 2010 turned out to be a much better year for Norbord. North American OSB prices improved, particularly in the second quarter when they peaked at almost $400. Panel demand was stronger allowing our North American mills to operate more of their capacity and our European mills to run flat out. Our European operations had an excellent year, generating more than double the cash flow of last year. And we continued to tightly manage working capital, finishing the year at our lowest-ever level.
I believe the worst is behind us. Today, we have a strong balance sheet, we are cash flow positive and have successfully managed through the toughest downturn in our industry's history. Our share price has recovered significantly over the last two years, but it still values Norbord's assets well below their replacement cost. We have put in place a normal course issuer bid that allows us to buy back up to 5% of our outstanding common shares, a sound investment should our cash flow support it.
Norbord's House is in Order
Our balance sheet is solid. Our efforts over the past three years to stabilize our finances are largely complete. We extended our bank lines, added a seventh lender and put in place a more flexible accounts receivable securitization program. Today, we have unutilized bank lines and cash on hand totalling $348 million, which is sufficient liquidity to support our operating initiatives and fund our capital allocation priorities.
Our focus as a low-cost OSB producer is sharper. We have continued to streamline our North American operations by exiting non- core businesses. We sold our Deposit MDF mill late in 2009 and we wrote down our investment in the Cochrane hardwood plywood joint venture at year-end. Today, our North American operations consist solely of high-quality, well-located OSB facilities.
Continuous improvement drives productivity and margin gains. In 2010, we implemented new resin technology across all of our North American OSB operations. We expect the full benefit of this margin improvement initiative to flow through to our 2011 results through faster line operating speeds, higher sales margins and a richer value-added product mix. Initial feedback from customers suggests that these changes have been well received in the market.
Diversified sales minimize exposure to cyclical new home construction. Today, almost two-thirds of Norbord's North American OSB is directed to home improvement centres and industrial customers and away from the new home construction sector. This diversification strategy has served us well through the downturn, allowing Norbord to operate 70% of its OSB capacity in 2010, compared to the industry- wide operating rate of about 60%.
The time is right to re-invest. We appropriately constrained capital investments to minimal levels for the last three years. Now, our improving cash flows and more positive near-term outlook support a modest ramp up in capital spending. A significant project to upgrade our European particleboard assets will be complete by mid- 2011, enabling Norbord to reposition its product offering and compete on an equal footing with the newest generation of particleboard capacity.
We are closer to our goal of world-class safety performance. Last year, Norbord achieved a best-ever safety incident rate of 0.96. This year, our days lost due to injury - an important injury severity measure - decreased by 80% to just 82 days across the entire company, another best-ever result. Our Guntown, Cordele and Nacogdoches mills achieved Safety Star certifications, a program based on OSHA's Voluntary Protection Program (VPP). Four more of our facilities will meet this rigorous safety standard in 2011. And both our Cordele and Nacogdoches mills completed their second calendar year without a single recordable injury, an exceptional, industry- leading achievement.
Proactive succession planning further strengthens our management team. In September, we promoted Peter Wijnbergen to the newly- created position of Chief Operating Officer with responsibility for our North American operations. As well, Nigel Banks joined our team in November as a successor to Bob Kinnear who will retire from his role as Senior Vice President, Corporate Services this year. Both these appointments ensure organizational continuity as we execute on our strategic priorities.
Outlook for 2011
The housing market in North America is improving, but slowly. Experts are not yet predicting a sharp rebound in housing starts and more recently have adjusted their forecasts down, closer to 2010 levels. We expect that overall OSB demand in 2011 will look very similar to last year. Good working capital practices are keeping inventories low across the supply chain. Small changes in either supply or demand are likely to result in ongoing price volatility. It's my view that the general economic news will improve and unemployment levels will fall throughout this year, leading to better new home construction activity and improving OSB demand and prices in the second half.
In Europe, the bull market for OSB peaked late in 2010. However, prices are holding and we expect this positive panel market dynamic to continue well into this year. A favourable exchange rate continues to support our UK-based manufacturing by limiting competing imports and providing a unique opportunity to export our panels to the Continent. We expect to run our European mills at capacity in 2011.
There are some industry developments that we are watching closely. In North America, the broader economic recovery could drive higher raw material prices that may be difficult to pass on should the housing recovery lag. In Europe, government biomass energy incentive programs could put further pressure on wood fibre prices. We will continue to 'push the envelope' on controllable costs to mitigate this potential input cost risk.
Norbord is Well-Positioned
The recovery phase of this housing cycle is approaching and Norbord will enter it a stronger company. We have high-quality, low- cost facilities that are running at relatively higher operating rates. We have strong customer partnerships. We have continued to grow our sales with key customers throughout the cyclical downturn. Our European operations are providing meaningful and stable earnings. The long-term fundamentals supporting housing demand are favourable. Norbord is well-positioned to generate superior returns once the recovery takes hold.
On behalf of everyone at Norbord, I thank you for your continued support. I look forward to reporting on our progress throughout the year.
(signed) J. Barrie Shineton
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