Note: Financial references in US dollars unless otherwise
indicated.
Q3 2019 HIGHLIGHTS
- Adjusted EBITDA of $33
million
- Loss of $0.21 per diluted
share; Adjusted loss of $0.11 per
diluted share
- North American manufacturing costs declined 4%
quarter-over-quarter and 3% year-over-year
- Renewed Normal Course Issuer Bid
- Declared quarterly variable dividend of C $0.20 per share for shareholders of record on
November 29, 2019
TORONTO,
Oct. 31, 2019 /CNW/ - Norbord
Inc. (TSX and NYSE: OSB) today reported Adjusted EBITDA of
$33 million in the third quarter of
2019 compared to $36 million in the
second quarter of 2019 and $211
million in the third quarter of 2018. The
quarter-over-quarter decrease was driven by lower panel prices and
shipments in Europe, which more
than offset improved manufacturing costs in North America, while the year-over-year
decrease was primarily due to lower North American oriented strand
board (OSB) prices. North American operations generated Adjusted
EBITDA of $24 million compared to
$18 million in the prior quarter and
$190 million in the same quarter last
year. European operations delivered Adjusted EBITDA of $11 million, down from $21
million in the prior quarter and $23
million in the year-ago quarter.
"After the negative effects of affordability concerns and record
wet weather on US housing starts in late 2018 and early 2019, we
have started to see improvement this past quarter," said Peter
Wijnbergen, Norbord's President and CEO. "Mortgage rates are well
below 4% and homebuilders continue to report improved levels of
buyer interest and net order growth. While we are entering the
slower winter construction season, the expectation is that these
positive indicators will carry over into 2020."
"However, these improving housing fundamentals have yet to
translate into a significant recovery in OSB markets. We took
extensive downtime across our North American mills for the fourth
straight quarter to ensure Norbord continues to match production to
demand. In addition to the indefinite curtailment of our 100 Mile
House, British Columbia mill in
August, we made the difficult decision to indefinitely curtail Line
1 of our Cordele, Georgia mill
effective mid-November. Poor market conditions and
lower-than-anticipated OSB demand, particularly in the South East
region, do not currently support the economic operation of the
line."
"In Europe, results in our
panel business were challenged by continued slowing of industrial
demand in Germany, where the
effects of the global trade war are being felt on that
export-oriented economy. As a result, panel prices have rolled over
from the well above-average levels experienced the past couple of
years. However, we expect this softening of prices to help
stimulate the pace of OSB substitution and continue to drive strong
consumption growth in residential construction markets."
Norbord recorded an Adjusted loss of $9
million or $0.11 per share
(basic and diluted) in the third quarter of 2019 compared to an
Adjusted loss of $8 million or
$0.10 per share (basic and diluted)
in the second quarter of 2019 and Adjusted earnings of $123 million or $1.41 per diluted share ($1.42 per basic share) in the third quarter of
2018. Adjusted earnings exclude non-recurring or other items and
use a normalized income tax rate. Included in the third quarter of
2019 is a $10 million ($0.12 per basic and diluted share) non-cash
pre-tax loss related to an impairment charge at the Company's
Cordele mill:
$
millions
|
Q3
2019
|
Q2
2019
|
Q3
2018
|
9 mos
2019
|
9 mos
2018
|
(Loss)
earnings
|
(17)
|
(14)
|
130
|
(30)
|
399
|
Adjusted
for:
|
|
|
|
|
|
Impairment of
assets
|
10
|
-
|
-
|
10
|
-
|
Loss on disposal of
assets
|
-
|
1
|
-
|
1
|
-
|
Stock-based
compensation and related costs
|
-
|
1
|
2
|
2
|
4
|
Costs on early
extinguishment of 2020 Notes
|
-
|
10
|
-
|
10
|
-
|
Costs related to 100
Mile House indefinite
|
-
|
2
|
-
|
2
|
-
|
curtailment
|
|
|
|
|
|
Reported income tax
(recovery) expense
|
(6)
|
(10)
|
37
|
(21)
|
126
|
Adjusted pre-tax
(loss) earnings
|
(13)
|
(10)
|
169
|
(26)
|
529
|
Income tax recovery
(expense) at statutory
|
4
|
2
|
(46)
|
7
|
(143)
|
rate
|
|
|
|
|
|
Adjusted (loss)
earnings
|
(9)
|
(8)
|
123
|
(19)
|
386
|
Market Conditions
In North America, affordability
concerns that had negatively affected US housing demand in recent
quarters began to moderate, driven by lower mortgage rates and real
wage growth. The September seasonally adjusted annualized rate of
US housing starts rose 2% year-over-year to 1.26 million, with
single-family starts, which use approximately three times more OSB
than multifamily starts, up 4% year-over-year to 918,000. The pace
of permits (the more forward-looking indicator) reached 1.39
million units in September, up nearly 8% from the same period in
2018. Year-to-date, US housing starts were down 1% with single
family starts down 2%, reflecting the pullback in US homebuilding
activity that started in the second half of last year, constraining
OSB demand. Looking forward, builder sentiment remains positive,
the buildup of unsold new home inventory has now been largely
absorbed and the past two quarters of solid homebuilder order
growth has finally started translating into improving housing
starts. The consensus forecast from US housing economists is
approximately 1.25 million starts for 2019, unchanged from 2018,
with 2020 forecast at approximately 1.26 million.
Notwithstanding the recent improvement in housing market
fundamentals, North American benchmark OSB prices did not show
broad-based improvement during the third quarter. Average benchmark
prices remained well below prior year levels and showed mixed
regional results quarter-over-quarter. The table below summarizes
average benchmark OSB prices ($ per Msf, 7/16-inch basis) by region
for the relevant quarters:
North American
region
|
% of Norbord's
operating capacity
|
Q3
2019
|
Q2 2019
|
Q3 2018
|
North
Central
|
15%
|
217
|
188
|
363
|
South East
|
36%
|
168
|
186
|
305
|
Western
Canada
|
29%
|
164
|
153
|
281
|
In Europe, panel markets
softened from the very strong levels of the past two years, as
demand slowed during the typical summer vacation season and
industrial production continued to slow in Germany. In local currency terms, average
panel prices moderated from last year's peak levels and were down
against both comparative quarters.
Performance
North American OSB shipments increased 4% quarter-over-quarter
due to higher demand from the repair-and-remodelling sector but
declined 2% year-over-year reflecting the slowdown in US
homebuilding demand in recent quarters. Norbord's specialty
products (including industrial and export) represented
approximately 25% of the Company's North American OSB sales volume
in the last four quarters.
Excluding the curtailed Chambord,
Quebec mill, Norbord's North American OSB mills produced at
92% of available capacity, compared to 88% in the prior quarter and
99% in the same quarter last year. Fluctuations in capacity
utilization (which is based on fiscal days in each period) were due
to improved productivity in the current quarter as well as the
timing of annual maintenance shuts and other downtime. In addition,
a portion of the year-over-year decrease was driven by the
December 31, 2018 restatement of
annual production capacities at a number of mills.
Norbord's North American OSB cash production costs per unit
(before mill profit share and freight costs) decreased 4% versus
the prior quarter due to improved productivity and raw material
usages, as well as lower costs related to annual maintenance shuts
and other downtime. Unit costs were down 3% versus the same quarter
last year primarily due to lower resin prices and improved
productivity, partially offset by increased downtime and higher raw
material usage.
On June 11, 2019, the Company
announced the indefinite curtailment of its 100 Mile House,
British Columbia mill starting in
August 2019 as a wood supply shortage
and high wood prices did not support the economic operation of the
mill. The region where the mill operates has been under mounting
pressure for the past decade as a result of the mountain pine
beetle epidemic. This challenge has been further exacerbated by the
significant wildfires that the province of BC experienced in the
summers of 2017 and 2018. A net charge of $2
million was recognized in the second quarter to provide for
severance and related costs. Norbord has successfully transferred
production to its other operating North American OSB mills,
including High Level and
Grande Prairie, Alberta.
In August 2019, the Company
announced that Line 1 of the two-line Cordele, Georgia OSB mill would operate on a
reduced 10/4 schedule effective September
5 due to continued poor market conditions. Subsequent to
quarter-end, on October 21, 2019, the
Company announced the indefinite curtailment of Line 1 effective
mid-November due to continued poor market conditions and
lower-than-anticipated OSB demand to-date, particularly in the
South East region. As a result, in the third quarter the Company
recorded a non-cash pre-tax impairment charge of $10 million against the carrying value of certain
of the mill's production equipment. No additional impairment is
required for the mill's remaining assets as their recoverable
amount is greater than their carrying values.
The 100 Mile House mill has a stated annual production capacity
of 440 MMsf (3/8-inch basis) and Line 1 at the Cordele mill also has annual production
capacity of 440 MMsf (3/8-inch basis), combined representing 12% of
the Company's North American stated annual capacity.
In Europe, Norbord's shipments
were down 7% versus the prior quarter and 6% year-over-year due to
the typical seasonal demand slowdown during the European vacation
season and continued slowing of German industrial production. The
European mills produced at 84% of stated capacity in the quarter,
down from 91% in the prior quarter and 87% in the same quarter last
year due to annual maintenance shuts taken in the current quarter,
including to address typical production issues that affected the
ramp-up of the reinvested Inverness,
Scotland mill, which started up in the fourth quarter of
2017.
Year-to-date, the Company did not generate any net Margin
Improvement Program (MIP) gains as improved mill productivity and
product mix were offset by the timing of annual maintenance shuts
and other downtime, as well as the operating impact of adverse
weather in the first half of 2019. MIP is measured relative to the
prior year at constant prices and exchange rates.
Capital investments (including intangible assets) were
$33 million in the third quarter,
$30 million in the prior quarter and
$41 million in the same quarter last
year. The fluctuation versus the comparative periods was primarily
attributable to the timing of executing on various capital
projects.
Included in year-to-date capital investments is $17 million of the $46
million (£35 million) budget for the second phase investment
to further expand capacity at the Inverness mill by 225 MMsf (3/8-inch basis)
(200,000 cubic metres) through the addition of a second wood room
and dryer. This project is expected to take approximately two years
to complete and is consistent with the Company's strategy of
growing its European OSB capacity to serve continued substitution
growth in its key markets.
Also included in year-to-date capital investments is
$19 million ($46 million project-to-date) of the $71 million budget to rebuild the indefinitely
curtailed Chambord, Quebec mill
for an eventual restart. The Company has not yet made a restart
decision, however, and will only do so when it is sufficiently
clear that customers require more product.
Norbord's 2019 capital expenditure budget remains approximately
$150 million, and looking ahead to
next year, while the Company is still in the process of finalizing
its capital plans, 2020 capital expenditures are targeted at
approximately $100 million.
Investments will include maintenance of business and projects
focused on reducing manufacturing costs across the mills, as well
as a portion of the Chambord mill
rebuild and Inverness phase 2
projects. Capital spending will also include investments to support
the Company's strategy to increase the production of specialty
products for industrial applications and exports.
Operating working capital was $139
million at quarter-end, compared to $162 million at the end of the prior quarter and
$173 million at the end of the same
quarter last year. The quarter-over-quarter decrease was primarily
due to the seasonal draw-down of log inventory in the northern
mills in North America and the
timing of bond coupon payments. The year-over-year decrease was
primarily due to the accounts receivable impact of lower North
American OSB and average European panel prices. The Company aims to
minimize the amount of capital held as operating working capital
and continues to manage it at minimal levels.
At quarter-end, Norbord had unutilized available liquidity of
$286 million, consisting of
$3 million in cash and cash
equivalents, $234 million in
revolving bank lines and $49 million
in available drawings under its accounts receivable securitization
program. The Company's tangible net worth was $1,028 million and net debt to total
capitalization on a book basis was 40%, both well within bank
covenants.
Dividend
The Board of Directors declared a quarterly variable dividend of
C $0.20 per common share, payable on
December 23, 2019 to shareholders of
record on November 29, 2019.
Consistent with the Company's balanced approach to capital
allocation and the planned reduction in capital expenditures for
2020, the dividend is being reduced from the prior quarter's level
of C $0.40 in recognition of the
impact of weaker than expected North American OSB markets on
Norbord's financial results in the past three quarters. Any
dividends reinvested on December 23,
2019 under the Company's Dividend Reinvestment Plan will be
used by the transfer agent to purchase common shares on the open
market.
Norbord's variable dividend policy targets the payment to
shareholders of a portion of free cash flow based upon the
Company's financial position, results of operations, cash flow,
capital requirements and restrictions under the Company's revolving
bank lines, as well as the market outlook for the Company's
principal products and broader market and economic conditions,
among other factors. The Board retains the discretion to amend the
Company's dividend policy in any manner and at any time as it may
deem necessary or appropriate in the future. For these reasons, as
well as others, the Board in its sole discretion can decide to
increase, maintain, decrease, suspend or discontinue the payment of
cash dividends in the future.
Norbord's dividends are declared in Canadian dollars. Registered
and beneficial shareholders may opt to receive their dividends in
either Canadian dollars or the US dollar equivalent. Unless they
request the US dollar equivalent, shareholders will receive
dividends in Canadian dollars. The US dollar equivalent of the
dividend will be based on the Bloomberg FX Fixings Service (BFIX)
noon exchange rate on the record date or, if the record date falls
on a weekend or holiday, on the BFIX noon exchange rate of the
preceding business day.
Registered shareholders wishing to receive the US dollar
dividend equivalent should contact Norbord's transfer agent, AST
Trust Company (Canada), by phone
at 1-800-387-0825 or by email at inquiries@astfinancial.com.
Beneficial shareholders (i.e., those holding their Norbord shares
with their brokerage) should contact the broker with whom their
shares are held.
Normal Course Issuer Bid
Norbord also announced today that the Toronto Stock Exchange
(TSX) has accepted its notice of intention to renew its normal
course issuer bid in accordance with TSX rules. Under the bid,
Norbord may purchase up to 4,083,429 of its common shares,
representing 5% of the Company's issued and outstanding common
shares of 81,668,583 as of October 22,
2019, pursuant to TSX rules.
Purchases under the bid may commence on November 5, 2019, and will terminate on the
earlier of November 4, 2020, the date
Norbord completes its purchases pursuant to the notice of intention
to make a normal course issuer bid filed with the TSX or the date
of notice by Norbord of termination of the bid. Purchases will be
made on the open market by Norbord through the facilities of the
TSX, the New York Stock Exchange or Canadian or US alternative
trading systems, if eligible, in accordance with the requirements
of the TSX and applicable securities laws. The price that Norbord
will pay for any such common shares will be the market price of
such shares at the time of acquisition. Common shares purchased
under the bid will be cancelled. Norbord's average daily trading
volume on the TSX during the last six calendar months was 291,882
common shares. Daily purchases of common shares will not exceed
72,970 subject to the Company's ability to make "block" purchases
under the rules of the TSX.
Under its prior bid that commenced on November 5, 2018 and expires on November 4, 2019, Norbord previously sought and
received approval from the TSX to repurchase up to 5,191,965 common
shares. Norbord acquired 5,191,965 common shares under such bid in
the past 12 months at a weighted average price of C$36.07 per common share. Purchases under the bid
were made on the open market by Norbord through the facilities of
the TSX, the New York Stock Exchange and Canadian or US alternative
trading systems, if eligible, in accordance with the requirements
of the TSX and applicable securities laws.
Norbord believes that the market price of its common shares at
certain times may be attractive and that the purchase of these
common shares from time to time would be an appropriate use of
Norbord's funds in light of potential benefits to remaining
shareholders.
From time to time, when Norbord does not possess material
non-public information about itself or its securities, it may enter
into an automatic purchase plan with its broker to allow for the
purchase of common shares at times when Norbord ordinarily would
not be active in the market due to its own internal trading
blackout periods, insider trading rules or otherwise. Any such
plans entered into with Norbord's broker will be adopted in
accordance with applicable Canadian securities laws.
Additional Information
Norbord's Q3 2019 letter to shareholders, news release,
management's discussion and analysis, consolidated unaudited
interim financial statements and notes to the financial statements
have been filed on SEDAR (www.sedar.com), EDGAR (www.sec.gov) and
are available in the investor section of the Company's website at
www.norbord.com. Shareholders may receive a hard copy of Norbord's
audited annual financial statements free of charge upon request.
The Company has also made available on its website presentation
materials containing certain historical and forward-looking
information relating to Norbord, including materials that contain
additional information about the Company's financial results.
Shareholders are encouraged to read this material.
Conference Call
Norbord will hold a conference call for analysts and
institutional investors on Thursday, October
31, 2019 at 11:00 a.m. ET. The
call will be broadcast live over the internet via
www.norbord.com and www.newswire.ca. An accompanying
presentation will be available in the "Investors/Conference Call"
section of the Norbord website prior to the start of the call. A
replay number will be available approximately one hour after
completion of the call and will be accessible until November 30, 2019 by dialing 1-888-203-1112 or
647-436-0148 (passcode 7083098). Audio playback and a written
transcript will be available on the Norbord website.
Norbord Profile
Norbord Inc. is a leading global manufacturer of wood-based
panels and the world's largest producer of oriented strand board
(OSB). In addition to OSB, Norbord manufactures particleboard,
medium density fibreboard and related value-added products. Norbord
has assets of approximately $1.9
billion and employs approximately 2,500 people at 17 plant
locations in the United States,
Canada and Europe. Norbord is a publicly traded company
listed on the Toronto Stock Exchange and New York Stock Exchange
under the symbol "OSB".
This news release contains 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 "set up," "pro forma," "on track,"
"expect," "estimate," "forecast," "target," "outlook," "schedule,"
"represent," "continue," "intend," "should," "would," "could,"
"will," "can," "might," "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: assumptions in
connection with the economic and financial conditions in the US,
Europe, Canada and globally; risks inherent to product
concentration and cyclicality; effects of competition and product
pricing pressures; risks inherent to customer dependence; effects
of variations in the price and availability of manufacturing
inputs, including continued access to fibre resources at
competitive prices; availability of rail services and port
facilities; various events that could disrupt operations, including
natural or catastrophic events and ongoing relations with
employees; impact of changes to, or non-compliance with,
environmental regulations; impact of any product liability claims
in excess of insurance coverage; risks inherent to a capital
intensive industry; impact of future outcomes of tax exposures;
potential future changes in tax laws; effects of currency exposures
and exchange rate fluctuations; future operating costs,
availability of financing, impact of future cross-border trade
rulings or agreements; ability to implement new or upgraded
information technology infrastructure; impact of information
technology service disruptions or failures; and other risks and
factors described from time to time in filings with Canadian
securities regulatory authorities.
Except as required by applicable law, Norbord does not
undertake to update any forward-looking statements, whether written
or oral, that may be made from time to time by, or on behalf of,
the Company, 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 January 31, 2019 Annual Information Form and the
cautionary statement contained in the "Forward-Looking Statements"
section of the 2018 Management's Discussion and Analysis dated
January 31, 2019 and Q3 2019
Management's Discussion and Analysis dated October 30, 2019.
Norbord defines Adjusted EBITDA as earnings determined in
accordance with International Financial Reporting Standards (IFRS)
before finance costs, interest income, income taxes, depreciation,
amortization and non-recurring or other items; Adjusted earnings
(loss) as earnings determined in accordance with IFRS before
non-recurring or other items and using a normalized income tax
rate; and Adjusted earnings (loss) per share is Adjusted earnings
(loss) divided by the weighted average number of common shares
outstanding (on a basic or diluted basis, as specified). Adjusted
EBITDA, Adjusted earnings (loss), and Adjusted earnings (loss) per
share are non-IFRS financial measures, do not have any standardized
meaning prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other companies. See
"Non-IFRS Financial Measures" in Norbord's 2018 Management's
Discussion and Analysis dated January 31,
2019 and Q3 2019 Management's Discussion and Analysis dated
October 30, 2019 for a quantitative
reconciliation of Adjusted EBITDA and Adjusted earnings to earnings
(the most directly comparable IFRS measure).
October 31, 2019
To Our Shareholders:
Favourable US housing market fundamentals continue to be slow to
translate into stronger OSB demand. And so, while our mills again
ran well during the quarter, the challenging North American market
conditions adversely affected our Q3 financial results.
Despite the market challenges we have faced over the last year,
key indicators continue to support our view that the US housing
market will improve over the coming quarters. Affordability
concerns have moderated as real income has grown and mortgage rates
have declined, which in September led to a 34% year-over-year
increase in mortgage applications for new home purchases in the US.
The build-up of unsold new home inventory has now been absorbed,
and new home sales increased through the third quarter. This trend
has begun to translate into increased new home construction
activity. The September seasonally adjusted annualized rate of US
housing starts increased to 1.26 million, and single-family starts,
which use approximately three times more OSB than multifamily
starts, increased 4% year-over-year to 918,000. Homebuilder
sentiment continues to be positive, with the National Association
of Home Builders Housing Market Index – which rates market
conditions for the sale of new homes as well as the traffic of
prospective buyers of new homes – at its highest level of the year.
This confidence is borne out by steadily improving data from US
homebuilders. While we are entering the slower winter construction
season, the expectation is that these positive indicators will
carry over into 2020.
Non-housing sales continue to be an advantage for Norbord, with
specialty products representing a meaningful part of our shipment
volume. Our industrial segment continues to grow incrementally, and
we are pursuing additional market opportunities through the
development of new precision-sanded OSB applications. Demand from
the repair-and remodelling sector has been strong with our Big Box
sales volumes seeing double-digit percentage increases.
In Europe, OSB prices have
declined from their recent peaks, reverting closer to historic
averages. This price trend was a continuation from last quarter as
macroeconomic conditions continue to be affected by global trade
disputes. The third quarter is a traditionally slower period in
Europe, coinciding with the summer
vacation season. Summer is also the logical time for us to take
annual maintenance shuts at our mills, which temporarily increases
our per-unit manufacturing costs. Looking ahead, residential
construction in Europe remains
healthy, and we expect the relatively lower OSB prices to support
demand growth through the ongoing substitution for imported
plywood.
Actions We Are Taking
While we continue to agree with industry analysts that the US
housing market will strengthen, there is no question that this is
taking longer than we had expected. Against this backdrop, we
continue to take action across our business, drawing on our decades
of experience managing in a historically cyclical industry.
Aligning production to customer demand – Consistent with
our operating principle of only producing what we can sell, we have
indefinitely curtailed production at our 100 Mile House,
British Columbia mill, and more
recently at Line 1 of our mill in Cordele, Georgia. Combined, these curtailments
reduce our available capacity by 12%, while allowing us to continue
to fully serve our customers. We will also focus more maintenance
downtime during the seasonally slower holiday periods.
Rigorous cost management – Despite a challenging market
and the effort required to shift production across our mill
portfolio to address our curtailment decisions, we continue to
"control our controllables." In fact, our North American per-unit
manufacturing costs were 4% lower than the previous quarter and 3%
lower than the same period last year.
Disciplined capital allocation – In light of the
slower-than-expected US housing demand growth, we plan to reduce
capital expenditures to approximately $100
million in 2020. We will focus capital in areas of high
priority, including to support our industrial sales growth strategy
as well as our ongoing second phase investment to further expand
capacity at our Inverness,
Scotland mill. At Inverness, we deliberately pursued the
expansion in a low capital cost manner, with investment at 50% of
greenfield cost, while accepting some resulting variability in
operating performance as the mill ramps up to serve growing
European OSB demand.
We have also renewed our Normal Course Issuer Bid and will
consider opportunities to enhance shareholder value through the
repurchase of our common shares.
Consistent application of our variable dividend policy –
Our variable dividend policy is designed to ensure Norbord remains
committed to returning capital to shareholders while also retaining
the flexibility to manage our business over the long term and
through cyclical periods of lower operating cash flow. To that end,
our Board has reduced the dividend level from C $0.40 to C $0.20
per share in recognition of the impact of weaker than expected
North American OSB markets on our financial results over the past
three quarters.
Taken together, while it was a disappointing quarter from a
financial perspective, we remain confident in our market
positioning. Our balance sheet and liquidity remain solid and our
mills are running well. We have significant upside potential in an
improving housing market and are optimistic that our results will
improve accordingly.
We look forward to reporting on our progress next quarter and
thank our shareholders for their continuing support.
Peter Wijnbergen
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, market outlook, 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 "pro forma," "set up," "on track,"
"expect," "suggest," "support," "believe," "should," "potential,"
"likely," "continue," "forecast," "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 achievements expressed or implied by the
forward-looking statements. See the "Caution Regarding
Forward-Looking Information" statement in the January 31, 2019 Annual Information Form and the
cautionary statement contained in the "Forward-Looking Statements"
section of the 2018 Management's Discussion and Analysis dated
January 31, 2019 and Q3 2019
Management's Discussion and Analysis dated October 30, 2019.
Norbord defines Adjusted EBITDA as earnings determined in
accordance with International Financial Reporting Standards (IFRS)
before finance costs, interest costs, income taxes, depreciation,
amortization and non-recurring or other items; Adjusted earnings
(loss) as earnings determined in accordance with IFRS before
non-recurring or other items and using a normalized income tax
rate; and Adjusted earnings (loss) per share as Adjusted earnings
(loss) divided by the weighted average number of common shares
outstanding (on a basic or diluted basis, as specified). Adjusted
EBITDA, Adjusted earnings (loss), and Adjusted earnings (loss) per
share are non-IFRS financial measures, do not have any standardized
meaning prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other companies. See
the Non-IFRS Financial Measures section in Norbord's Q3 2019
Management's Discussion and Analysis dated October 30, 2019 for a quantitative
reconciliation of Adjusted EBITDA and Adjusted earnings to earnings
(the most directly comparable IFRS measure).
Interim Consolidated Balance Sheets
(Unaudited)
(US $
millions)
|
|
Oct 5,
2019
|
|
Dec 31,
2018
|
Assets
|
|
|
|
|
Current
assets
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
3
|
|
$
|
128
|
Accounts
receivable
|
|
141
|
|
149
|
Taxes
receivable
|
|
59
|
|
—
|
Inventory
|
|
217
|
|
220
|
Prepaids
|
|
19
|
|
12
|
|
|
439
|
|
509
|
Non-current
assets
|
|
|
|
|
Property, plant and
equipment
|
|
1,392
|
|
1,402
|
Intangible
assets
|
|
21
|
|
20
|
Deferred income tax
assets
|
|
5
|
|
6
|
Other
assets
|
|
5
|
|
5
|
|
|
1,423
|
|
1,433
|
|
|
$
|
1,862
|
|
$
|
1,942
|
Liabilities and
shareholders' equity
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
$
|
238
|
|
$
|
293
|
Accrued liability
under ASPP
|
|
—
|
|
42
|
Taxes
payable
|
|
6
|
|
28
|
|
|
244
|
|
363
|
Non-current
liabilities
|
|
|
|
|
Long-term
debt
|
|
656
|
|
550
|
Other long-term
debt
|
|
27
|
|
—
|
Other
liabilities
|
|
47
|
|
34
|
Deferred income tax
liabilities
|
|
187
|
|
172
|
|
|
917
|
|
756
|
Shareholders'
equity
|
|
701
|
|
823
|
|
|
$
|
1,862
|
|
$
|
1,942
|
Interim Consolidated Statements of (Loss) Earnings
(Unaudited)
Periods ended Oct 5
and Sep 29 (US $ millions, except per
share information)
|
|
Q3
2019
|
|
Q3 2018
|
|
9 mos
2019
|
|
9 mos
2018
|
Sales
|
|
$
|
435
|
|
$
|
640
|
|
$
|
1,358
|
|
$
|
1,923
|
Cost of
sales
|
|
(400)
|
|
(427)
|
|
(1,240)
|
|
(1,259)
|
General and
administrative expenses
|
|
(2)
|
|
(4)
|
|
(9)
|
|
(14)
|
Depreciation and
amortization
|
|
(35)
|
|
(34)
|
|
(104)
|
|
(100)
|
Loss on disposal of
assets
|
|
—
|
|
—
|
|
(1)
|
|
—
|
Impairment of
assets
|
|
(10)
|
|
—
|
|
(10)
|
|
—
|
Costs related to 100
Mile House indefinite curtailment
|
|
—
|
|
—
|
|
(2)
|
|
—
|
Operating (loss)
income
|
|
(12)
|
|
175
|
|
(8)
|
|
550
|
Non-operating
items:
|
|
|
|
|
|
|
|
|
Finance
costs
|
|
(11)
|
|
(10)
|
|
(34)
|
|
(28)
|
Interest
income
|
|
—
|
|
2
|
|
1
|
|
3
|
Costs on early
extinguishment of 2020 Notes
|
|
—
|
|
—
|
|
(10)
|
|
—
|
(Loss) earnings
before income tax
|
|
(23)
|
|
167
|
|
(51)
|
|
525
|
Income tax recovery
(expense)
|
|
6
|
|
(37)
|
|
21
|
|
(126)
|
(Loss)
earnings
|
|
$
|
(17)
|
|
$
|
130
|
|
$
|
(30)
|
|
$
|
399
|
(Loss) earnings per
common share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.21)
|
|
$
|
1.50
|
|
$
|
(0.37)
|
|
$
|
4.61
|
Diluted
|
|
(0.21)
|
|
1.49
|
|
(0.37)
|
|
4.58
|
Interim Consolidated Statements of Comprehensive (Loss)
Income
(Unaudited)
Periods ended Oct 5
and Sep 29 (US $ millions)
|
|
Q3
2019
|
|
Q3 2018
|
|
9 mos
2019
|
|
9 mos 2018
|
(Loss)
earnings
|
|
$
|
(17)
|
|
$
|
130
|
|
$
|
(30)
|
|
$
|
399
|
Other comprehensive
(loss) income, net of tax
|
|
|
|
|
|
|
|
|
Items that will not
be reclassified to earnings:
|
|
|
|
|
|
|
|
|
Actuarial gain (loss)
on post-employment obligations
|
|
—
|
|
2
|
|
(5)
|
|
6
|
Items that may be
reclassified subsequently to earnings:
|
|
|
|
|
|
|
|
|
Foreign currency
translation loss on foreign operations
|
|
(7)
|
|
(3)
|
|
(13)
|
|
(13)
|
Other comprehensive
loss, net of tax
|
|
(7)
|
|
(1)
|
|
(18)
|
|
(7)
|
Comprehensive (loss)
income
|
|
$
|
(24)
|
|
$
|
129
|
|
$
|
(48)
|
|
$
|
392
|
Interim Consolidated Statements of Changes in
Shareholders' Equity
(Unaudited)
Periods ended Oct 5
and Sep 29 (US $ millions)
|
|
Q3
2019
|
|
Q3 2018
|
|
9 mos
2019
|
|
9 mos 2018
|
Share
capital
|
|
|
|
|
|
|
|
|
Balance, beginning of
period
|
|
$
|
1,280
|
|
$
|
1,356
|
|
$
|
1,280
|
|
$
|
1,350
|
Issue of common
shares upon exercise of options and DRIP
|
|
—
|
|
5
|
|
—
|
|
11
|
Reverse accrual for
common shares to be repurchased and
|
|
—
|
|
—
|
|
24
|
|
—
|
cancelled under
ASPP
|
|
|
|
|
|
|
|
|
Common shares
repurchased and cancelled
|
|
—
|
|
—
|
|
(24)
|
|
—
|
Balance, end of
period
|
|
$
|
1,280
|
|
$
|
1,361
|
|
$
|
1,280
|
|
$
|
1,361
|
Merger
reserve
|
|
$
|
(96)
|
|
$
|
(96)
|
|
$
|
(96)
|
|
$
|
(96)
|
Contributed
surplus
|
|
|
|
|
|
|
|
|
Balance, beginning of
period
|
|
$
|
4
|
|
$
|
7
|
|
$
|
4
|
|
$
|
8
|
Stock options
exercised
|
|
—
|
|
—
|
|
—
|
|
(1)
|
Balance, end of
period
|
|
$
|
4
|
|
$
|
7
|
|
$
|
4
|
|
$
|
7
|
Retained (deficit)
earnings
|
|
|
|
|
|
|
|
|
Balance, beginning of
period
|
|
$
|
(231)
|
|
$
|
121
|
|
$
|
(168)
|
|
$
|
(67)
|
(Loss)
earnings
|
|
(17)
|
|
130
|
|
(30)
|
|
399
|
Common share
dividends
|
|
(24)
|
|
(298)
|
|
(73)
|
|
(379)
|
Reverse accrual for
common shares to be repurchased and
|
|
—
|
|
—
|
|
18
|
|
—
|
cancelled under
ASPP
|
|
|
|
|
|
|
|
|
Common shares
repurchased and cancelled
|
|
—
|
|
—
|
|
(19)
|
|
—
|
Balance, end of
period(i)
|
|
$
|
(272)
|
|
$
|
(47)
|
|
$
|
(272)
|
|
$
|
(47)
|
Accumulated other
comprehensive loss
|
|
|
|
|
|
|
|
|
Balance, beginning of
period
|
|
$
|
(208)
|
|
$
|
(182)
|
|
$
|
(197)
|
|
$
|
(176)
|
Other comprehensive
loss
|
|
(7)
|
|
(1)
|
|
(18)
|
|
(7)
|
Balance, end of
period
|
|
$
|
(215)
|
|
$
|
(183)
|
|
$
|
(215)
|
|
$
|
(183)
|
Shareholders'
equity
|
|
$
|
701
|
|
$
|
1,042
|
|
$
|
701
|
|
$
|
1,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
Retained deficit comprised of:
|
|
|
|
|
|
|
|
|
|
|
Deficit arising on
cashless exercise of warrants in 2013
|
|
|
|
|
|
|
|
$
|
(263)
|
|
$
|
(263)
|
All other retained
(deficit) earnings
|
|
|
|
|
|
|
|
(9)
|
|
|
216
|
|
|
|
|
|
|
|
|
$
|
(272)
|
|
$
|
(47)
|
Interim Consolidated Statements of Cash Flows
(Unaudited)
Periods ended Oct 5
and Sep 29 (US $ millions)
|
|
Q3
2019
|
|
Q3 2018
|
|
9 mos
2019
|
|
9 mos 2018
|
CASH PROVIDED BY
(USED FOR):
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
(Loss)
earnings
|
|
$
|
(17)
|
|
$
|
130
|
|
$
|
(30)
|
|
$
|
399
|
Items not affecting
cash:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
35
|
|
34
|
|
104
|
|
100
|
Deferred income
tax
|
|
(13)
|
|
11
|
|
19
|
|
42
|
Impairment of
assets
|
|
10
|
|
—
|
|
10
|
|
—
|
Costs related to 100
Mile House indefinite curtailment
|
|
(1)
|
|
—
|
|
1
|
|
—
|
Costs on early
extinguishment of 2020 Notes
|
|
—
|
|
—
|
|
10
|
|
—
|
Loss on disposal of
assets, net
|
|
—
|
|
—
|
|
1
|
|
—
|
Other
items
|
|
9
|
|
9
|
|
16
|
|
11
|
|
|
23
|
|
184
|
|
131
|
|
552
|
Net change in
non-cash operating working capital balances
|
|
13
|
|
29
|
|
(59)
|
|
(45)
|
Net change in taxes
receivable and taxes payable
|
|
16
|
|
15
|
|
(81)
|
|
(25)
|
|
|
52
|
|
228
|
|
(9)
|
|
482
|
Investing
activities
|
|
|
|
|
|
|
|
|
Investment in
property, plant and equipment
|
|
(28)
|
|
(39)
|
|
(105)
|
|
(156)
|
Investment in
intangible assets
|
|
(2)
|
|
—
|
|
(3)
|
|
(1)
|
|
|
(30)
|
|
(39)
|
|
(108)
|
|
(157)
|
Financing
activities
|
|
|
|
|
|
|
|
|
Issuance of
debt
|
|
—
|
|
—
|
|
350
|
|
—
|
Repayment of
debt
|
|
(240)
|
|
—
|
|
(240)
|
|
—
|
Common share
dividends paid
|
|
(24)
|
|
(292)
|
|
(73)
|
|
(373)
|
Debt issuance
costs
|
|
(2)
|
|
—
|
|
(6)
|
|
—
|
Premium on early
extinguishment of 2020 Notes
|
|
(9)
|
|
—
|
|
(9)
|
|
—
|
Issue of common
shares
|
|
—
|
|
—
|
|
—
|
|
4
|
Repurchase of common
shares
|
|
—
|
|
—
|
|
(43)
|
|
—
|
Repayment of lease
obligations
|
|
(2)
|
|
—
|
|
(8)
|
|
—
|
Accounts receivable
securitization (repayments) drawings
|
|
(55)
|
|
—
|
|
27
|
|
—
|
|
|
(332)
|
|
(292)
|
|
(2)
|
|
(369)
|
Foreign exchange
revaluation on cash and cash equivalents held
|
|
(2)
|
|
(2)
|
|
(6)
|
|
(4)
|
Cash and cash
equivalents
|
|
|
|
|
|
|
|
|
Decrease during
period
|
|
(312)
|
|
(105)
|
|
(125)
|
|
(48)
|
Balance, beginning of
period
|
|
315
|
|
298
|
|
128
|
|
241
|
Balance, end of
period
|
|
$
|
3
|
|
$
|
193
|
|
$
|
3
|
|
$
|
193
|
View original
content:http://www.prnewswire.com/news-releases/norbord-reports-third-quarter-2019-results-declares-quarterly-dividend-300948764.html
SOURCE Norbord Inc.