43
Investor Presentation August 2018
Investor PresentationAugust 2018
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.
Company Overview
Norbord Snapshot
• Leading manufacturer of wood-based panel products
• Largest global producer of Oriented Strand Board (OSB)
– Stated OSB capacity of 8.4 Bsf-3/8”(1)
– Stated panel capacity (including particleboard & MDF) of 9.4 Bsf-3/8”(1)
– Approximately 2,750 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
• Q2/18 LTM sales of $2.5 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, 2017.
The Leading Global OSB Company
5
Company Overview
Top 10 Global OSB Producers
Enterprise Value
Source: Company filings and Bloomberg. Enterprise values as at August 16, 2018.
* Excluding OSB siding capacity
*
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
Industry Overview
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 68% of total North American structural panel production
Source: APA, January 2018
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
*
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.
*
*
Continuing US Housing Growth
11Source: Forest Economic Advisors, LLC (FEA)
Industry Overview
Growing US Repair & Remodel Demand
12
Industry Overview
Bsf
-3/8
” b
asis
20
09
USD
bill
ion
s
Source: Forest Economic Advisors, LLC (FEA)
North American Capacity Restarts Needed to Meet Growing Demand
13
Industry Overview
37 Mills in Operation
4 Mills Restarted/Available for Restart as of 2017
North American OSB Installed Capacity:
Norbord Mill
7 Mills (Re)started in 2012/13
Note: Excludes OSB siding production and capacity.
Source: APA, company documents and other public filings
(in Bsf-3/8”)
2012 2017
Production 16.2 22.1
Restarts/Idled 4.4 2.0
New 1.2
=27% =14%
Norbord’s Huguley, AL mill resumed
production in October 2017
2 Greenfield Mills in Development
Favourable Long-term OSB Industry Fundamentals
14
Industry Overview
North American OSB Demand and Capacity
Source: Forest Economic Advisors, LLC (FEA)
24.0 24.8 25.9
26.9 28.0 28.6 29.2
28.3 27.6 27.0 26.7 26.9 27.9 28.3 28.4 27.9 27.9
29.4 30.0 30.4
30%
40%
50%
60%
70%
80%
90%
100%
–
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Effective Dem
and
/ Cap
acityC
apac
ity
(Bsf
-3/8
")
Effective Capacity Mothballed Capacity Effective Demand / Capacity
Attractive North American OSB Price
15
Industry Overview
Source: Random Lengths
• OSB prices are tied to demand for building products, which is influenced by the general economy, demographics and the need for housing
North Central Benchmark OSB Price
Q1 163 175 423 364 285 145 137 154 212 198 203 417 219 193 226 293 370
Q2 159 215 443 297 238 156 179 146 295 173 235 347 219 193 264 330 426
Q3 159 381 351 303 181 177 201 178 180 184 313 252 216 204 301 409
Q4 156 401 264 317 166 165 170 172 191 190 332 245 216 242 285 379
Average 159 293 369 320 217 161 172 163 219 186 271 315 218 209 269 353
$100
$150
$200
$250
$300
$350
$400
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
An
nu
al A
vera
ge N
C P
rice
US$
per
Msf
7/1
6"
15-year average: $249
Europe: Strong Demand Growth
16
Industry Overview
OSB Share of Structural Panels
Source: Forest Economic Advisors, LLC (FEA), European Panel Federation (EPF) and Norbord estimates
0%
25%
50%
75%
1982 1987 1992 1997 2002 2007 2012 2017
European OSB Demand (million m3)
Source: Eurostat, UN Comtrade Database, Destatis and Norbord estimates
8%2005-2018F CAGR
North America
Europe
• Significant growth opportunity – OSB accounts for only ~9% of the structural panel market in Japan compared to 68% in North America
Japan: Stable Housing Market
17
Industry Overview
Japanese Housing Starts (000’s)
Source: Japanese Ministry of Land, Infrastructure, Transport and Tourism and Company documents
Business Strategy
Norbord’s Strategy Is Well Defined
19
Business Strategy
Pursue growth in OSB2
Own high-quality assets with low-cost positions3
Maintain a margin-focused operating culture4
Focus on growth customers through best-in-class service and product development
5
Allocate capital with discipline6
Develop a world-class safety culture 1
Norbord’s Growth Focused on OSB
20
Business Strategy
Norbord OSB Capacity (Bsf-3/8”)
(1) 2015 onwards reflects Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth.
(1)
Margin Improvement Is an Operational Priority
21
Business Strategy
(1) Measured relative to prior year at constant prices and exchange rates.(2) The benefits of improved productivity and a richer value-added product mix were offset by higher maintenance spending.(3) 2015 onwards reflects Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth.
(2)
Margin Improvement Program Gains (US$ 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 14 years
• 2017 MIP gains of $12 million
(1)
(3)
Repositioning Business to Reduce Earnings Volatility
22
Business Strategy
Q2/18 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
– Europe
– Asia-focused exports(1)
• Provides greater diversification than North American-based competitors
• Better positioned to weather market cycles
(1)
$2.5 billionsales
Focused Customer Strategy Sets Norbord Apart
23
Business Strategy
Q2/18 LTM North American Shipments
• New home construction sales volume growing as US housing starts increase• Repair & remodel sales volume growing in step with R+R expenditures• Industrial and export sales at more stable margins
6.3 Bsf-3/8”
Specialty Products Will Drive North American Substitution Growth
24
Business Strategy
• Reduced dependence on new home construction
• More predictable, stable margins over business cycle
New home construction
Repair & remodel
Value-added
Commodity
Specialty
Industrial &Export
2017 Future
Significant OSB Substitution Opportunity in Industrial End Uses
25
2017 North American Panel Consumption
EWPFurniture Commercial Roofing Engineered Packaging
79%
21%
New Home
62%
38%
Repair & Remodel
OSB Plywood
Source: APA – The Engineered Wood Association, RISI, US Forest Products Annual Market Review and Prospects (USDA FS), US International Trade Commission, Norbord estimates
Business Strategy
17%
33%
50%
Industrial
MDF & PB
Norbord is a leading supplier to current industrial end uses
Recent Price Momentum Drives Strong European Results
26
Business Strategy
European Adjusted EBITDA (US$ millions)
Inverness Mill Expansion Supports Increasing European Customer Demand
27
Business Strategy
- New continuous press line started up in Q4/2017 - Original two press lines demolished during Q2/2018- New finishing end will be installed during H2/2018
0
50
100
150
200
250
Asia Europe North America South America
Other (Plywood, PB, MDF/HDF) OSB
Asia – The Next Big Growth Opportunity
28
Wood Panel Consumption
Source: Food and Agriculture Organization of the United Nations (2016)
Business Strategy
<1% OSB
10% OSB
42% OSB
8% OSB
Mill
ion
m3
56%
23%
21%
63%
4%
28%
5%
Diversifying Towards Stable Margin End Uses
29
Norbord shipments
5.1 Bsf-3/8”
(1) Represents Norbord’s North American non-OSB business (fully divested in 2010).
Business Strategy
20042.0M US Housing Starts
20171.2M US Housing Starts
Norbord shipments
7.9 Bsf-3/8”
(1)
NA Specialty
30
Business Strategy
Capex Investment (US$ millions)
• Three main priorities:
– Re-invest in the business– Optimize capital structure– Return cash to shareholders
• 2017 capex of $246 million(1)
• 2018 capex budget of $200 million
Includes investments to prepare Chambord, Quebec mill for restart (when warranted by customer demand) and expand capacity at Grande Prairie, Alberta and Huguley, Alabama mills.
Disciplined Capital Allocation
(2)
(1) Excluding capitalized interest of $7 million.(2) 2015 onwards reflects Norbord following completion of merger with Ainsworth. Pre 2015 reflects Norbord excluding Ainsworth.
Minimum Maintenance $25 million
Financial Overview
Strong Operating Cash Flow Through The Cycle
32
Financial Overview
North Central Benchmark OSB Price
$369 $320 $217 $161 $172 $163 $219 $186 $271 $315 $218 $209 $269 $353 $396
US Housing Starts(000s)
1,956 2,068 1,801 1,355 906 554 587 609 781 925 1,003 1,112 1,174 1,202 1,250
Total Adjusted EBITDA (US$ millions)
14-year average:$302 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 June 30, 2018.
Norbord Sensitivity to realized North American OSB Price Changes:
+$10/Msf 7/16” = +$52 million Adjusted EBITDA(2)
(1)
Leverage Metrics Significantly Improved
33
Financial Overview
Adjusted EBITDA vs Net Debt
Quarterly Adj. EBITDA
(in US$ millions)
Net Debt toLTM Adj. EBITDA
11.0x
0.3x
Strong Balance Sheet & Liquidity
34
Financial Overview
Q2 2018
Cash $ 298
Bank Lines(2) 226
A/R Securitization(3) 125
Liquidity $ 649
Manageable Debt Maturities (US$ millions) Strong Liquidity Profile (US$ millions)
Moody’s Ba1 (Stable)
S&P BB (Stable)
DBRS BB (Stable)
Stable Issuer Credit Ratings
Rep
aid
5.3
75
%
6.2
5%
(1) Norbord permanently repaid the 2017 bonds at maturity on February 15, 2017.(2) $245 million of committed revolving bank lines less $19 million outstanding letters of credit and guarantees drawn at quarter-end.(3) $125 million of A/R Securitization limit undrawn at quarter-end.
(1)
cou
po
n 5
.37
5%
cou
po
n 6
.25
%
Returning Cash to Shareholders Through Variable Dividend Policy
35
Financial Overview
Dividends Declared (US$ millions)
(1)
(1) Reflects dividend of C $4.50 per share (translated at C $1 = US $0.78) to be paid on September 21, 2018 to shareholders of record on September 1, 2018.
24%
0%
5%
10%
15%
20%
25%
Norbord Peer1 Peer2 Peer3 Peer4 Peer5 Peer6 Peer7 Peer8
Track Record of Value Creation
36
Financial Overview
15 Year Average ROCE %(1)
Source: Capital IQ
$200MDebt permanently repaid
>$1BCapital invested
>$1BDividends paid out
(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, intangibles, timberlands & licences).
37
Favourable market fundamentals
Clear strategic vision
Strong operating expertise
Track record of disciplined capital allocation
Focus on shareholder value
Attractive Investment Opportunity Summary
Appendices
Shareholder Information
39
Appendices
Ticker Symbol NYSE: OSB
TSX: OSB
Common Shares 86.7 million outstanding(as at August 1, 2018)
Quarterly Dividend(variable dividend policy)
C $4.50 per share (declared August 1, 2018 to be paid on September 21, 2018 to shareholders of record on September 1, 2018)
Largest Shareholder Brookfield Asset Management – ~40%
Financial Sensitivities
40
Appendices
Exposure Change
Adjusted EBITDA Impact (1)
(US$ millions)
North American OSB (2) $10 per Msf-7/16” + $59
European OSB €10 per 000 m3 + $12
Canadian dollar (3) $0.01 per C$ + $5
Pound sterling £0.01 per € < $1
(1) Assumes operation at full stated capacity levels (including the curtailed Chambord, Quebec mill). Impact on Adjusted EBITDA of a $10 per Msf-7/16” change is ± $52 million based on the last twelve months of production at June 30, 2018.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, 2017 – US $149 million, Canada C$22 million, Belgium €32 million and UK £1 million.
(2) Estimated impact of change in Norbord’s realized North American OSB price.
(3) Operating exposures only (excludes dividends on common shares).
Analyst Coverage
41
Appendices
Analyst Analyst Name Contact
Bank of America Merrill Lynch John Babcock/George Staphos (646) 743-0046 [email protected]
BMO Capital Markets Ketan Mamtora / Mark Wilde (212) 883-5121 [email protected]
Buckingham Research Group Mark Weintraub (212) 922-2029 [email protected]
CIBC World Markets Hamir Patel (604) 331-3047 [email protected]
Credit Suisse Andrew Kuske (416) 352-4561 [email protected]
ERA Forest Products Research Claire Huxtable (604) 886-5741 [email protected]
John Tumazos Very Independent Research
John Tumazos (732) 444-1083 [email protected]
Raymond James Daryl Swetlishoff (604) 659-8246 [email protected]
RBC Capital Markets Paul Quinn (604) 257-7048 [email protected]
Scotia Capital Benoit Laprade (514) 287-3627 [email protected]
TD Securities Sean Steuart (416) 308-3399 [email protected]
Vertical Research Partners Chip Dillon (212) 257-6159 [email protected]
Norbord does not provide guidance regarding its expectations of future OSB prices. The following is a sample of price forecasts by analysts as at August 14, 2018. It is not exhaustive.
Forecast North American OSB Prices
42
Appendices
Annual Average North Central
Benchmark OSB Price US$ per Msf 7/16”
Analyst 2018F 2019F
TD Securities 393 325
Bank of America Merrill Lynch 392 376
Vertical Research Partners 390 345
RBC Capital Markets 385 350
CIBC World Markets 373 330
BMO Capital Markets 372 305
Scotiabank 372 331
Buckingham Research Group 367 300
Raymond James 365 330
Average 379 332
Norbord Inc.
Suite 600One Toronto Street
Toronto, Ontario, M5C 2W4Canada
Tel: 416-365-0705
www.norbord.com
