Note: Financial references in US dollars unless otherwise indicated.
Q3 2014 HIGHLIGHTS
- EBITDA of $15 million
- Earnings of $5 million or $0.09 per diluted share
- North American shipments up 7% year-to-date; European shipments up 6%
- Quarterly production records at four OSB mills
- Declared quarterly dividend of CAD $0.60 per share
TORONTO, Oct. 28, 2014 /CNW/ - Norbord Inc. (TSX: NBD) today reported EBITDA of $15 million in the third quarter of 2014 compared to $33 million in the second quarter of 2014 and $45 million in the third quarter of 2013. North American operations generated EBITDA of $7 million in the quarter versus $24 million in the prior quarter and $36 million in the same quarter last year. European operations generated EBITDA of $11 million in the quarter versus $12 million in both the prior quarter and the same quarter last year.
"In response to challenging North American OSB market conditions, we moved most of our annual maintenance shuts forward to the third quarter and curtailed additional production at several mills," said Peter Wijnbergen, President and CEO. "Despite this downtime, our mills ran very well - producing at stated capacity and holding onto manufacturing cost improvements achieved in the first half of the year. We generated $12 million in Margin Improvement gains so far this year and our recent capital investments are starting to pay back."
"In the near term, I expect North American OSB pricing to continue to move sideways with the slower demand we traditionally experience at the end of the year. However, I remain optimistic that our OSB sales will improve next year as the US housing recovery continues to unfold."
"Our European performance remains strong, with year-to-date shipments up 6% on demand growth in our core UK, German and Benelux markets. While OSB prices have been under pressure this year, we did not see any significant impact on our overall results in the third quarter. Our mills continue to perform well and are producing above stated capacity, a trend I expect will continue into next year."
Norbord recorded earnings of $5 million or $0.09 per share (basic and diluted) in the third quarter of 2014 compared to $11 million or $0.21 per share ($0.20 per diluted share) in the prior quarter and $27 million or $0.51 per share ($0.50 per diluted share) in the third quarter of 2013. Reported earnings in the current and comparative periods included the following one-time items:
|$ millions|| Q3
| 9 mos
| 9 mos
|Earnings before one-time items||$ -||$ 11||$ 18||$ 18||$ 138|
|Non-recurring income tax recovery||5||-||9||5||9|
|Earnings, as reported||$ 5||$ 11||$ 27||$ 23||$ 147|
In North America, year-to-date US housing starts were 10% higher than the same period in 2013 and permits were 6% higher. US single family housing starts, which are more important for the OSB industry, were 4% better versus last year. The consensus forecast from US housing economists is currently just below 1.0 million starts in 2014, which would still be an 8% improvement over last year.
The North Central benchmark OSB price continued to trade in a tight range in the third quarter, while the South East benchmark OSB price trended lower. The North Central benchmark averaged $216 per thousand square feet (Msf) (7⁄16-inch basis), compared to $219 per Msf in the previous quarter and $252 per Msf in the same quarter last year. In the South East region, where more than half of Norbord's North American capacity is located, benchmark prices averaged $177 per Msf, compared to $199 per Msf in the prior quarter and $207 per Msf in the same quarter last year.
Norbord's core European panel markets in the UK, Germany and Benelux (where over 90% of the Company's panels are shipped) remained strong in the third quarter. Particleboard prices were up and MDF prices held firm. However, OSB prices are under pressure as eastern European supply is being redirected toward the west due to the ongoing conflict in the Ukraine. As a result of the lower OSB prices, third quarter average panel prices were 3% lower than both the prior quarter and the same quarter last year.
In North America, Norbord's OSB shipments were in line with both the prior quarter and the same quarter last year and increased 7% year-to-date.
The North American OSB mills produced at approximately 80% of stated capacity (including the two curtailed mills in Huguley, Alabama and Val-d'Or, Quebec), compared to 85% in the prior quarter and 80% in the same quarter last year. The decrease versus the prior quarter is due to the timing of annual maintenance shuts and additional production curtailments taken during the quarter. Despite this, two of the Company's North American OSB mills achieved quarterly production records.
Norbord's North American OSB cash production costs per unit (before mill profit share) increased by 3% versus both the prior quarter and the same quarter last year due to the timing impact of annual maintenance shuts and higher year-over-year raw material prices. Unit costs decreased by 1% year-to-date. Excluding the impact of raw material price changes and annual maintenance shuts, unit costs were flat quarter-over-quarter, decreased 3% year-over-year and decreased 4% year-to-date due to lower raw material use and improved mill productivity.
Norbord continues to work on rebuilding the press line at the curtailed Huguley, Alabama mill to prepare it for restart. The Company has not set a restart date and will do so only when it is sufficiently clear that customers require more product. Norbord does not expect to restart its curtailed mill in Val-d'Or, Quebec in 2014, but will continue to monitor market conditions.
In Europe, Norbord's shipments increased 10% versus the prior quarter, 13% versus the same quarter last year and 6% year-to-date. During the quarter, Norbord completed a dryer upgrade project at the Cowie, Scotland particleboard mill. Despite the downtime associated with this project, the European mills produced at approximately 100% of stated capacity in the quarter, compared to 105% in the prior quarter and 95% in the same quarter last year. The Company's two European OSB mills achieved quarterly production records.
Norbord's mills delivered Margin Improvement Program (MIP) gains of $12 million year-to-date from improved productivity, lower raw material use and a richer value-added product mix, partially offset by the timing impact of annual maintenance shuts.
Capital investments totaled $24 million in the quarter and $66 million year-to-date. The full year target is now estimated at $75 million as the Company took the opportunity to complete several strategic projects during the annual maintenance shuts conducted in the third quarter. Key projects this year include the rebuild of the wood handling end at the Joanna, South Carolina mill, the dryer upgrade at the Cowie, Scotland particleboard mill and the fines screening project at the Cordele, Georgia mill. Also included is approximately $10 million for preliminary work to rebuild the press line at the mothballed Huguley, Alabama mill. Further investment to prepare this mill for restart has been deferred to 2015.
Operating working capital was $76 million compared to $96 million in the prior quarter and $66 million in the prior year. Working capital decreased quarter-over-quarter, reflecting lower finished goods inventory in Europe that was built up during the prior quarter in anticipation of the dryer project shut at the Cowie, Scotland particleboard mill. The year-over-year increase was due to higher operating and maintenance supplies inventory as a result of significant capital projects and the ramping up of the Jefferson, Texas mill.
At quarter-end, Norbord had unutilized liquidity of $396 million, consisting of $54 million in cash and $342 million in unused credit lines. The Company's tangible net worth was $429 million and net debt to total capitalization on a book basis was 48%. Both ratios remain well within bank covenants.
The Board of Directors declared a quarterly dividend of CAD $0.60 per common share, payable on December 21, 2014 to shareholders of record on December 1, 2014.
Norbord's Q3 2014 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) 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 Tuesday, October 28, 2014 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 November 28, 2014 by dialing 1-888-203-1112 or 647-436-0148. The passcode is 2306232. Audio playback and a written transcript will be available on the Norbord website.
An accompanying presentation will be available in the "Investors/Conference Call" section of www.norbord.com prior to the start of the call.
Norbord Inc. is an international producer of wood-based panels with assets of more than $1 billion, employing approximately 1,950 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 symbol NBD.
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," "believe," "forecast," "likely," "support," "target," "consider," "continue," "suggest," "intend," "should," "appear," "would," "will," "will not," "plan," "can," "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 3, 2014 Annual Information Form and the cautionary statement contained in the "Forward-Looking Statements" section of the 2013 Management's Discussion and Analysis dated January 29, 2014 and Q3 2014 Management's Discussion and Analysis dated October 27, 2014.
Norbord defines EBITDA as earnings before finance costs, income taxes, depreciation and non-recurring items. EBITDA is a non-International Financial Reporting Standards (IFRS) financial measure, does not have any standardized meaning prescribed by IFRS and is therefore unlikely to be comparable to similar measures presented by other companies. See "Non-IFRS Financial Measures" in Norbord's 2013 Management Discussion and Analysis dated January 29, 2014 and Q3 2014 Management's Discussion and Analysis dated October 27, 2014 for a quantitative reconciliation of EBITDA to earnings (the most directly comparable IFRS measure).
October 28, 2014
To Our Shareholders,
The North American OSB market remained disappointing this quarter as the ramp-up of industry capacity continues to outpace a more gradual than expected recovery in US housing starts. This was reflected in Norbord's financial performance, as we generated just $15 million of EBITDA in Q3.
However, the metrics we can control continued to show strong improvement. Our North American shipments increased 7% year-to-date and we continued to benefit from our distribution channel diversification with volumes to our Big Box and industrial customers up even further.
All our mills continued to operate well and four of them - La Sarre, Joanna, Inverness and Genk - set new quarterly production records. In North America, our operations are producing at stated capacity and maintaining manufacturing cost reductions, despite the significant downtime we took in the quarter. In Europe, our production volume exceeded stated capacity even though the Cowie particleboard mill undertook a two-week project shutdown.
Our excellent operational performance as well as paybacks from our recent capital investments are driving accelerating Margin Improvement Program (MIP) results. Year-to-date, we've realized $12 million in MIP gains as our mills are more efficiently producing increased volumes and more higher-margin products.
Despite the negative headlines coming out of Europe, our business there continued to generate a steady EBITDA contribution for the 18th quarter in a row. So far this year, our panel shipments are up 6% and we have achieved double digit sales growth in our core UK and German markets. The long-term market fundamentals remain favourable for OSB capacity expansion in Europe and we continue to develop our plans on this front.
I am excited about the two major capital projects we completed this quarter. First, we invested a total of $30 million over the past 12 months in our Joanna, South Carolina mill to completely redesign, rebuild and automate the wood handling section of the plant. We tied in this new equipment in September and have already been able to run the mill at 25% above its stated capacity on a weekly basis. This was a unique opportunity to debottleneck our big continuous press and will position us well to serve the growing mid-Atlantic region.
Second, we invested $8 million to rebuild and enhance the dryer and energy system in our Cowie, Scotland particleboard mill. This will allow us to improve the plant's efficiency and replace natural gas with biomass in the drying process. This project was completed in September and early results are also positive.
The US housing market - the largest driver of OSB demand - continues to recover, though at a more gradual pace than industry experts had originally predicted. Housing starts are expected to increase by about 8% this year to almost 1 million. Looking ahead to 2015, housing economists forecast starts will continue to improve - by approximately 15% - supporting increased demand for our products. In the near term, however, we will continue to manage our production schedule as needed to adjust to the typically slower-demand winter period.
We are grateful for your ongoing support of Norbord. Our strategic initiatives put us in an excellent position to take full advantage of the US housing recovery and growing demand in our core European markets. Our customer partnerships are strong and we continue to make inroads in our key markets. Our mills are running better each year. I remain confident that Norbord's financial performance will improve in the coming quarters and years.
President and 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 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 "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 achievement expressed or implied by the forward-looking statements. See the cautionary language in the Forward-Looking Statements section of the 2013 Management's Discussion and Analysis dated January 29, 2014 and Q3 2014 Management's Discussion and Analysis dated October 27, 2014.
Consolidated Balance Sheets
(US $ millions)
|Sep 27, 2014||Dec 31, 2013|
|Cash and cash equivalents||$||54||$||193|
|Property, plant and equipment||812||794|
|Deferred income tax assets||17||14|
|Liabilities and shareholders' equity|
|Accounts payable and accrued liabilities||$||183||$||206|
|Deferred income tax liabilities||107||120|
Consolidated Statements of Earnings
Periods ended Sep 27 and Sep 28 (US $ millions, except per share
| 9 mos
| 9 mos
|Cost of sales||(284)||(263)||(832)||(773)|
|General and administrative expenses||(3)||(3)||(9)||(10)|
|Earnings before finance costs, income tax and depreciation||15||45||75||258|
|Earnings before income tax and depreciation||7||36||52||231|
|Income tax recovery (expense)||13||5||14||(42)|
|Earnings per common share|
Consolidated Statements of Comprehensive Income (Loss)
Periods ended Sep 27 and Sep 28 (US $ millions)
| 9 mos
| 9 mos
|Other comprehensive income, net of tax|
|Items that will not be reclassified to earnings:|
|Actuarial gain (loss) on post-employment obligation||-||1||(3)||16|
|Items that may be reclassified subsequently to earnings:|
| Foreign currency translation (loss) gain on foreign
|Comprehensive (loss) income||$||(10)||$||41||$||9||$||162|
Consolidated Statements of Changes in Shareholders' Equity
Periods ended Sep 27 and Sep 28 (US $ millions)
| 9 mos
| 9 mos
|Balance, beginning of period||$||662||$||656||$||661||$||346|
|Issue of common shares||-||2||1||312|
|Balance, end of period||$||662||$||658||$||662||$||658|
|Balance, beginning of period||$||6||$||7||$||6||$||44|
|Warrants and stock options exercised||-||-||-||(38)|
|Balance, end of period||$||7||$||7||$||7||$||7|
|Balance, beginning of period||$||(244)||$||(170)||$||(201)||$||(11)|
|Common share dividends||(30)||(30)||(88)||(61)|
|Other comprehensive income (loss)||-||1||(3)||16|
|Balance, end of periodi||$||(269)||$||(172)||$||(269)||$||(172)|
|Accumulated other comprehensive (loss) income|
|Balance, beginning of period||$||14||$||(8)||$||10||$||6|
|Other comprehensive (loss) income||(15)||13||(11)||(1)|
|Balance, end of period||$||(1)||$||5||$||(1)||$||5|
|i Retained earnings comprised of:|
|Deficit arising on cashless exercise of warrants in 2013||$||(263)||$||(263)|
|All other retained earnings||(6)||91|
Consolidated Statements of Cash Flows
Periods ended Sep 27 and Sep 28 (US $ millions)
| 9 mos
| 9 mos
|CASH PROVIDED BY (USED FOR):|
|Items not affecting cash:|
|Deferred income tax||(11)||(2)||(16)||42|
|Net change in non-cash operating working capital balances||17||24||(34)||(17)|
|Net change in tax receivable||4||(4)||3||(9)|
|Investment in property, plant and equipment||(21)||(15)||(66)||(48)|
|Debt issue costs||-||-||(1)||-|
|Issue of common shares, net||-||1||-||11|
|Cash and cash equivalents|
|(Decrease) increase during period||(29)||19||(139)||111|
|Balance, beginning of period||83||220||193||128|
|Balance, end of period||$||54||$||239||$||54||$||239|
SOURCE: Norbord Inc.
For further information:
Manager, Corporate Affairs
Tel. (416) 365-0705