Norbord Reports First Quarter 2015 Results; Declares Quarterly Dividend
Note: Financial references in US dollars unless otherwise indicated. Results reflect Norbord's Q1 2015 standalone performance; combined results reflecting the March 31, 2015 merger with Ainsworth will commence in Q2 2015.
Q1 2015 HIGHLIGHTS
• Merger with Ainsworth completed on March 31, 2015
• Ainsworth $315 million bonds refinanced in April at 6.25% coupon
• Adjusted EBITDA of $10 million
• Record quarterly production at Joanna, South Carolina mill
• Margin improvement program gains of $7 million
• Declared quarterly dividend of CAD $0.25 per share
TORONTO, May 1, 2015 /CNW/ - Norbord Inc. (TSX: NBD) today reported Adjusted EBITDA of $10 million in the first quarter of 2015 compared to $15 million in the fourth quarter of 2014 and $27 million in the first quarter of 2014. The change versus both comparative periods is primarily due to lower North American benchmark oriented strand board (OSB) prices. North American operations generated Adjusted EBITDA of $6 million in the quarter, unchanged from the prior quarter and compared to $17 million in the same quarter last year. European operations delivered Adjusted EBITDA of $7 million in the quarter versus $11 million in the prior quarter and $13 million in the same quarter last year.
"Our first quarter results reflect continued weak North American OSB prices and another severe winter that held back homebuilding activity and OSB demand," said Peter Wijnbergen, Norbord's President and CEO. "Still, our operations continued to deliver manufacturing cost reductions and margin improvement program gains, even as we curtailed production at several mills in response to lower-than-expected demand. In spite of the slower start to the year, US housing starts are forecasted to reach the 1.15 million range for 2015, supporting my belief that OSB demand will continue to increase as the year unfolds. The impact of lower oil prices on resin and the benefit of a weaker Canadian dollar for our now larger portfolio of Canadian mills will provide a cost advantage in the quarters ahead."
"In Europe, our financial results were impacted by continued pressure on OSB prices and the weaker Euro. However, the lower prices are accelerating substitution against plywood and we continue to increase our sales volumes in our key markets such as the UK where housing starts and home sales are improving."
"Finally, we are pleased to have completed the merger with Ainsworth, making Norbord a leading global wood products company active on three continents. Our integration efforts are well underway and we are implementing our plan to realize the annual synergies target of $45 million."
Norbord recorded a loss of $6 million or $0.11 per share (basic and diluted) in the first quarter of 2015 compared to earnings of $3 million or $0.06 per share (basic and diluted) in the prior quarter and earnings of $7 million or $0.13 per share (basic and diluted) in the first quarter of 2014. Reported earnings in the current and comparative quarters included the following one-time items:
| $ millions |
Q1-2015 |
Q4-2014 |
Q1-2014 |
| Earnings before one-time items |
(2) |
1 |
7 |
| Costs related to Ainsworth merger |
(4) |
(5) |
- |
| Non-recurring income tax recoveries |
- |
7 |
- |
| Earnings, as reported |
(6) |
3 |
7 |
Market Conditions
In North America, March year-to-date US housing starts were up 4% versus the same period in 2014. Permits were 8% higher year-over-year. Single family starts, which use approximately three times more OSB than multi-family, increased by 5%. The consensus forecast from US housing economists stands at 1.15 million starts for 2015, which would be a 14% improvement over last year.
New home construction activity was held back during the quarter by the extreme cold weather conditions experienced across much of the continent this winter, driving softer OSB demand. As a result, benchmark OSB prices remained under pressure in the first quarter. The North Central benchmark OSB price averaged $193 per thousand square feet (Msf) (7/16-inch basis) for the quarter compared to $216 per Msf in the previous quarter and $219 per Msf in the same quarter last year. In the South East region, where more than half of Norbord's North American OSB capacity is located, benchmark prices averaged $175 per Msf compared to $181 per Msf in the prior quarter and $193 per Msf in the same quarter last year.
In Europe, panel markets continued to experience demand growth in the first quarter, reflecting improving housing markets and continued OSB substitution in the Company's core geographies, particularly the UK and Germany. However, OSB prices remain under pressure and were down 9% quarter-over-quarter and 18% year-over-year as eastern European supply was redirected toward the west due to the ongoing conflict in the Ukraine and the collapse of the Russian ruble. Prices for the Company's other products remained steady. As a result, first quarter average panel prices were down 4% from the prior quarter and 9% lower than the same quarter last year.
Performance
North American OSB shipments decreased by 8% quarter-over-quarter, primarily due to fewer fiscal days versus the prior quarter. First quarter shipments were in line with the same quarter last year as improved mill productivity offset a reduced production schedule.
Norbord's operating North American OSB mills produced at approximately 100% of stated capacity (excluding the two curtailed mills in Huguley, Alabama and Val-d'Or, Quebec) compared to 95% in the prior quarter and 100% in the same quarter last year. Year-over-year, capacity utilization was unchanged as improved productivity was offset by additional production curtailments.
Norbord's North American OSB cash production costs per unit (before mill profit share) decreased by 3% compared to the prior quarter. Lower resin prices and fewer maintenance shutdown days were partially offset by the impact of fewer fiscal days in the quarter. Unit costs decreased by 4% versus the same quarter last year as increased productivity, lower resin prices and improved raw material usages more than offset the impact of a reduced production schedule.
In Europe, Norbord's shipments were 6% higher versus the prior quarter and in line with the same quarter last year. The European mills produced at approximately 95% of stated capacity in the quarter compared to 105% in the prior quarter and 110% in the same quarter last year. Capacity utilization declined compared to both comparative quarters primarily due to the previously reported restatement of the 2015 annual capacity at three of the four mills by an aggregate increase of 170 MMsf (3⁄8-inch basis) to reflect recent capital investments and improved efficiency.
Norbord's mills delivered Margin Improvement Program (MIP) gains of $7 million in the quarter from improved productivity and raw material use.
Capital investments totaled $10 million in the first quarter and are currently targeted at $70 million for the full year 2015 for the combined company. This year's planned capital expenditures include further debottlenecking and cost reduction projects under the Company's multi-year capital reinvestment strategy.
Operating working capital was $100 million at quarter-end compared to $65 million at year-end and $93 million at the end of the same quarter last year. Working capital increased quarter-over-quarter for the usual seasonal reasons, including log inventory builds in North America.
At quarter-end, Norbord had unutilized liquidity of $298 million, consisting of $4 million in cash and $294 million in unused credit lines. At quarter-end, $45 million was drawn under the accounts receivable securitization program. The Company's tangible net worth was $388 million and net debt to total capitalization on a book basis was 53%. Both ratios remain well within bank covenants.
Dividend
The Board of Directors declared a quarterly dividend of CAD $0.25 per common share, payable on June 21, 2015 to shareholders of record on June 1, 2015.
The amount of future dividends under the Company's dividend policy, and the declaration and payment thereof, will be based upon the Company's financial position, results of operations, cash flow, capital requirements and restrictions under the Company's existing revolving bank lines and senior notes, as well as broader market and economic conditions, among other factors, and shall be in compliance with applicable law. 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, there can be no assurance that dividends in the future will be equal or similar to the amount described above or that the Board will not decide to suspend or discontinue the payment of cash dividends in the future.
Developments
On March 31, 2015, subsequent to quarter-end, Norbord completed its merger with Ainsworth Lumber Co. Ltd. (Ainsworth). Under the terms of the all-share transaction, Norbord acquired all of the outstanding common shares of Ainsworth and Ainsworth shareholders received 0.1321 of a share of Norbord for each Ainsworth share. Consequently, 31.8 million Norbord common shares were issued to Ainsworth shareholders, bringing the combined company's total number of shares outstanding to 85.3 million. Ainsworth is now a wholly-owned subsidiary of Norbord.
Subsequent to quarter-end, Norbord amended its $245 million in revolving bank lines to reset the tangible net worth covenant to $450 million to reflect the Ainsworth merger and extend the maturity date for $225 million of the total aggregate commitment to May 2018. The remaining $20 million commitment matures in May 2016. Norbord also increased its accounts receivable securitization program commitment limit from $100 million to $125 million to reflect the Ainsworth merger.
Annual Meeting of Shareholders
Norbord's Annual Meeting of Shareholders will be held on Tuesday, May 12, 2015 at 10:00 a.m. A live webcast of the meeting will be available and can be accessed via www.norbord.com or www.newswire.ca.
Additional Information
Norbord's Q1 2015 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.
Since the Norbord-Ainsworth merger was completed subsequent to quarter-end, Ainsworth's Q1 2015 management's discussion and analysis, consolidated unaudited interim financial statements and notes to the financial statements have also been filed under Ainsworth's profile on SEDAR (www.sedar.com) and are available in the investor section of the Norbord website at www.norbord.com.
Conference Call
Norbord will hold a conference call for analysts and institutional investors on Friday, May 1, 2015 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 May 30, 2015 by dialing 1-888-203-1112 or 647-436-0148. The passcode is 3119307. 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 $1.8 billion and employs approximately 2,600 people at 17 plant locations in the United States, Canada and Europe. 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; ability to realize synergies; 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 January 27, 2015 Annual Information Form and the cautionary statement contained in the "Forward-Looking Statements" section of the December 18, 2014 Joint Management Information Circular and the 2014 Management's Discussion and Analysis dated January 27, 2015.
Norbord defines Adjusted EBITDA as earnings before finance costs, income taxes, depreciation and other unusual or non-recurring items. Adjusted 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 2014 Management Discussion and Analysis dated January 27, 2015 and Q1 2015 Management's Discussion and Analysis dated April 30, 2015 for a quantitative reconciliation of Adjusted EBITDA to earnings (the most directly comparable IFRS measure).
May 1, 2015
To Our Shareholders,
On behalf of everyone at Norbord, I am pleased to welcome our new shareholders and employees who joined us following the completion of our merger with Ainsworth. We are delighted that shareholders have been so supportive of the merger and look forward to working with our new colleagues. While in Q1 we are reporting numbers only from the legacy Norbord operations, going forward we will be reporting results for the combined company.
Our Q1 2015 results were impacted by a challenging market environment, driven largely by poor weather conditions. Adjusted EBITDA for the quarter was $10 million. The first quarter is typically the season when building activity is slowest. But this year it was especially weak because extreme cold across much of North America held back homebuilding activity even further. Housing starts in the Northeastern United States, for example, were at their lowest level since 1959. There was insufficient growth in OSB demand to absorb available supply, resulting in lower prices.
In spite of the severe winter weather, our operations performed very well in the quarter. We took downtime in response to lower-than-expected demand, yet our mills ran at higher line speeds and uptime and reduced manufacturing costs. The Joanna, South Carolina mill set a quarterly production record following last year's capital investment in new wood-handling equipment. Our Margin Improvement Program (MIP) is off to great start, delivering $7 million in gains so far, mostly from improved productivity and raw material usage. Our MIP efforts, along with the benefit of lower oil prices on resin costs and a weaker Canadian dollar, continue to positively impact our manufacturing costs.
In Europe, our financial performance reflected both the impact of a weaker Euro and softer OSB prices. However, these lower prices are having the positive effect of accelerating OSB substitution for plywood. In the UK, we continue to see market improvements, with our sales volume growing along with increasing housing starts and home sales. The economy of our largest market appears to be outperforming the rest of Europe.
Looking ahead, we are encouraged by the positive signs we are seeing from our North American home improvement and industrial customers. Our sales to these segments are posting double-digit increases, and we see this as a leading indicator of improving OSB demand from the recovering new home construction sector. Though the seasonally-adjusted pace of US housing starts pulled back slightly in March, the consensus forecast from housing economists still stands at 1.15 million starts for 2015. This supports my belief that OSB demand will increase as the year unfolds. We expect the typical seasonal pickup in demand to materialize over the coming months, which can quickly improve our financials: for every $10/Msf increase in the North American OSB price, we will see about $50 million in additional annual Adjusted EBITDA from our 11 operating mills (combined company). Furthermore, today's exchange rate significantly lowers the cost structure of our now larger portfolio of Canadian mills.
That being said, pricing is beyond our control. We continually focus on operating well and 'controlling our controllables.' Our MIP performance and the efficiency gains we have seen from our ongoing investment in our mills continue to position the Company well for the coming cycle.
The most exciting news of course was the successful closing of the Ainsworth merger on March 31, 2015. The completion of this transaction marks the beginning of a new chapter for Norbord, with new and expanded opportunities as the world's largest OSB producer. Our combined company will benefit as US housing starts continue the slow but steady return to more normal levels.
With the official closing behind us, our integration team has ramped up its efforts to deliver on the potential the merger presents. To that end, we successfully refinanced Ainsworth's $315 million bonds in April. This lowers the interest rate, staggers our bond maturities and will allow us to consolidate the combined company's capital structure. We are now turning our attention to the significant near-term opportunities to lower corporate costs, improve product mix and optimize logistics that will allow us to achieve half of the $45 million annual synergy target by year-end. The remaining half will be achieved as we gain better visibility on how to prioritize the opportunities to share best practices across our combined operations.
Although we continue to face market challenges, we are controlling costs and improving operational efficiency. The successful completion of the Ainsworth merger expands our strong position in North America. It also augments the existing geographic diversification that our European business provides by giving us exposure to and relationships in the growing Asian market.
Our Board and management remain enthusiastic about the growth prospects for OSB, and believe that Norbord is well positioned to capture the opportunities ahead. We are excited about the Company's future, and thank you for your continued support for and investment in Norbord.
Peter Wijnbergen
President & CEO
Financial references are in US dollars unless otherwise indicated. 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 December 18, 2014 Joint Management Information Circular, the 2014 Management's Discussion and Analysis dated January 27, 2015 and Q1 2015 Management's Discussion and Analysis dated April 30, 2015.
Consolidated Balance Sheets
| (unaudited) |
Mar 28, 2015 |
Dec 31, 2014 |
|
| Assets |
|||
| Current assets |
|||
| Cash and cash equivalents |
$ 4 |
$ 25 |
|
| Accounts receivable |
136 |
121 |
|
| Tax receivable |
2 |
4 |
|
| Inventory |
130 |
125 |
|
| Other assets |
1 |
- |
|
| 273 |
275 |
||
| Non-current assets |
|||
| Property, plant and equipment |
788 |
800 |
|
| Deferred income tax assets |
29 |
29 |
|
| 817 |
829 |
||
| $ 1,090 |
$ 1,104 |
||
| Liabilities and shareholders' equity |
|||
| Current liabilities |
|||
| Bank advances |
$ 3 |
$ - |
|
| Accounts payable and accrued liabilities |
166 |
181 |
|
| 169 |
181 |
||
| Non-current liabilities |
|||
| Long-term debt |
435 |
434 |
|
| Other long-term debt |
45 |
- |
|
| Other liabilities |
29 |
31 |
|
| Deferred income tax liabilities |
90 |
99 |
|
| 599 |
564 |
||
| Shareholders' equity |
322 |
359 |
|
| $ 1,090 |
$ 1,104 |
Consolidated Statements of Earnings
| (unaudited) |
Q1 2015 |
Q1 2014 |
|||
| Sales |
$ 259 |
$ 303 |
|||
| Cost of sales |
(246) |
(273) |
|||
| General and administrative expenses |
(3) |
(3) |
|||
| Earnings before finance costs, costs related to Ainsworth merger, income tax and depreciation |
10 |
27 |
|||
| Finance costs |
(8) |
(8) |
|||
| Costs related to Ainsworth merger |
(4) |
- |
|||
| Earnings before income tax and depreciation |
(2) |
19 |
|||
| Depreciation |
(15) |
(13) |
|||
| Income tax recovery |
11 |
1 |
|||
| Earnings |
$ (6) |
$ 7 |
|||
| Earnings per common share |
|||||
| Basic |
$ (0.11) |
$ 0.13 |
|||
| Diluted |
(0.11) |
0.13 |
Consolidated Statements of Comprehensive (Loss) Income
| (unaudited) |
Q1 2015 |
Q1 2014 |
||||
| Earnings |
$ (6) |
$ 7 |
||||
| Other comprehensive loss, net of tax |
||||||
| Items that will not be reclassified to earnings: |
||||||
| Actuarial loss on post-employment obligation |
- |
(1) |
||||
| Items that may be reclassified subsequently to earnings: |
||||||
| Foreign currency translation loss on foreign operations |
(21) |
(1) |
||||
| Other comprehensive loss, net of tax |
(21) |
(2) |
||||
| Comprehensive (loss) income |
$ (27) |
$ 5 |
||||
Consolidated Statements of Changes in Shareholders' Equity
| (unaudited) |
Q1 2015 |
Q1 2014 |
|||
| Share capital |
|||||
| Balance, beginning of period |
$ 662 |
$ 661 |
|||
| Issue of common shares |
1 |
- |
|||
| Balance, end of period |
$ 663 |
$ 661 |
|||
| Contributed surplus |
|||||
| Balance, beginning and end of period |
$ 7 |
$ 6 |
|||
| Retained earnings |
|||||
| Balance, beginning of period |
$ (280) |
$ (190) |
|||
| Earnings |
(6) |
7 |
|||
| Common share dividends |
(11) |
(29) |
|||
| Balance, end of periodi |
$ (297) |
$ (212) |
|||
| Accumulated other comprehensive loss |
|||||
| Balance, beginning of period |
$ (30) |
$ (1) |
|||
| Other comprehensive loss |
(21) |
(2) |
|||
| Balance, end of period |
$ (51) |
$ (3) |
|||
| Shareholders' equity |
$ 322 |
$ 452 |
|||
| i Retained earnings comprised of: |
|||||
| Deficit arising on cashless exercise of warrants in 2013 |
$ (263) |
$ (263) |
|||
| All other retained earnings |
(34) |
51 |
Consolidated Statements of Cash Flows
| (unaudited) |
Q1 2015 |
Q1 2014 |
||||
| CASH PROVIDED BY (USED FOR): |
||||||
| Operating activities |
||||||
| Earnings |
$ (6) |
$ 7 |
||||
| Items not affecting cash: |
||||||
| Depreciation |
15 |
13 |
||||
| Deferred income tax |
(11) |
(3) |
||||
| Other items |
1 |
4 |
||||
| (1) |
21 |
|||||
| Net change in non-cash operating working capital balances |
(41) |
(47) |
||||
| Net change in tax receivable |
2 |
- |
||||
| (40) |
(26) |
|||||
| Investing activities |
||||||
| Investment in property, plant and equipment |
(10) |
(20) |
||||
| Financing activities |
||||||
| Common share dividends paid |
(11) |
(29) |
||||
| Accounts receivable securitization proceeds |
45 |
- |
||||
| Bank advances |
3 |
- |
||||
| Debt issue costs |
- |
(1) |
||||
| 37 |
(30) |
|||||
| Foreign exchange revaluation on cash and cash equivalents held |
(8) |
- |
||||
| Cash and cash equivalents |
||||||
| Decrease during the period |
(21) |
(76) |
||||
| Balance, beginning of period |
25 |
193 |
||||
| Balance, end of period |
$ 4 |
$ 117 |
||||
SOURCE Norbord Inc.
Heather Colpitts, Senior Manager, Corporate Affairs, Tel. (416) 365-0705, [email protected]
Share this article