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Norbord reports $84M in Adjusted EBITDA in Q2 2020

Norbord Inc. has reported Adjusted EBITDA of $84 million for the second quarter of 2020 compared to $75 million in the first quarter of 2020 and $36 million in the second quarter of 2019. The quarter-over-quarter increase was primarily due to lower manufacturing costs, partially offset by lower shipment volumes, while the year-over-year increase was primarily due to higher realized North American oriented strand board (OSB) prices, as well as lower manufacturing costs, partially offset by lower shipment volumes. North American operations generated Adjusted EBITDA of $84 million compared to $68 million in the first quarter of 2020 and $18 million in the second quarter of 2019, and European operations delivered Adjusted EBITDA of $2 million compared to $10 million in the prior quarter and $21 million in the same quarter last year.

“The second quarter of 2020 started slowly as it overlapped with the significant pullback in economic activity that occurred during the early stages of the COVID-19 pandemic. However, we ultimately saw improving demand through the quarter that led to better than expected results. Our Adjusted EBITDA represented our best performance in seven quarters, more than doubling from year-ago levels and improving 12 per cent from the prior quarter,” said Peter Wijnbergen, Norbord’s president & CEO. “Further, I am particularly pleased with our company’s ability to drive down costs while continuing to work safely within the strict protocols required by the pandemic.”

“Subsequent to the strong finish to the second quarter, customer demand has continued to increase well ahead of expectations, despite ongoing concern about the impact of COVID-19 on the broader economy. At Norbord, we have always been committed to producing what we can sell and what our customers need. A limited restart of Cordele Line 1 is the only option available to us to provide additional volume to our customers in the near term. Though these recent developments give us reason for optimism, it is unclear whether the worst of the pandemic is behind us, therefore we will maintain our approach of planning for the worst but being prepared for better. We will remain vigilant and will continue to focus on the health and safety of our employees as well as managing the business to be resilient and flexible.”

Norbord recorded Adjusted earnings of $31 million or $0.38 per share (basic and diluted) versus Adjusted earnings of $21 million or $0.26 per share (basic and diluted) in the first quarter of 2020 and an Adjusted loss of $8 million or $0.10 per share (basic and diluted) in the second quarter of 2019. Earnings in the current quarter include a $16 million non-cash impairment loss related to idle production assets at the Grande Prairie, Alberta mill. Adjusted earnings (loss) exclude non-recurring or other items and use a normalized income tax rate.

Dividend

The Board of Directors declared a quarterly variable dividend of C $0.30 per common share, payable on September 21, 2020 to shareholders of record on September 1, 2020. Consistent with Norbord’s variable dividend policy and historically balanced approach to capital allocation, the dividend is being increased from the prior quarter’s level of C $0.05 per common share to reflect the Company’s strong financial results and improving end-market demand. The Company continues to focus on balance sheet flexibility given the economic uncertainty from the ongoing COVID-19 pandemic. Any dividends reinvested on September 22, 2020 under the Company’s Dividend Reinvestment Plan will be used by the transfer agent to purchase common shares on the open market.

Norbord’s dividends are declared in Canadian dollars, however shareholders may opt to receive their dividends in the US dollar equivalent. Details regarding this option are available on Norbord’s website at www.norbord.com/investors/shareholder-information/dividends.

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.

COVID-19 Update

During the first quarter, in response to the significant market uncertainty from the COVID-19 pandemic, Norbord adjusted its operating configuration by employing a flexible operating strategy to match production with reduced customer demand. After initially reducing operating mill capacity by approximately 35 per cent for the month of April, market demand improved sufficiently in the second quarter to allow Norbord to substantially resume production across its North American and European mills. (See the Performance section below for details of Norbord’s second quarter capacity utilization.)

Performance

In North America, second quarter shipments were down four per cent quarter-over-quarter and 12 per cent year-over-year. Excluding the Chambord, Quebec mill, Norbord’s North American mills produced at 74 per cent of available capacity in the second quarter of 2020 compared to 79 per cent in the first quarter and 88 per cent in the second quarter of 2019. Norbord’s second quarter North American OSB cash production costs per unit (excluding mill profit share and freight costs) decreased by nine per cent compared to the prior quarter and seven per cent compared to the same quarter last year.

In Europe, second quarter shipments were down 19 per cent quarter-over quarter and 15 per cent year-over-year, reflecting significant curtailments across the Company’s UK mills in response to reduced customer demand. Norbord’s European mills produced at 70 per cent of stated capacity in the second quarter of 2020, compared to 93 per cent in the first quarter and 91 per cent in the second quarter of 2019.

The Company generated net Margin Improvement Program (MIP) gains of $34 million year-to-date due to improved mill productivity and lower controllable manufacturing and overhead costs.

Investment in property, plant and equipment and intangible assets was $14 million in the second quarter ($39 million year-to-date), including $2 million ($39 million project-to-date) in the Inverness phase 2 project. There was no investment ($53 million project-to-date) in the Chambord mill rebuild project during the quarter as Quebec construction sites were declared non-essential during COVID-19. The Company has not yet made a restart decision for the Chambord mill, and will only do so when it is sufficiently clear that customers require the production from this mill.

At quarter-end, the Company had unutilized liquidity of $378 million, comprising $20 million in cash and cash equivalents, $291 million in revolving bank lines and $67 million in available drawings under its accounts receivable securitization program. Operating working capital was $152 million, seasonally lower compared to $197 million at the prior quarter-end and modestly lower than $162 million at the same quarter-end last year. The Company’s tangible net worth was $1,001 million and net debt to capitalization on a book basis was 40 per cent, with both values well within bank covenants.