Norbord reports adjusted EBITDA of $724M in 2018
By Norbord Inc.
By Norbord Inc.
Norbord Inc. has reported adjusted EBITDA of $724 million (U.S.) for the full-year 2018 compared to $672 million in 2017 on higher realized North American oriented strand board (OSB) prices and shipment volumes, as well as higher European panel prices. North American operations generated adjusted EBITDA of $652 million compared to $638 million in the prior year and European operations delivered adjusted EBITDA of $86 million compared to $41 million in the prior year.
For the fourth quarter of 2018, Norbord recorded adjusted EBITDA of $70 million versus $204 million in the fourth quarter of 2017 and $211 million in the third quarter of 2018. Adjusted EBITDA declined versus both comparative periods due to lower North American OSB prices and shipments.
“2018 was an excellent year for Norbord,” said Peter Wijnbergen, Norbord’s president and CEO. “Despite a disappointing fourth quarter, we delivered our best-ever adjusted EBITDA of $724 million as North American OSB prices remained strong for much of the year and we shipped more product to meet increased demand. Our European business had an outstanding year, more than doubling their adjusted EBITDA as robust demand growth in our key markets supported higher panel prices.”
“Norbord’s mills in both North America and Europe continued to perform well, with seven of our mills setting annual production records in 2018,” Wijnbergen continued. “The exceptional operating cash flow we generated last year allowed us to maintain a strong balance sheet, even as we reinvested more than $200 million in our mills and returned over $500 million in cash to our shareholders through a combination of dividends and share buybacks.”
“In Europe, our panel business is set for another great year as OSB demand in our key markets continues to increase and our Inverness, Scotland mill will achieve a step-change in production now that the new finishing end is complete. In North America, the pace of U.S. housing growth decelerated in the second half of the year as homebuyers adjusted to higher home prices and mortgage interest rates. Combined with the usual seasonal slowdown, this negatively impacted our fourth quarter results and this weakness has carried over into January. The fundamentals underlying new home construction remain supportive, and we expect a pick-up in OSB demand as the spring building season approaches. With a strong balance sheet and a diversification strategy that is growing non-traditional end-uses for OSB to help cushion against volatility in housing demand, we believe Norbord is well positioned for 2019,” Wijnbergen concluded.
For the full-year 2018, Norbord recorded adjusted earnings of $412 million or $4.74 per diluted share ($4.76 per basic share) versus $389 million or $4.49 per diluted share ($4.51 per basic share) in 2017. Norbord recorded adjusted earnings of $26 million or $0.30 per share (basic and diluted) in the fourth quarter of 2018 versus $123 million or $1.41 per diluted share ($1.42 per basic share) in both the prior quarter and the fourth quarter of 2017. Included in the fourth quarter of 2018 is an $80 million ($0.93 per basic share and $0.92 per diluted share) pre-tax non-cash impairment charge at the company’s 100 Mile House, British Columbia mill. Adjusted earnings exclude non-recurring or other items and use a normalized income tax rate.
Norbord delivered another strong safety performance, achieving a company-wide Occupational Safety and Health Administration (OSHA) recordable injury rate of 0.78 in 2018, in line with 2017. In addition, two mills completed the year injury-free.
North American OSB shipments for the fourth quarter were 5 per cent lower than the third quarter due to seasonality of demand and timing of annual maintenance and other downtime. Shipments were 3 per cent higher than the same quarter last year and 7 per cent higher for the full year due to the Huguley, Alabama restart in the fourth quarter of 2017. Norbord’s specialty sales volume (including industrial applications and exports) continued to increase and represents more than 25 per cent of the company’s 7 per cent higher North American OSB sales volume.
Annual production records were achieved at five of the company’s North American OSB mills. For the full year, Norbord’s operating OSB mills produced at 95 per cent of capacity compared to 96 per cent in 2017 (excluding the curtailed Chambord, Quebec mill and the portion of 2017 that the Huguley, Alabama mill was curtailed). Norbord’s full-year North American OSB cash production costs per unit (before mill profit share) increased 4 per cent versus 2017 due to higher raw material prices and higher maintenance-related costs.
In Europe, shipments decreased by 2 per cent versus the prior year due to changes in product mix. All European panel mills ran on full production schedules during the year, excluding maintenance and holiday shutdowns, producing at 88 per cent of capacity in 2018 compared to 99 per cent in 2017.
Capacity utilization decreased due to the restatement of annual production capacity to reflect the new continuous press line at the Inverness, Scotland OSB mill that was substantially completed in the fourth quarter of 2017. Production from the expanded Inverness mill is expected to increase in 2019 now that the new finishing line installation is complete and commissioning is underway. Annual production records were achieved at two of the company’s European mills.
For 2018, Margin Improvement Program (MIP) gains from a richer product mix and improved productivity were offset by higher maintenance-related costs, raw material usages and cost associated with executing on strategic capital and sales growth initiatives. MIP gains are measured relative to the prior year at constant prices and exchange rates. Improved productivity and lower raw material usage at the restarted Huguley, Alabama and expanded Inverness, Scotland mills were excluded from the 2018 MIP calculation. These mills are expected to generate MIP gains in 2019.
Capital investments totalled $204 million ($205 including intangible assets) in 2018, including the Inverness, Scotland finishing line, Chambord, Quebec rebuild, Grande Prairie, Alberta de-bottlenecking project and several productivity improvement and cost reduction projects across the company’s mills.
Included in the 2018 capital investments is $12 million for the installation of a new finishing end at the modernized and expanded Inverness, Scotland mill, which was completed during the fourth quarter of 2018. A total of $146 million was invested in the project. The Board of Directors approved a $46 million (£35 million) second phase investment to further expand capacity at the Inverness, Scotland 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 two years to complete and is consistent with the company’s strategy of growing its European OSB capacity to serve rapid consumption growth in its key markets.
Also included in the 2018 capital investments is $44 million for the Grande Prairie, Alberta de-bottlenecking project. The Grande Prairie mill is one of the largest single-line OSB facilities in the world, but the mill was bottlenecked in the areas before the forming line and press. The company completed a project to redeploy the wood handling, heat energy and drying equipment from the unfinished and unused second production line to de-bottleneck the existing first line and support growing demand from key customers. The project was completed in the fourth quarter of 2018 and the mill’s production capacity increased by 100 MMsf (3/8-inch basis). Further savings are expected to be realized through reduced wood and natural gas usage. A total of $68 million was invested in the project.
At the Chambord, Quebec mill rebuild project, $27 million of the $71 million budget was invested in 2018. Norbord believes North American OSB demand will continue to grow. In order to support this anticipated growth, Norbord is rebuilding and preparing the 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. This project involves replacing the dryers and investing in the wood-handling and finishing areas to de-bottleneck the mill’s manufacturing process and reduce manufacturing costs, as well as upgrades in process and personal safety systems, electrical systems and environmental equipment to bring the mill up to current standards after a decade of curtailment. The mill’s stated capacity has been increased by 80 MMsf (3/8-inch basis).
Norbord’s 2019 capital expenditure budget is approximately $150 million for projects focused on reducing manufacturing costs across the mills, as well as a portion of the Chambord, Quebec mill rebuild and Inverness, Scotland phase two projects. It also includes investments to support the Company’s strategy to increase the production of specialty products for industrial applications and exports.
Operating working capital decreased by $39 million during the year to $88 million at year-end due to lower accounts receivable and inventory, as well as higher accounts payable and accrued liabilities. Working capital continues to be managed at minimal levels across the company.
At year-end, Norbord had un-utilized liquidity of $490 million, consisting of $128 million in cash and $362 million in unused credit lines. The company’s tangible net worth was $1,132 million and net debt to total capitalization on a book basis was 28 per cent, with both ratios well within bank covenants.