Norbord reports Q1 2015 results
By Norbord Inc.
May 4, 2015 - Norbord Inc. 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, U.S. 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
In North America, March year-to-date U.S. housing starts were up four per cent versus the same period in 2014. Permits were eight per cent higher year-over-year. Single family starts, which use approximately three times more OSB than multi-family, increased by five per cent. The consensus forecast from U.S. housing economists stands at 1.15 million starts for 2015, which would be a 14 per cent 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 andGermany. However, OSB prices remain under pressure and were down 9% quarter-over-quarter and 18 per cent year-over-year as eastern European supply was redirected toward the west due to the ongoing conflict in the Ukraineand 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 four per cent from the prior quarter and nine per cent lower than the same quarter last year.
North American OSB shipments decreased by eight per cent 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 three per cent 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 four per cent 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 six per cent higher versus the prior quarter and in line with the same quarter last year. The European mills produced at approximately 95 per cent of stated capacity in the quarter compared to 105 per cent in the prior quarter and 110 per cent 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 totalled $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 per cent. Both ratios remain well within bank covenants.
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.
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.
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.