Note: Financial references in US dollars unless otherwise
indicated.
2018 HIGHLIGHTS
- Generated record Adjusted EBITDA of $724 million, an 8% increase
year-over-year
- Adjusted earnings of $4.74 per
diluted share, a 6% increase over 2017
- European EBITDA more than doubled year-over-year to
$86 million
- Record annual production at seven mills
- Returned over $500 million in
cash to shareholders through dividends and share
repurchases
- Delivered strong safety performance with OSHA recordable
injury rate of 0.78
- Declared quarterly variable dividend of C $0.40 per share for shareholders of record on
March 1, 2019
TORONTO, Feb. 1, 2019 /CNW/ - Norbord Inc. (TSX and NYSE:
OSB) today reported Adjusted EBITDA of $724
million 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. 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 US 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."
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 (see
Developments section below for further details). Adjusted earnings
exclude non-recurring or other items and use a normalized income
tax rate:
$
millions
|
|
Q4-2018
|
Q3-2018
|
Q4-2017
|
2018
|
2017
|
(Loss)
earnings
|
|
(28)
|
130
|
160
|
371
|
436
|
Adjusted
for:
|
|
|
|
|
|
|
Impairment of
assets
|
|
80
|
-
|
-
|
80
|
-
|
Loss on
disposal of assets
|
|
2
|
-
|
3
|
2
|
12
|
Stock-based
compensation and related costs
|
|
-
|
2
|
-
|
4
|
3
|
Pre-operating
costs related to Inverness project
|
|
-
|
-
|
-
|
-
|
1
|
Reported
income tax (recovery) expense
|
|
(26)
|
37
|
6
|
100
|
81
|
Adjusted pre-tax
earnings
|
|
28
|
169
|
169
|
557
|
533
|
Income tax
expense at statutory rate(1)
|
|
(2)
|
(46)
|
(46)
|
(145)
|
(144)
|
Adjusted
earnings
|
|
26
|
123
|
123
|
412
|
389
|
(1)
|
Represents Canadian
combined federal and provincial statutory rate (2018 – 26%; 2017 –
27%). Q1 to Q3 of 2018 were based on the 27% rate and a true-up for
the full year rate of 26% was reflected in Q4.
|
Market Conditions
Full-year housing starts data for 2018 has not yet been
published due to the US government shutdown. As of November 2018, year-to-date US housing starts
were up 5% from the same period in 2017, and the seasonally
adjusted annualized pace of permits, the more forward-looking
indicator, was 1.33 million. Single family starts, which use
approximately three times more OSB than multifamily, increased by
4% in 2018 and represented 70% of total starts.
However, the pace of housing activity slowed in the last few
months of 2018. The November seasonally adjusted annualized rate of
US housing starts was 1.26 million, 4% lower than the prior year.
US housing economists are forecasting 2019 starts of approximately
1.28 million, which suggests a modest 1% year-over-year
improvement.
According to APA–The Engineered Wood Association, North American
OSB production, which represents demand on the industry's mills,
increased by 4% in 2018 to approximately 23.5 Bsf (3⁄8-inch basis),
or 87% of the industry's operating capacity.
North American benchmark OSB prices remained well above
historical averages for most of 2018. Benchmark OSB prices
increased steadily in the first half of the year due to increased
demand and logistics constraints caused by poor weather before
declining in the fall as homebuyers adjusted to higher home prices
and mortgage interest rates. The North Central benchmark OSB price
ranged from a high of $445 per Msf
(7⁄16-inch basis) in June to a low of $203 per Msf in December and averaged
$351 per Msf for the year. The
table below summarizes average benchmark prices ($ per Msf,
7/16-inch basis) by region for the relevant periods:
North American
region
|
|
% of Norbord's
operating capacity
|
Q4-2018
|
Q3-2018
|
Q4-2017
|
2018
|
2017
|
North
Central
|
|
14%
|
243
|
363
|
379
|
351
|
353
|
South East
|
|
38%
|
203
|
305
|
355
|
315
|
330
|
Western
Canada
|
|
30%
|
184
|
281
|
328
|
307
|
326
|
In Europe, Norbord's core panel
markets remained robust, with continued OSB demand growth in key
geographies. In the UK, where three of Norbord's four European
mills are located, GDP growth was 1.3%, unemployment remained low
at 4.2% and housing starts activity was steady. In Germany, Norbord's largest continental
European market, GDP growth was 1.6% while housing starts were in
line with the previous year.
Performance
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%
lower than the third quarter due to seasonality of demand and
timing of annual maintenance and other downtime. Shipments were 3%
higher than the same quarter last year and 7% 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% of the Company's 7% 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% of capacity compared to 96% 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% versus 2017 due to
higher raw material prices and higher maintenance-related
costs.
In Europe, shipments decreased
by 2% 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%
of capacity in 2018 compared to 99% 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 totaled $204
million ($205 including
intangible assets) in 2018, including the Inverness, Scotland finishing line,
Chambord, Quebec rebuild,
Grande Prairie, Alberta
debottlenecking 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 debottlenecking
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 debottleneck 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 debottleneck 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 2 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 unutilized 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%, with both ratios well within bank covenants.
Dividend
The Board of Directors declared a quarterly variable dividend of
C $0.40 per common share, payable on
March 21, 2019 to shareholders of
record on March 1, 2019, a C
$0.20 per common share or 33%
decrease versus the prior quarter's level. Norbord believes that
the longer-term fundamentals underlying OSB demand remain
supportive. The variable dividend decrease reflects the weaker than
expected North American benchmark OSB prices in the fourth quarter
of 2018 as well as the $140 million
of capital allocated to common share repurchases during the last
three months. Any dividends reinvested on March 21, 2019 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. Registered
and beneficial shareholders may opt to receive their dividends in
either Canadian dollars or the US dollar equivalent. Unless they
request the US dollar equivalent, shareholders will receive
dividends in Canadian dollars. The US dollar equivalent of the
dividend will be based on the Bloomberg FX Fixings Service (BFIX)
noon exchange rate on the record date or, if the record date falls
on a weekend or holiday, on the BFIX noon exchange rate of the
preceding business day.
Registered shareholders wishing to receive the US dollar
dividend equivalent should contact Norbord's transfer agent, AST
Trust Company (Canada), by phone
at 1-800-387-0825 or by email at inquiries@canstockta.com.
Beneficial shareholders (i.e., those holding their Norbord shares
with their brokerage) should contact the broker with whom their
shares are held.
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.
Normal Course Issuer Bid
In October 2018, Norbord renewed
its normal course issuer bid (NCIB) in accordance with TSX rules.
Under the bid, Norbord may purchase up to 5,191,965 of its common
shares, representing 10% of the Company's public float of
51,919,654 as of October 22, 2018,
pursuant to TSX rules (a total of 86,848,396 Common Shares were
issued and outstanding as of such date). During 2018, 3.8 million
shares were purchased under this bid at a cost of $102 million.
In December 2018, the Company
entered into an automatic share purchase plan (ASPP) in order to
facilitate the repurchase of its common shares under its NCIB
during the regularly scheduled quarterly trading blackout period.
Subsequent to year-end, the Company repurchased an additional 1.4
million shares under the ASPP and Norbord has now exhausted the
current NCIB limit with a total of 5.2 million shares purchased for
$140 million.
Norbord believed that the market price of its common shares was
attractive as they were trading significantly below replacement
cost and management's view of intrinsic value and that the purchase
of these common shares was an appropriate use of Norbord's funds in
light of potential benefits to remaining shareholders.
Developments
At year-end, Norbord restated its annual North American OSB mill
capacity, reflecting higher line speeds from converting to PMDI
resin technology and subsequent capital invested over the past six
years to debottleneck certain mills. The result was an increase of
560 MMsf (3/8-inch basis) or 7% of Norbord's North American OSB
capacity (6% of its total panel capacity). Almost all of the
Company's production growth since 2015 has been shipped into
value-added and specialty product end uses.
The Company recorded a non-cash impairment charge of
$80 million (pre-tax) against the
carrying value of the 100 Mile House, British Columbia mill's fixed assets as at
December 31, 2018, reflecting the
reduction in the annual allowable cut starting in 2019 and the
longer-term trend of high wood costs in the region. The Company
previously announced that it had temporarily suspended production
at the mill due to a wood shortage in the second quarter of 2018,
which was the result of nearby wildfires during the third quarter
of 2017. The mill continues to operate and the Company remains able
to keep wood supplied to the mill.
Additional Information
Norbord's year-end 2018 letter to shareholders, news release,
management's discussion and analysis, annual consolidated audited
financial statements and notes to the financial statements have
been filed on SEDAR (www.sedar.com), EDGAR (www.sec.gov) and are
available in the investor section of the Company's website at
www.norbord.com. Shareholders may receive a hard copy of Norbord's
audited annual financial statements free of charge upon request.
The Company has also made available on its website presentation
materials containing certain historical and forward-looking
information relating to Norbord, including materials that contain
additional information about the Company's financial results.
Shareholders are encouraged to read this material.
Conference Call
Norbord will hold a conference call for analysts and
institutional investors on Friday, February
1, 2019 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 March 3, 2019 by
dialing 1-888-203-1112 or 647-436-0148 (passcode 1783034 and pin
9635). 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 $1.9
billion and employs approximately 2,700 people at 17 plant
locations in the United States,
Canada and Europe. Norbord is a publicly traded company
listed on the Toronto Stock Exchange and New York Stock Exchange
under the symbol "OSB".
This news release contains 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 "set up," "on track," "expect,"
"estimate," "forecast," "target," "outlook," "schedule,"
"represent," "continue," "intend," "should," "would," "could,"
"will," "can," "might," "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: assumptions in
connection with the economic and financial conditions in the US,
Europe, Canada and globally; risks inherent to product
concentration and cyclicality; effects of competition and product
pricing pressures; risks inherent to customer dependence; effects
of variations in the price and availability of manufacturing
inputs, including continued access to fibre resources at
competitive prices; availability of rail services and port
facilities; various events that could disrupt operations, including
natural or catastrophic events and ongoing relations with
employees; impact of changes to, or non-compliance with,
environmental regulations; impact of any product liability claims
in excess of insurance coverage; risks inherent to a capital
intensive industry; impact of future outcomes of tax exposures;
potential future changes in tax laws; effects of currency exposures
and exchange rate fluctuations; future operating costs,
availability of financing, impact of future cross-border trade
rulings or agreements; ability to implement new or upgraded
information technology infrastructure; impact of information
technology service disruptions or failures; and other risks and
factors described from time to time in filings with Canadian
securities regulatory authorities.
Except as required by applicable law, Norbord does not
undertake to update any forward-looking statements, whether written
or oral, that may be made from time to time by, or on behalf of,
the Company, 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 31, 2019 Annual Information Form and the
cautionary statement contained in the "Forward-Looking Statements"
section of the 2018 Management's Discussion and
Analysis dated January 31,
2019.
Norbord defines Adjusted EBITDA as earnings determined in
accordance with International Financial Reporting Standards (IFRS)
before finance costs, interest income, income taxes, depreciation,
amortization and non-recurring or other items; Adjusted earnings
(loss) as earnings determined in accordance with IFRS before
non-recurring or other items and using a normalized income tax
rate; and Adjusted earnings per share is Adjusted earnings divided
by the weighted average number of common shares outstanding (on a
basic or diluted basis, as specified). Adjusted EBITDA, Adjusted
earnings, and Adjusted earnings per share are non-IFRS financial
measures, do not have any standardized meaning prescribed by IFRS
and are therefore unlikely to be comparable to similar measures
presented by other companies. See "Non-IFRS Financial Measures" in
Norbord's 2018 Management's Discussion and Analysis dated
January 31, 2019 for a quantitative
reconciliation of Adjusted EBITDA and Adjusted earnings to earnings
(the most directly comparable IFRS measure).
February 1, 2019
To Our Shareholders:
2018 was the best financial year in Norbord's history. Our
company delivered a record $724
million of Adjusted EBITDA as we produced and shipped more
product from our mills and North American OSB prices remained well
above historical trends for much of the year. Our European business
had an excellent year, more than doubling its EBITDA contribution
to $86 million. Our success enabled
us to return more than half a billion dollars to our shareholders
through a combination of dividends and share buybacks.
These results were underpinned by solid operational performance
across the Company, as seven of our mills set annual production
records. Most importantly, our employees continued to work safely
and achieved an OSHA recordable injury rate of 0.78. We are
encouraged that our employees continue to prioritize safety, even
as we invested more than $200 million
in productivity and cost reduction initiatives at our mills. These
investments will also support our ongoing efforts to expand our
specialty product sales. The exceptional operating cash flow we
generated last year preserved our strong balance sheet and we ended
the year with $490 million of
liquidity, including more than $125 million in cash.
While 2018 was a banner year for Norbord, US housing sentiment
turned negative in the fall and this affected stock market
perceptions of companies in our industry. In November, December and
January, we saw this as a compelling opportunity to buy back 5.2
million of our shares at prices which we believe are significantly
below their intrinsic value – a strategic use of our capital to
enhance shareholder value.
Our perspective on the markets
In 2018, we experienced significant volatility in North American
OSB prices that is not unusual in our industry. Let me put this
recent market volatility in context. The first half of 2018 saw an
extraordinary increase in benchmark OSB prices due to a combination
of strong demand growth and weather-related logistics issues which
constrained supply, particularly in the west. The weather improved
and logistics issues were resolved in time for the spring
homebuilding season, but by the fall, the pace of US housing growth
began to slow as home buyers were faced with higher home prices and
rising mortgage interest rates. As the year drew to a close and we
entered the seasonally slowest time of year, particularly wet
weather in the US south further constrained homebuilding activity
and OSB demand.
This market volatility was reflected in our 2018 financial
results, with well above average Adjusted EBITDA in the first three
quarters of the year followed by below average results in the
fourth quarter, which continued into January.
We continue to share the view of housing experts that the
industry is experiencing a temporary pause rather than a
directional shift. The underlying market fundamentals remain
supportive with low unemployment and solid wage growth underpinning
consumer confidence and household formation finally moving back
above the long-term average. US housing starts continue to grow,
albeit at a modest pace, with the experts' current forecast
averaging 1.28 million starts for 2019. Demand for lower-cost
entry-level homes remains particularly strong, though we believe
home builders need time to adapt their offerings to meet this need.
Mortgage interest rates increased by more than 1% (from just under
4% to approximately 5%) during 2018, but have since moderated down
about half a percent.
Outside of housing, we see continued solid growth in other OSB
end uses; 83% of our incremental 2018 volumes were specialty and
non-commodity products. We have been investing to support the
production and sale of more OSB for non-traditional end uses and we
believe this will support further North American OSB demand
growth.
The picture in Europe is even
more favourable. Strong demand growth driven by increasing
substitution for imported panels contributed to our outstanding
European results in 2018, and we expect this trend to continue. The
new finishing end at our Inverness,
Scotland OSB mill is now complete and will unlock the
capacity of the modernized and expanded press line. Further, our
Board has approved an incremental £35 million investment at
Inverness to add a second
stranding and drying line to the mill. The expanded mill layout was
predisposed for this next phase of growth which will allow us to
continue steadily increasing our production volume in each of the
next five years to support our European customers' growing
needs.
Priorities for 2019
We will continue to manage the business by closely aligning to
the needs of our customers. We took more than 130 mill-days of
downtime during the fourth quarter of 2018 and will continue to
produce only what we can sell.
For 2019, we have budgeted approximately $150 million for ongoing investments in our mills
to reduce manufacturing costs and ensure we can support growth in
our specialty product sales. The budget includes a portion of the
Inverness phase 2 investment. We
will also continue to prepare our Chambord, Quebec mill for an eventual restart,
though no decision has been made about the timing. Work on the long
lead-time items is well underway and, similar to our approach at
Huguley, Alabama, we will continue
to manage the pace of the rebuild based on market conditions.
Norbord has a track record of superior returns on invested
capital versus our peers and we have returned over $1.5 billion in cash to our shareholders over the
past 15 years, through both dividends and share buybacks. We remain
committed to returning excess cash to shareholders, and our
variable dividend policy gives us the flexibility to prudently
balance capital allocation decisions with the inherent cyclicality
in our business.
With record annual earnings, strong operational and sales
performance, and excellent customer relationships, we continue to
be a clear leader in the OSB industry. Our diversification strategy
is designed to mitigate volatility and deliver value even in times
of market uncertainty. Combined with our strong balance sheet and
liquidity, we believe Norbord is well positioned for the year
ahead.
We believe it is an excellent time to be invested in Norbord and
thank our shareholders for their continuing support.
Peter Wijnbergen
President & 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, market outlook, 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
achievements expressed or implied by the forward-looking
statements. See the cautionary language in the Forward-Looking
Statements section of the 2018 Management's Discussion and Analysis
dated January 31, 2019.
Norbord defines Adjusted EBITDA as earnings determined in
accordance with International Financial Reporting Standards (IFRS)
before finance costs, interest costs, income taxes, depreciation,
amortization and non-recurring or other items; Adjusted earnings as
earnings determined in accordance with IFRS before non-recurring or
other items and using a normalized income tax rate; and Adjusted
earnings per share as Adjusted earnings divided by the weighted
average number of common shares outstanding (on a basic or diluted
basis, as specified). Adjusted EBITDA, Adjusted earnings, and
Adjusted earnings per share are non-IFRS financial measures, do not
have any standardized meaning prescribed by IFRS and are therefore
unlikely to be comparable to similar measures presented by other
companies. See the Non-IFRS Financial Measures section in Norbord's
2018 Management's Discussion and Analysis dated January 31, 2019 for a quantitative
reconciliation of Adjusted EBITDA and Adjusted earnings to earnings
(the most directly comparable IFRS measure).
Consolidated Balance Sheets
|
(US $
millions)
|
|
Dec 31,
2018
|
|
Dec 31,
2017
|
Assets
|
|
|
|
|
Current
assets
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
128
|
|
$
|
241
|
Accounts
receivable
|
|
149
|
|
174
|
Taxes
receivable
|
|
—
|
|
1
|
Inventory
|
|
220
|
|
224
|
Prepaids
|
|
12
|
|
11
|
|
|
509
|
|
651
|
Non-current
assets
|
|
|
|
|
Property, plant and
equipment
|
|
1,402
|
|
1,421
|
Intangible
assets
|
|
20
|
|
24
|
Deferred income tax
assets
|
|
6
|
|
4
|
Other
assets
|
|
5
|
|
3
|
|
|
1,433
|
|
1,452
|
|
|
$
|
1,942
|
|
$
|
2,103
|
Liabilities and
shareholders' equity
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
$
|
293
|
|
$
|
282
|
Accrued liability
under ASPP
|
|
42
|
|
—
|
Taxes
payable
|
|
28
|
|
74
|
|
|
363
|
|
356
|
Non-current
liabilities
|
|
|
|
|
Long-term
debt
|
|
550
|
|
548
|
Other
liabilities
|
|
34
|
|
29
|
Deferred income tax
liabilities
|
|
172
|
|
151
|
|
|
756
|
|
728
|
Shareholders'
equity
|
|
823
|
|
1,019
|
|
|
$
|
1,942
|
|
$
|
2,103
|
Consolidated Statements of Earnings
|
Years ended December
31, (US $ millions, except per share information)
|
|
2018
|
|
2017
|
Sales
|
|
$
|
2,424
|
|
$
|
2,177
|
Cost of
sales
|
|
(1,686)
|
|
(1,499)
|
General and
administrative expenses
|
|
(18)
|
|
(10)
|
Depreciation and
amortization
|
|
(134)
|
|
(107)
|
Loss on disposal of
assets, net
|
|
(2)
|
|
(12)
|
Impairment of
assets
|
|
(80)
|
|
—
|
Operating
income
|
|
504
|
|
549
|
Non-operating
expense:
|
|
|
|
|
Finance
costs
|
|
(37)
|
|
(32)
|
Interest
income
|
|
4
|
|
—
|
Earnings before
income tax
|
|
471
|
|
517
|
Income tax
expense
|
|
(100)
|
|
(81)
|
Earnings
|
|
$
|
371
|
|
$
|
436
|
Earnings per common
share
|
|
|
|
|
Basic
|
|
$
|
4.29
|
|
$
|
5.06
|
Diluted
|
|
4.27
|
|
5.03
|
Consolidated Statements of Comprehensive Income
|
Years ended December
31, (US $ millions)
|
|
2018
|
|
2017
|
Earnings
|
|
$
|
371
|
|
$
|
436
|
Other comprehensive
(loss) income, net of tax
|
|
|
|
|
Items that will not
be reclassified to earnings:
|
|
|
|
|
Actuarial loss on
post-employment obligation
|
|
—
|
|
(3)
|
Items that may be
reclassified subsequently to earnings:
|
|
|
|
|
Foreign currency
translation (loss) gain on foreign operations
|
|
(21)
|
|
29
|
Other comprehensive
(loss) income, net of tax
|
|
(21)
|
|
26
|
Comprehensive
income
|
|
$
|
350
|
|
$
|
462
|
Consolidated Statements of Changes in
Shareholders' Equity
|
Years ended December
31, (US $ millions)
|
|
2018
|
|
2017
|
Share
capital
|
|
|
|
|
Balance, beginning of
year
|
|
$
|
1,350
|
|
$
|
1,341
|
Issue of common
shares upon exercise of options and DRIP
|
|
11
|
|
9
|
Common shares
repurchased and cancelled
|
|
(57)
|
|
—
|
Common shares to be
repurchased and cancelled under ASPP
|
|
(24)
|
|
—
|
Balance, end of
year
|
|
$
|
1,280
|
|
$
|
1,350
|
Merger
reserve
|
|
$
|
(96)
|
|
$
|
(96)
|
Contributed
surplus
|
|
|
|
|
Balance, beginning of
year
|
|
$
|
8
|
|
$
|
9
|
Stock-based
compensation
|
|
1
|
|
1
|
Stock options
exercised
|
|
(1)
|
|
(2)
|
Common shares
repurchased and cancelled
|
|
(4)
|
|
—
|
Balance, end of
year
|
|
$
|
4
|
|
$
|
8
|
Retained
deficit
|
|
|
|
|
Balance, beginning of
year
|
|
$
|
(67)
|
|
$
|
(402)
|
Earnings
|
|
371
|
|
436
|
Common share
dividends
|
|
(417)
|
|
(101)
|
Common shares
repurchased and cancelled
|
|
(37)
|
|
—
|
Common shares to be
repurchased and cancelled under ASPP
|
|
(18)
|
|
—
|
Balance, end of
year(i)
|
|
$
|
(168)
|
|
$
|
(67)
|
Accumulated other
comprehensive loss
|
|
|
|
|
Balance, beginning of
year
|
|
$
|
(176)
|
|
$
|
(202)
|
Other comprehensive
(loss) income
|
|
(21)
|
|
26
|
Balance, end of
year
|
|
$
|
(197)
|
|
$
|
(176)
|
Shareholders'
equity
|
|
$
|
823
|
|
$
|
1,019
|
|
|
|
|
|
|
|
|
|
|
(i)
Retained deficit comprised of:
|
|
|
|
|
Deficit arising on
cashless exercise of warrants in 2013
|
|
$
|
(263)
|
|
$
|
(263)
|
All other retained
earnings
|
|
95
|
|
196
|
|
|
$
|
(168)
|
|
$
|
(67)
|
Consolidated Statements of Cash Flows
|
Years ended December
31, (US $ millions)
|
|
2018
|
|
2017
|
CASH PROVIDED BY
(USED FOR):
|
|
|
|
|
Operating
activities
|
|
|
|
|
Earnings
|
|
$
|
371
|
|
$
|
436
|
Items not affecting
cash:
|
|
|
|
|
Depreciation and
amortization
|
|
134
|
|
107
|
Deferred income
tax
|
|
19
|
|
(9)
|
Impairment of
assets
|
|
80
|
|
—
|
Loss on disposal of
assets, net
|
|
2
|
|
12
|
Other
items
|
|
(5)
|
|
(8)
|
|
|
601
|
|
538
|
Net change in
non-cash operating working capital balances
|
|
52
|
|
(18)
|
Net change in taxes
receivable and taxes payable
|
|
(45)
|
|
88
|
|
|
608
|
|
608
|
Investing
activities
|
|
|
|
|
Investment in
property, plant and equipment
|
|
(210)
|
|
(240)
|
Investment in
intangible assets
|
|
(1)
|
|
(4)
|
|
|
(211)
|
|
(244)
|
Financing
activities
|
|
|
|
|
Common share
dividends paid
|
|
(411)
|
|
(101)
|
Repayment of
debt
|
|
—
|
|
(200)
|
Repurchase of common
shares
|
|
(98)
|
|
—
|
Issue of common
shares
|
|
4
|
|
7
|
|
|
(505)
|
|
(294)
|
Foreign exchange
revaluation on cash and cash equivalents held
|
|
(5)
|
|
10
|
Cash and cash
equivalents
|
|
|
|
|
(Decrease) increase
during year
|
|
(113)
|
|
80
|
Balance, beginning of
year
|
|
241
|
|
161
|
Balance, end of
year
|
|
$
|
128
|
|
$
|
241
|
View original
content:http://www.prnewswire.com/news-releases/norbord-reports-record-2018-earnings-declares-quarterly-dividend-300787992.html
SOURCE Norbord Inc.