Norbord Inc. (NBDFF.PK)

Q2 2010 Earnings Call Transcript

July 22, 2010 11:00 am ET


Barrie Shineton – President and CEO

Robin Lampard – SVP and CFO


Sean Steuart – TD Newcrest

Paul Quinn – RBC Capital Markets

Pierre Lacroix – Desjardins Securities

Richard Skidmore – Goldman Sachs



Good day ladies and gentlemen and welcome to Norbord Inc. 2010 second quarter earnings conference call. As a reminder today's call is being recorded and webcast on Norbord's Web site at

Norbord's discussion today may include certain projects and forward-looking statements regarding Norbord's business future actions and expected results. These statements are subject to known and unknown risks and future results may differ materially. For further information on known risks, please see the caution regarding forward-looking information statement in Norbord's March 1, 2010 Annual Information Form and the cautionary statement contained in the forward-looking statements section of Norbord management's discussion and analysis dated July 21, 2010.

It is now my pleasure to turn the conference over to Mr Barrie Shineton, President and Chief Executive Officer. Please go ahead sir.

Barrie Shineton

Thank you very much Michelle, good morning everyone and welcome to our quarterly conference call. I have Robin Lampard our CFO with me. Anita Veel, our Director of Corporate & Regulatory Affairs recently left the company for another opportunity. So until we replace her, you should direct any questions that you might have after the call or in the future to Robin.

Today, I am pleased to report our strongest quarterly financial performance since 2006. We generated positive EBITDA of $71 million, and bottom line earnings of $37 million, and $0.85 per share. During the quarter, we also took steps to further improve our liquidity. We increased and extended our bank lines and put in place a new accounts receivable securitization program, this provides us with more flexibility and fewer constraints.

Before I turn the call over to Robin there are two points that I would like to highlight. First, a few comments on the better OSB prices we saw in North America this quarter. I think there were several important factors that played out in the lead up to the quarter. Housing demand was bouncing along at the bottom late last year and Norbord along with other producers had curtailed capacity in light of this low demand. Wholesalers, distributors and retailers reduced OSB inventories to very low levels as they focused on their own working capital initiatives, and the unusually wet and cold weather in the first quarter particularly in the US South with its importance to us restricted access to forest and curtailed log deliveries to mills.

In our view, these developments limited a timely supply response to both the spring bump in construction activity, and the overall improvement in year-over-year housing starts. While we operated all our mills at capacity during the quarter, it is pretty clear that overall demand outstripped the ability of both producers and distributors to increase supply. This resulted in what I would define as surging OSB prices that peaked in May before returning to more sustainable levels by quarter-end. Our quarter one operating difficulties in the US South were behind us and we had our operations well positioned early in the quarter to capture the benefits of what turned out to be a much stronger market.

My second point is that while media reports on housing continue to be mixed, the situation is improving for most home builders. In spite of the disappointing June numbers, actual US housing starts and building permits are up almost 15% over last year. New home inventories are at their lowest level in 40 years and home affordability is now very attractive. In our UK market housing starts are actually up 75% so far this year. Although progress in both Europe and North America is likely to be slow and uneven, I do believe a housing recovery is underway. We have delivered a strong result this quarter, and we are well positioned when I look forward into the second half of the year.

With that, I will turn it over to Robin.

Robin Lampard

Thanks Barrie. As Barrie highlighted, we had a very strong second quarter largely thanks to higher OSB prices in North America.

Benchmark North Central OSB prices ranged from $195 to $395 and averaged $295 in Q2. The North Central average was up $83 from the prior quarter and $149 from the same quarter last year. South East benchmark prices averaged $277 in Q2, an $80 improvement from Q1, and up $137 from Q2 last year.

Our operating North American mills ran at approximately 100% of capacity in the second quarter compared to 85% in the prior quarter, and 80% in the same quarter last year. Our oversee [ph] mills in Huguley, Alabama and Jefferson, Texas remain indefinitely shut. Together these two mills represent approximately 20% of Norbord’s annual North American OSB production capacity. Considering both the operating and indefinitely closed mills, our North American OSB mills ran at approximately 80% of capacity in Q2 compared to 65% in Q1, and 60% in Q2 of last year.

Turning to Europe, significantly improved housing activity in our primary market of the UK supported stronger panel demand. European panel prices rose 14% for OSB and 4% for particleboard and MDF compared to the prior quarter. Our European mills ran at 100% of capacity in the second quarter as well, 90% in the prior quarter and 75% in the same quarter last year.

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