Norbord Inc. (NBD.TO), a producer of wood-based panels, reported a wider net loss for the fourth quarter, hurt by lower demand for its core products and higher input costs, including energy and resin prices. The company has been hard-hit by the protracted downturn in the U.S. housing industry as well as a collapse in U.K. housing activity. Looking ahead, the company said it does not expect any recovery in the housing markets in North America or Europe during 2009.
Fourth Quarter Results
The Toronto, Canada-based company's net loss for the fourth quarter widened to US$30 million, or US$0.19 per share, from US$13 million, or US$0.09 per share, in the same period last year.
Norbord attributed the wider net loss for the quarter to sales mix and a reduction in sales volume primarily due to significant production curtailments in 2008, despite modestly higher oriented strand board, or OSB prices in North America. In addition, higher key input prices for resin and energy and the impact of reduced production on energy usages also impacted the quarter's results.
Net sales for the quarter declined 27% to US$191 million from US$263 million in the prior-year quarter.
Barrie Shineton, President and CEO of Norbord said, "The past year has been the most difficult in Norbord's history. The issues have been well documented: poor demand for our core products; high input costs; and a breakdown in the financial markets resulted in a lack of available credit for both individuals and corporations."
North American and European net sales declined in the quarter due to lower selling prices and shipment volumes.
The lack of available credit in the U.S., combined with a dramatic increase in foreclosure rates and the high inventory of new and existing homes for sale, led to unprecedented erosion in housing starts. New home construction is the primary end use for OSB in North America, accounting for approximately 60% of OSB demand in 2008. U.S. housing starts in 2008 were approximately 0.9 million, down from 1.35 million in 2007 and 1.8 million in 2006.
Norbord noted that the economic downturn that began in the U.S. has expanded globally. Consumer confidence and housing-related spending dropped sharply across Europe as a result. In the U.K., where the majority of Norbord's European assets are located, housing starts fell 35% and housing prices declined 16% in 2008.
The company's earnings before interest, depreciation and amortization, or EBITDA, for the fourth quarter was a negative $28 million compared to negative $9 million in the year-ago quarter. The lower EBITDA in the quarter was due to higher key input prices, primarily for resin and wax, as well as lower OSB prices and shipment volumes in both North America and Europe.
North Central OSB benchmark price averaged $170 in the fourth quarter, down $31 from the preceding third quarter. In the South East region, where 55% of Norbord's North American capacity is located, benchmark prices averaged $137 in the quarter, down $21 from the prior quarter.
Norbord noted that lower OSB prices during the quarter were due to the combination of the seasonal slowdown in order files and an extremely cautious customer buying pattern as credit and working capital concerns spread. North American OSB comprises 70% of Norbord's panel shipments by volume. The principal end use of OSB is in new home construction.
North American per unit OSB production costs increased 12% from the year ago due to higher resin, fibre and energy prices as well as the impact of lower production volumes.
The company's North American OSB mills operated at about 60% of capacity in the quarter compared to 90% of capacity in the preceding third quarter. In Europe, the company curtailed 30% of its capacity in the quarter.
Norbord said it took several steps during the fourth quarter to improve liquidity and strengthen its balance sheet.
According to the company, in response to the unprecedented financial market turmoil and uncertainty regarding the near-term recovery of U.S. housing starts, its board of directors suspended the C$0.10 per share quarterly dividend during the fourth quarter. The C$0.10 dividend paid on December 21, 2008 to shareholders of record on December 1, 2008 was the last payment to be made until further notice.
The company also raised C$240 million through its rights offering, and negotiated bank line amendments with its lenders. In addition, the company reduced production to limit its exposure to housing-related OSB and lowered its investment in operating working capital. The company said it has also eliminated bonuses, reduced headcount and cutting consulting and traveling expenses.
At the end of fiscal year 2008, Norbord's net debt was 32% of capitalization on a market basis and 61% on a book basis. Upon completion of the recapitalization initiatives, Norbord will have access to approximately US$300 million of liquidity, tangible net worth of US$384 million and net debt to capitalization of 51% on a pro forma basis.
Fiscal Year 2008 Results
For fiscal year 2008, Norbord's net loss widened to US$116 million, or US$0.77 per share, from US$45 million, or US$0.31 per share, in the previous year.
The company noted that the loss for the year reflected ongoing weakness in U.S. housing starts, a collapse in U.K. housing activity and the overall impact of the breakdown in global financial markets. Results were also impacted by a US$140 per barrel peak oil price that resulted in a significant increase in manufacturing input costs, especially those associated with energy and resin.
Net sales for the year were US$943 million, down 15% from US$1.104 billion in the prior year.
EBITDA for the year was a negative US$60 million compared to positive EBITDA of US$42 million in the previous year. Higher input prices, especially resin and energy, accounted for $81 million of the year-over-year decline.
Norbord said that it has reached an agreement in principle with Kruger Inc. to form a joint venture to combine their respective hardwood plywood operations. The transaction is expected to close in the first quarter of 2009. The new company, True North Hardwood Plywood Inc., will operate out of Norbord's mill in Cochrane, Ontario.
Outlook
Looking ahead, Norbord said it does not expect any recovery in the housing markets in North America or Europe during 2009. In the UK, the company expects housing starts and housing prices to weaken further in 2009. However, the company added that it expects to see signs of a U.S. housing recovery in 2010 or early 2011, with recovery in the U.K. pacing slightly behind.
Norbord expects global commodity input prices to moderate further in 2009. The company noted that the price of energy, resin and fibre which account for 70% of Norbord's production costs, have increased sharply over the past five years.
Stock Quotes
NBD.TO closed Thursday's regular trading session on the Toronto Stock Exchange at C$0.68, down C$0.02 or 2.86% on a volume of 94,054 shares. The stock has been trading in a range of C$0.48-C$6.87 in the past 52 weeks.
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