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Edited Transcript of OSB.TO earnings conference call or presentation 31-Oct-19 3:00pm GMT

Q3 2019 Norbord Inc Earnings Call

TORONTO Nov 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Norbord Inc earnings conference call or presentation Thursday, October 31, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Peter C. Wijnbergen

Norbord Inc. - President, CEO & Director

* Robin E. Lampard

Norbord Inc. - Senior VP & CFO

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Conference Call Participants

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* Andrew M. Kuske

Crédit Suisse AG, Research Division - MD, Head of Canadian Equity Research, and Global Co-ordinator for Infrastructure Research

* Hamir Patel

CIBC Capital Markets, Research Division - Director of Institutional Equity Research & Paper and Forest Products Analyst

* John Plimpton Babcock

BofA Merrill Lynch, Research Division - Associate

* Ketan Mamtora

BMO Capital Markets Equity Research - Analyst

* Mark Adam Weintraub

Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst

* Paul C. Quinn

RBC Capital Markets, Research Division - Analyst

* Salvator Tiano

Vertical Research Partners, LLC - VP

* Sean Steuart

TD Securities Equity Research - Research Analyst

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Presentation

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Operator [1]

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Good day, everyone, and welcome to Norbord Inc.'s third quarter earnings conference call. As a reminder, today's call is being recorded, and the webcast on Norbord's website is at www.norbord.com.

Norbord's discussion today may include certain projections 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 future information on known risks, please see the caution regarding forward-looking information statement on Norbord's January 31, 2019, annual information form and the cautionary statement contained in the forward-looking statements section of Norbord Management Discussion and Analysis dated October 30, 2019.

And now I will turn the call over to Peter Wijnbergen, President and Chief Executive Officer. Please go ahead, sir.

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [2]

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Well, thank you, Ryan, and good morning, everyone. Welcome to our Q3 2019 conference call. I'm joined today by Robin Lampard, our CFO; Heather Colpitts, our Director of Corporate Affairs; and Robert Winslow, a recent addition to the team and our Vice President of Investor Relations and Corporate Development. This morning, I will briefly summarize a few points about our Q3 results and our outlook before we take your questions.

Favorable U.S. housing market fundamentals continue to be slow to translate into stronger OSB demand. Our mills run well again in Q3. However, our financial results were disappointing as effects of the U.S. housing market softness that began late last year continued to weigh on OSB markets in the quarter. Benchmark prices were mixed in the third quarter. North Central and Western Canadian average regional prices were higher quarter-over-quarter, but still materially below year-ago levels, while Southeast prices weakened to multiyear lows.

For the fourth consecutive quarter, we took extensive downtime across our North American mills, 70 mill days in Q3, to ensure we only produce what we could sell. However, despite the significant downtime, we were able to lower our North American unit cost 4% quarter-over-quarter by operating more efficiently. As you know, we idled our 100 Mile House mill in British Columbia in August. And earlier this month, we announced that we will idle Line 1 at our Cordele, Georgia mill starting mid-November. Together, this indefinitely curtails 12% of our available North American capacity.

These were difficult but necessary decisions that reflect the economic realities facing our business. We have experienced, hard-working teams in both mills, and these decisions were in no way a reflection of the quality and capability of our employees. I'd like to thank our mill employees for all their efforts and commitments. We will continue to serve our customers without disruption from our other operating OSB mills in North America, including our 2 Alberta mills and our second line at Cordele.

Looking forward, we have seen improvement in the affordability concerns and persistent record-breaking wet weather that led to poor building conditions in many North American regions over the past year. The buildup of U.S. unsold new home inventory now appears to have been absorbed, and new home sales increased through the third quarter. This trend has begun to translate into increased new home construction activity with the September seasonally adjusted annual rate pace of U.S. single-family starts up 4% year-over-year to 918,000.

Homebuilder sentiment remains positive with the National Association of Homebuilders Housing Market Index at its highest level of the year. Though we are now entering the slower winter construction season, the expectation is that these positive indicators will carry over into 2020. In Europe, our segment adjusted EBITDA was down from its trend of the past 6 quarters for 2 main reasons. First, we took annual maintenance shuts in the quarter as we typically do to coincide with the slower summer vacation season and incurred the lost volume and added cost (inaudible) in the downtime.

Second, as we highlighted last quarter, panel prices have been rolling over led by Germany, Europe's largest OSB consuming market, as their export-oriented economy is feeling the effects of the global trade war. European panel prices typically move within a much narrower band than basically in North America, and we have benefited from well above average prices in Europe in past couple years. Prices are now reverting towards the historical average.

We have seen in the past that lower prices have helped stimulate the pace of OSB substitution for imported plywood, and we expect this will continue to drive consumption growth in Europe. There has always been a more direct link between panel prices and raw material costs in Europe, albeit with a few quarters lag. And we are working hard to bring down cost across our mills. Further, we used the annual shut this quarter to address some typical startup issues that have been holding back the ramp-up in Inverness. We are still in the early innings of that ramp up and have about a 4-year pipeline of growth ahead of us.

Now turning to capital allocation. We remain committed to a balanced approach, consistent with our long-standing track record. In recognition of the impact of weaker-than-expected North American OSB markets on our financial results over these past 3 quarters, we will be pulling back capital expenditures to $100 million next year. We will focus this lower CapEx budget in areas of high priority, including maintaining our mills and supporting our industrial sales growth strategy as well as our ongoing second phase investment to expand capacity in Inverness.

As you also have seen, the Board reduced the dividend level from $0.40 to $0.20 per share. We also renewed our normal course issuer bid for early November, and we will consider opportunities to enhance shareholder value through the repurchases of our common share. Although it was a disappointing quarter from a financial perspective, our balance sheet and liquidity remains solid. Our mills are running well, and we remain confident in our market position. We have significant upside potential in an improved housing market and are optimistic that our results will improve accordingly.

And with that, we'll jump right into questions today. So I'll turn things over to the operator who will open your lines.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will take our first question, and that is from John Babcock with Bank of America.

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John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [2]

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I was -- first, I was wondering if you can talk about your thinking around curtailing the Cordele, Georgia mill. I mean at least based on some of the data that we have, it seems like this would be one of the lower cost mills in your system. And so I guess if you could verify that. And then also could you provide any color on kind of the potential curtailment costs associated with that or at least some guidance around that?

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [3]

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Well, yes, it is definitely one of our lower-cost mills, but the Southeast region is one of the areas that have seen the most -- or the weakest price over the last number of quarters or maybe the last year. It is a net export market and there is more production in the region than consumption. And we felt that, ultimately, there was insufficient demand at least in the foreseeable future to support the production in that mill.

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Robin E. Lampard, Norbord Inc. - Senior VP & CFO [4]

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And John, in terms of curtailment cost, as you know, it's a 2-line mill, and we have curtailed one of the lines. So the second line continues to operate. And per the announcement, there is about a 45-person reduction in the workforce in that mill as a result of this curtailment. So we've been able to pull out a significant amount of cost from what was a 2-line mill going forward.

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John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [5]

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Okay. And then how much do you typically spend annually on a curtailed mill to keep it sufficiently maintained to have optionality to restart at some point?

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Robin E. Lampard, Norbord Inc. - Senior VP & CFO [6]

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Couple million bucks a year is what it goes down to, so pretty modest.

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John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [7]

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Okay. And as far as kind of the log pile there, I mean are you -- is it going to take some time to work down inventories? Or are they pretty thin at this point?

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [8]

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Well, as you know, we have 2 lines there. So Line 2 continues to operate. So there is no concern over the log pile.

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John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [9]

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So once that's one down it sounds like...

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Robin E. Lampard, Norbord Inc. - Senior VP & CFO [10]

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And Mark -- John, sorry, there isn't the seasonality to logging in the south as there was up in BC. So the inventory is fairly steady through the year.

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John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [11]

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Okay. And then kind of last question on this topic. I guess what do you know about the other OSB mills shutting in South Carolina? Does this line -- it sounds like it's going to be down for a while? Any information or anything you've kind of heard out there would be helpful.

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [12]

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No, sorry. I don't have any more information than probably you do from the newspaper article we read in the local newspaper a couple weeks ago.

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John Plimpton Babcock, BofA Merrill Lynch, Research Division - Associate [13]

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Okay. And then the last question before I turn it over. Just on Europe, I was wondering if you could kind of talk about market conditions and how they kind of trended through the quarter. And particularly how they are now relative to how they ended the quarter?

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [14]

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Yes. I mean the interesting thing in Europe is, as I pointed out, prices are in a narrower band than in North America typically. They are adjusting or rolling over towards the long-term average. Volume isn't so much impacted because we still have lots of room for substitution. So we are not challenged necessarily to sell our volume. Look, we are adjusting to this lower pricing environment, as I said, more towards the long-term average.

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Operator [15]

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We will take our next question, and that is from Sean Steuart with TD Securities.

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Sean Steuart, TD Securities Equity Research - Research Analyst [16]

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I want to follow on the last question with respect to I guess broader North American supply trends. So between 2 mills in BC and your move in Georgia and GP, it looks like 9% to 10% of the market is coming out pretty quickly. And I guess I want to look at the other side of that. Do you have -- can you provide us, Peter, your updated thoughts on industry capacity creep? And any perspective you have on the operating rates for the mills that restarted 2017, 2018. Is that fully in the market now? Any perspective you can provide there.

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [17]

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Well, I'll do my best. Obviously, we have limited perspectives on our competitor's operations. But if you look at the APA production stats, you could say -- you could sort of calculate that, on average, over the year, mills run at about 91% of their rated capacity, in that range anyways. And we sort of -- from that, we would expect that these mills that started up middle of last year are getting pretty close to their sort of rated numbers. And so I think there's not a lot left of volume increases from those ramp-ups would be my expectation. In terms of creep, we have always talked about the fact that it's our belief that capacity only expense when there's a significant capital project, to support it. And if there isn't, there's very limited opportunity to make a substantial difference in the amount of volume that's available out of an existing mill.

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Sean Steuart, TD Securities Equity Research - Research Analyst [18]

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Okay. That's helpful. And a follow-up on Europe as well. The indication was that the Inverness ramp was a little bumpy in Q3. How fast does that get resolved? Is this a 1 quarter issue? Or is this a multiquarter ramp to get where you want it?

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [19]

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It's a good question. As we have talked about in the past, we opted to invest at about 50% of greenfields. In return, that meant a ramp-up spread out over 4 years as we sort of layered in the investment. So ramp-ups are never smooth, but at the moment, it looks like we're back on track to our original ramp-up schedule after that bumpiness in the third quarter.

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Operator [20]

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We will take our next question, and that is from Andrew Kuske with Crédit Suisse.

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Andrew M. Kuske, Crédit Suisse AG, Research Division - MD, Head of Canadian Equity Research, and Global Co-ordinator for Infrastructure Research [21]

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Maybe a big-picture question just on industry outlook, given some of the curtailments that have happened. Do you look at the setup of the industry as being somewhat similar to what we saw in the early 2000s where housing trends continue to increase? Market capacity was tight -- is getting tighter for different reasons this time around. But obviously, there's fewer players in the industry versus the early 2000. So I guess how do you think about the cycle we're seeing now?

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [22]

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I mean that's kind of a very broad question, but I guess the way I would answer it is, certainly, there's fewer players in the industry. But what has been important for the market has been a housing demand picture that is much lower in developing than has been forecast. And I think decisions have been made in the past number of years to start up capacity anticipating housing to recover faster to that 1.5 million level that everybody's been talking about, and that may or may not materialize. And I think it certainly -- this has resulted in the kind of conditions that cause us to have to pause and make decisions around 2 of our operations. And we are now sort of setting our perspectives on housing starts in the 1.2 million to 1.3 million range as probably something we should be thinking about over the longer or the nearer-term outlook. But in and of itself it's obviously different than where it was in the early 2000s, but that doesn't mean that the OSB market can't be stronger. As you know that's always determined by the balance between demand and supply.

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Andrew M. Kuske, Crédit Suisse AG, Research Division - MD, Head of Canadian Equity Research, and Global Co-ordinator for Infrastructure Research [23]

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That's helpful. And maybe just another difference between now versus then is just the alternative avenues for OSB products. So you've spent a lot of time on specialty product. But when you look at just other source, whether it's for furniture supply or industrial applications, could you give us a bit of a flavor what your mix is now into that channel? And how do you think about just the broader industry?

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [24]

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I think that's a very valid point because if you go back to that early 2000 period, well over 70% or even 80% of the industries or the production serves the new home construction market. Today, that's probably only about 50% or 55%. And so we have seen growth in R&R and the industrial segment. And certainly, for Norbord's case -- in Norbert's case, we're about 50% new home, 25% specialty and 25% R&R. So we're probably slightly ahead of the overall average, but that is a significant change in the makeup of how OSB is consumed.

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Operator [25]

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We will take our next question from Mark Weintraub with Seaport Global.

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Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [26]

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Hoping to get an update on any thoughts you have as to inventories in the channel?

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [27]

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Yes. I think our perspective is, first of all, it's impossible to measure this accurately. But our perspective based on what we understand from most of our customers is that inventory has continued to shrink during the year, and that's inventory expressed in terms of days of sales of our customers. So that's the only kind of reference that we have. And we believe it is as a result of that pretty skinny at the moment.

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Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [28]

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Okay. And that's on a days of supply basis? Obviously, if demand gets better, that looks even skinnier. I guess that would be a fair...

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [29]

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That's right. We often fight yesterday's battles when it comes to...

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Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [30]

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And another question, I guess, is the 100 Mile House, you took down that entire facility. You referenced, among other things, also some of the fiber cost issues longer term. Cordele a somewhat different set of scenario -- different scenarios, different set of circumstances. How -- is there a difference in terms of the speed with which you could bring back these operations, if, in fact, demand surprises to the upside? Again, recognizing that's an if, but if it were to, what type of capability you have to bring back the operations at the appropriate time, if need be?

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [31]

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Yes. I mean this is sort of theoretical, I guess, at this point, because we've not been actively thinking about that in the short-term anyways. But in 100 Mile House, the wood question is a longer-term challenge. But as you know, there's lots of sawmills in the area that are -- have been announcing procurements as well. So how that all shakes out will probably take some time to develop and what that then ultimately means for wood cost in the region, which was one of the principal factors that made the economics of that mill very difficult. In Cordele, we don't have those kind of circumstances. These are more market conditions. But the challenge in the Cordele region as it is in a lot of the United States is that unemployment is almost at zero. So there, the biggest challenge will probably be if and when conditions improve, getting employees back through [Termando] plant.

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Operator [32]

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We will take our next question from Paul Quinn with RBC Capital Markets.

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Paul C. Quinn, RBC Capital Markets, Research Division - Analyst [33]

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Maybe I'll just start on cost. I'm taking a look at your slides here, and it looks like you got some -- key input prices were up, but your usage was down. They sort of balanced off. And I'm just wondering, how do you get the cost down 4% quarter-over-quarter or 3% year-over-year.

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [34]

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So I mean -- I guess I said that already, sorry. What we're trying to do is get to a place where the mills we are operating can run more efficiently. And that's sort of the process that we're going through as we, I guess, get -- yes that's -- kind of sounds perverted, but the benefits of taking 2 of our mills down indefinitely.

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Robin E. Lampard, Norbord Inc. - Senior VP & CFO [35]

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Yes. It's really -- to summarize there, it's consolidating the downtime we've been taking across our portfolio in a more efficient way is really what you're starting to see in our costs.

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Paul C. Quinn, RBC Capital Markets, Research Division - Analyst [36]

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Okay. Then maybe, Peter, you highlighted the industrial growth of your OSB component. Can you give us some color which areas are growing? Any kind of metrics you can share around what percentage? I guess 25% would be the percentage on the industrial side.

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [37]

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Yes. I think we have talked in the past about the fact that we have penetrated significantly in the -- where the biggest and the most obvious demand was for OSB to penetrate, which was sort of the upholstered furniture sector, and we've talked about the next area of relevance being what I would broadly call the transportation sector. And that's where we have started to make progress with a number of different products. We referred -- referenced precision sanding in our quarterly documentation. We now have 2 state-of-the-art sanding lines at 2 of our operations, which was, I think, the requirement to further penetrate into that kind of a market. And they are now up and running, and we've had some very positive feedback from some of our customers. So we expect to see a sort of good growth in those elements over the next year.

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Paul C. Quinn, RBC Capital Markets, Research Division - Analyst [38]

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Okay. Great. And then just lastly, I guess, on -- in Europe on Inverness. Peter, you mentioned 4 years of growth. Is that the way we should think about the volume expansion just that would be done over the next 4 years?

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [39]

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That's right. I think it was designed that way, both from a capital efficiency or low upfront capital cost perspective, but also because we did not want to dump 4 or 5 -- 400,000 cubic meters in the market all at once. So we felt that this was -- it was a lower risk rate to approach the market and to deal with our shareholders' capital. But there are some operational challenges that come with that.

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Operator [40]

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We will take our next question, and that is from Chip Dillon with Vertical Research Partners.

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Salvator Tiano, Vertical Research Partners, LLC - VP [41]

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This is Salvator Tiano sitting in for Chip. So firstly, if we dig a little bit deeper on the unit costs, you did lower than 3%, 4%. Now can you elaborate a little bit how much this is from efficiencies that you're generating and the input costs versus the curtailments of the mills? And as we look going forward, I think the second line, you mentioned in Georgia, it's a low-cost line. So does this mean there could be some headwinds to cost going forward -- to unit costs going forward, so they could increase slightly or be flat despite the closure?

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Robin E. Lampard, Norbord Inc. - Senior VP & CFO [42]

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Well, I'll address that -- the second part of your question first, Salvator. As I mentioned in response to an earlier question, we have taken 45 employees out of that mill -- the costs associated with those employees. So that will make it a low-cost way to take a curtailment. So I wouldn't read too much into that. The unit cost -- the question of how our unit costs are down so significantly is very little to do with input prices. You can see in the variance table a fairly modest benefit year-over-year, $2 million, across the entire company from lower raw material prices and a $2 million headwind quarter-over-quarter. So that's not really the driver of it. It is operating efficiencies. And so it's the benefit of spreading our -- of consolidating the downtime into a couple of mills and running the ones that are operating more efficiently. It depends how you see of that, by spreading our volume over the fixed costs.

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Salvator Tiano, Vertical Research Partners, LLC - VP [43]

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And yes, if you can clarify a little bit how should we think about that in the future, in the next few quarters versus the current level?

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Robin E. Lampard, Norbord Inc. - Senior VP & CFO [44]

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Well, I mean we can't provide any guidance on that. But if we don't see any change in input prices, consolidating downtime into the Cordele Line 1 in the fourth quarter, which is going to happen in mid-November, that will further allow us to gain efficiencies.

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [45]

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But there's always some seasonality to it.

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Robin E. Lampard, Norbord Inc. - Senior VP & CFO [46]

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There is always seasonality. And as a reminder, the fourth quarter around the holiday period is the time when we concentrate our annual maintenance shut at our mills. And so not only is there a volume impact from that, but also we spend money to do maintenance in the mills when they're -- the kind of maintenance you can only do when they're shut down. So all else being equal, you would normally expect us to tick up in the winter quarters.

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Salvator Tiano, Vertical Research Partners, LLC - VP [47]

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Okay. That makes sense. And also if you can provide some more details on the budget for -- the CapEx budget for next year, $100 million. Is it safe to assume -- and I think I saw something in your report that essentially Chambord is on track to be ready -- at some point to be where you can make a quick decision for a restart soon? Or is it something that you will perhaps lead further into 2021, perhaps?

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Robin E. Lampard, Norbord Inc. - Senior VP & CFO [48]

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Well, we've always said our goal at Chambord was to deal with the long lead time items, so that we would be in a position within about 6 month's notice of a decision to start production. To be clear, we have not made that decision. But we've been obviously pulled right back on the pace of the capital spending other than for the long lead time items. So those will be done and out of the way. And then with 6 months' notice, we can invest the rest of the capital, get a workforce back in place and reestablish logging infrastructure when and if that time comes.

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Salvator Tiano, Vertical Research Partners, LLC - VP [49]

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Okay. And when you start investing in this project, obviously, we thought that at some point, if demand is better, you'll pull the trigger. And now you have 2 curtailed mills. Can you give us a little bit sense of if market -- the market improves, whether it's 2020 or 2021, what's kind of the pecking order for a potential new capacity? Would that be some board because it's -- you made more recent investments? Or could the Line 1 in Georgia restart before that because of its low unit costs?

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [50]

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Obviously, Salvator, we have been preoccupied with making the difficult decisions to shut these 2 lines down. That's been what our focus has been. Should we be in the circumstances where market demand is such that additional capacity is required, we haven't really thought around how we would prioritize that because obviously that also will depend on where we see -- what region of the country where we will see sustainable improvement in demand that would support additional production. The only other point I would make is that our expectation is that once up and running, Chambord would be a very low-cost mill. So those are the kind of things that we would have to take into consideration as we think our way through whether it makes sense to start-up capacity when it does -- or when it makes sense to start-up capacity.

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Salvator Tiano, Vertical Research Partners, LLC - VP [51]

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Okay. And just one last one. I'm sorry.

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [52]

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Yes. Say, in the meantime, obviously we will make sure that our mills are maintained in the state of readiness.

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Salvator Tiano, Vertical Research Partners, LLC - VP [53]

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Okay. Just one last one on capital allocation.

You reduced the variable dividend. And I wonder, obviously the downturn in the market has persisted for a few quarters. But when have you seen on your end change in the past 1 to 2 quarters when you -- initially, you were actually very confident in maintaining that CAD 40 -- CAD 0.40 level. And now we actually saw that you pushed back last quarter your maturities. And after you got more flexibility, you decide to lower the dividend. So is it just because you keep -- your net debt keeps on increasing, and your cash flow comes in lower than what you expected to be? Or there are other considerations as well, including potential buybacks?

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Robin E. Lampard, Norbord Inc. - Senior VP & CFO [54]

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Well, so Salvator, you heard Peter outline at the start of the call that we have started to see the housing market recently improving in the U.S., but it's been slower than we anticipated due to an overhang of unsold new home inventory. And so it's been taking longer than we and I think most others had expected to translate into a stronger OSB market. And this has pressured our financial results in the past 3 quarters. In addition to that, we're entering a seasonally slower winter construction season for the next 2 quarters. And so the Board felt it was prudent to reduce the dividend level for now.

Just to put -- zoom out and put some perspective on this. You know we have a variable dividend policy. And since we introduced it in early 2013, the Board has adjusted the level of the dividend up and down several times as our operating cash flow and outlook have changed. So if you look back over that 6.5 year period, we've returned $1 billion to our shareholders, mostly through dividends and more recently through buying back our stock under the normal course issuer bid. So this is just a continuation of the track record being built up since we introduced that policy 6.5 years ago.

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Operator [55]

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We will take our next question from Ketan Mamtora with BMO Capital Markets.

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Ketan Mamtora, BMO Capital Markets Equity Research - Analyst [56]

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Peter, I'm just curious. With 2019 shaping up to be a much difficult year, are you guys seeing any M&A opportunities in North America or for that matter, even in Europe? I know there are more kind of family companies in Europe, but I'm just curious if there are -- if you are seeing more opportunities.

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [57]

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Well, I mean we haven't seen anything yet, but we're keeping our ear close to the telephone as we are.

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Ketan Mamtora, BMO Capital Markets Equity Research - Analyst [58]

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Got it. And then just a clarification question. Robin, is there any way to quantify the impact of shutdowns or sort of downtime in Europe in Q3?

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Robin E. Lampard, Norbord Inc. - Senior VP & CFO [59]

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Well, not precisely. But I mean normally when we take an annual maintenance shut, as I highlighted in the context of North America, we do spend money to do the kind of maintenance we can't do when the mill is running. And it usually ends up being significant. So a couple million dollars probably related to those shuts.

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Operator [60]

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We will take our next question from Hamir Patel with CIBC Capital Markets.

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Hamir Patel, CIBC Capital Markets, Research Division - Director of Institutional Equity Research & Paper and Forest Products Analyst [61]

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Peter, the strong R&R growth you guys are seeing at sort of over 20% this year, clearly driven by low OSB prices. So if we see a much stronger pricing environment for OSB next year, would you expect your volumes into that big box channel to be down next year?

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [62]

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It's an interesting question, Hamir. I don't know if it's so clearly that it is driven by lower OSB prices. We understand from the big boxes that sales -- they have gained share, not just in OSB, but in other products as well. So there's more at work than just lower OSB prices, as best as we can tell. So I would certainly expect that with higher prices, that pace of growth might slow down, but more in line with what we have seen in the past. But it does look like there's some market share gain there.

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Hamir Patel, CIBC Capital Markets, Research Division - Director of Institutional Equity Research & Paper and Forest Products Analyst [63]

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That's helpful. And I just wanted to turn to Europe. And any comments you might have on how that European spruce beetle might be affecting the cost curve for the European panel industry? And does that maybe favor plywood more than OSB?

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [64]

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Well, there's no plywood production on the continent. I think the only place where there's plywood is in Russia and the Baltics. And that's more focused on wood. So the impact of this beetle kill so far has been felt strongest in Central Europe, so let's call it, the Czech Republic and Southern Germany, so that area. And I think the question will be if we get a more typical winter this year, so it's colder weather, this may be a sort of a 2-year -- have a 2-year tail. If the weather continues to be warmer than usual in that part of the world, that tail may be longer.

So it has had the impact of reducing wood costs in that part of the world. So that wood is consumed primarily by sawmills, but also by 1 or 2 OSB mills in the area and such are sort of the impact that we have seen sort of spreading throughout. So for us, for example, in our mill in Belgium, we got sort of indirect impact as such that the lower cost wood from the center sort of slowly deflects outwards. That make sense?

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Hamir Patel, CIBC Capital Markets, Research Division - Director of Institutional Equity Research & Paper and Forest Products Analyst [65]

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Yes, no, that makes a lot of sense.

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Operator [66]

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Thank you. This concludes the question-and-answer session. I will now turn the conference back over to Peter Wijnbergen.

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Peter C. Wijnbergen, Norbord Inc. - President, CEO & Director [67]

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Thank you very much, Ryan. As always, Robin, Heather and now Robert, are all available to respond to any further questions you may have. Thank you all for your participation today, and I look forward to reporting on our progress next quarter. Have a good day and whatever -- Halloween is, I guess, today, so have fun dressing up.