norbord inc – q1 2007 by housework

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									                          NORBORD INC. – Q1 2007
             INVESTOR CONFERENCE CALL – CORRECTED TRANSCRIPT

Operator: Good day everyone and welcome to Norbord’s first quarter 2007 earnings conference call. As
a reminder, today’s call is being recorded and Web cast on Norbord’s Web site 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 further information on known risks, please see the caution regarding forward-looking information statement
in the March 1, 2007 annual information form and the cautionary statement contained in the forward-looking
statements section of the 2006 management’s discussion and analysis dated January 31, 2007.

And now I’ll turn the call over to Barrie Shineton, President and Chief Executive Officer. Please go
ahead, sir.

Barrie Shineton, President and CEO, Norbord Inc.: Thanks very much. Good morning everyone and
welcome to Norbord’s first quarter conference call. Our results went out yesterday morning, and a copy
of the news release can be found on our Web site.

With me today are John Tremayne, our CFO, Mike Botha, our Controller, Robin Lampard, our Treasurer,
and Anita Veel, our Director of Corporate Affairs. I think everybody knows we had our AGM yesterday in
Toronto, and I know all of you will have listened to the Web cast. So I’ll keep my comments brief in this
call. Before I ask John to review the financial details for the quarter there are a few points I’d like to
highlight.

First, the ramp-up of the second line at our Cordele OSB mill is going well; in fact, much better than we
expected. We produced first board in mid-December, and it is currently running at about 85% of design
capacity. And that’s well ahead of our target of 70% that we had for the end of the month of April.
Cordele was our lowest cost mill in quarter one, and this new line will push costs down even more in
quarter two.

Second, although market conditions in North America were difficult in the quarter, Norbord’s shipped
record OSB volume. All of our mills produced at full capacity. And the additional volume from Cordele
line 2 resulted in the production record. We were able to sell it all. And our inventories are at normal
levels. And we were able to avoid any curtailment in the quarter.

Third, the improving performance of our European business is becoming much more visible in our
quarterly results. Europe delivered $18 million of EBITDA in the first quarter, tripling the contribution from
the comparable quarter of last year. And the diverging results from North America and Europe, I think,
validate our strategy of geographic diversification.

And finally, in February we issued $200 million of ten-year senior notes to pre-fund our March 2008 debenture
maturity. These notes have a very attractive 6.45% coupon. This leaves Norbord with a very comfortable
debt maturity profile, with the 7¼% debentures due in 2012 and these notes which are due in 2017.

Still it was a pretty tough quarter for North American OSB producers with prices trading at the lowest
levels we’ve seen since 2001. And I can say I’m not happy to be reporting a loss this quarter. But it’s
important to underline that our EBITDA still remains positive. Our efforts to improve costs, solidify our
customer base, diversify in Europe, and maintain a strong balance sheet should continue to position
Norbord well to weather difficult North American markets.

And I think I’d like to turn things over now to John for his financial update.
John Tremayne, Executive Vice President and CFO: Well thanks very much, Barrie. North American
OSB prices continued to cycle down during the first quarter, and Norbord posted a loss of $16 million, or
$0.11 per share. This compares to a Q4 loss of $1 million and Q1 2006 earnings of $58 million.
Benchmark North Central prices averaged $145 in Q1 versus $166 in Q4 and $285 in Q1 of 2006. The
lower benchmark prices are the direct result of slower U.S. housing starts which are running at 1.5 million
annualized rate, significantly down from the 1.8 million units started in 2006. Homebuilder confidence is
near its lowest level in over a decade, reflecting a 23% decline in housing starts over the past 12 months
and the impact of tightening mortgage lending standards in response to the subprime crisis. On the
positive front, over the past four weeks we’ve seen benchmark prices rebound from their lows, and South
East prices return to a premium over North Central. And in fact South East prices are up over 20% from
their lows.

European markets have continued their steady improvement in Q1 on the back of robust building activity
in the west and broad-based economic expansion in the east. OSB prices were up 7% over the prior
quarter, and particleboard and MDF markets remain firm with price gains of 3% to 5% achieved in the
quarter. And as Barrie mentioned, the benefit from our European diversification are quite evident in our
posted numbers with EBITDA of $18 million generated from our European mills this quarter.

We achieved record North American OSB production in the first quarter with volume up 4% over last year.
The record level was due to the excellent startup of the new line at Cordele. And as you know we haven’t
announced any market-related down time. During Q1 our North American OSB operations took a
combined total of 10 days of planned maintenance down time versus eight days in Q4 and no days in Q1
2006. In addition to the length of our fourth and first quarters, varies depending on how year-end falls,
the first quarter had two fewer days than Q4 and one fewer day than Q1 of 2006. This is the principle
reason why our Q1 OSB production, excluding Cordele line 2, was down 3% versus Q4 and 4% versus
Q1 of 2006. We have 11 days of scheduled maintenance shuts planned for our North American OSB
mills in the second quarter.

Our Q1 North American per unit OSB costs, including employee profit share, were up 4% from the prior
quarter due to a combination of increased input costs and costs associated with unscheduled down time.
Production costs were down 1% over Q1 2006 as higher input costs and costs associated with
unscheduled maintenance down time were offset by lower employee profit share. During the up cycle we
quoted OSB cash costs excluding employee profit share in order to remove the uncontrollable impact of
market prices on our costs. However, we believe at this point in the cycle it’s more appropriate to include
profit share as it reflects the benefit of this flexible cost structure on our cash costs.

Q1 gains from MIP were $3 million. And since our MIP savings are measured relative to the prior year at
constant prices and exchange rates, the outstanding performance achieved in Q1 of 2006 makes this
year-over-year gain quite notable. Last year we ran all our mills flat out in Q1 to benefit from the tail end
of the prior up cycle. And this year, as I noted previously, we took 10 days of scheduled maintenance
down time in Q1.

We generated EBITDA of $4 million in Q1. North American OSB generated negative EBITDA of
$8 million, our net sales of $112 million during the quarter. The decline in EBITDA from the prior quarter
is principally due to lower North American OSB prices. The $18 million European EBITDA contribution
was triple the Q1 2006 number and almost double Q4’s number.

Operating activities consumed $50 million of cash in Q1 principally due to a seasonal increase in working
capital. Operating working capital was $102 million at quarter end, higher than the prior quarter due to
seasonality and higher than the same quarter last year due to an increase in taxes recoverable, which is
included in non-trade receivables. Collections of trade receivables are in line with prior periods. Net debt
at the end of the quarter was $529 million, higher than the prior quarter mainly due to the seasonal
increase in working capital. Net debt represents 31% of total capitalization on a market value basis. The
company has significant liquidity in place with $112 million in undrawn committed bank lines at quarter
end. The $198 million of cash held at quarter end represents the net proceeds of our $200 million 10-




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year senior notes issue. The proceeds are being invested in high quality money market securities until
our March 2008 debenture maturity.

Capital investments were $9 million in Q1, and we’re targeting $30 million for the full year, representing
committed capital and essential maintenance only. The second line at Cordele is now ramped up beyond
75% of its design capacity. And as such we stopped capitalizing interest and start-up costs and
commenced taking depreciation beginning on April 1, 2007. We capitalized $3 million in interest and
$3 million in start-up costs during the quarter. And we’ll take about $10 million in depreciation annually on
the new line.

Finally, as most of you have probably seen, Moody’s placed Norbord’s credit ratings under review for
possible downgrade yesterday. We strongly disagree with Moody’s assessment. And we’re doing all we
can to ensure that Moody’s has a complete and accurate understanding of the fundamentals of our
business. Note that the two other agencies that rate Norbord both rate our debt at BBB, one notch higher
than Moody’s. One of our key corporate objectives is to maintain access to debt capital markets on
favorable terms. And we’ve often summarized this objective as “maintaining investment grade credit
ratings”. While we prefer to keep our investment grade ratings with all three agencies, we believe we can
maintain access to debt capital markets on favourable terms, even if Moody’s rates us as non-investment
grade.

And with that I’ll turn the call back over to Barrie.

Barrie Shineton: Thanks, John.           Looking ahead, we see North American and European markets
continuing to diverge in 2007.

The experts are forecasting U.S. housing starts in the 1.5 to 1.6 million range and we agree with that
forecast. With lower starts and 5 new OSB mills ramping up, we expect North American OSB prices to
remain under pressure. We do expect some marginal seasonal recovery in the second and third
quarters. But we still believe OSB prices will fundamentally bounce along the bottom.

Europe, including the UK, is seeing some of the strongest panelboard demand in a decade. This is
driven by Eastern European economic expansion, recovery of building activity in Germany, and the
closure of old, inefficient capacity in Western Europe in recent years. All our order files for all panel
products in Europe extend through the second quarter. And we expect the 4% to 7% price increases we
have seen in quarter one to continue. And we should see some relief from high energy costs, particularly
in the deregulated UK markets. It’s now becoming a real advantage to have most of our European
manufacturing base in the UK. Currency is favouring a stronger Euro, wood costs are lower in the UK,
and energy prices, as I’ve mentioned, are benefiting from deregulation. So we continue to see a much
improved cash contribution from Europe. And that’ll continue all of this year and into next, we believe.
And it will provide some offset to the weaker markets in North America.

Just a quick reminder of our 2007 priorities. We will complete the startup of the new line at Cordele
ahead of schedule. We will continue to optimize existing capacity and lower our costs through continuous
improvement initiatives. We will constrain capital investment appropriately to reflect current market
conditions. And we will maintain our strong balance sheet and efficient capital structure.

I would just add that we continue to be comfortable with our position on the industry cost curve. And I
think our foresight in supporting our European investments is going to deliver a good result this year and
next.

And I think I’ll turn things back over to the operator now who will open the lines up for your questions.

Operator: Thank you, sir. The question and answer session will be conducted electronically. If you’d
like to ask a question please do so by pressing the * key followed by the digit 1 on your touch-tone
telephone. If you’re using a speakerphone, please make sure your mute function is turned off to allow
your signal to reach our equipment.



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We’ll take our first question from John Duncanson from Jennings Capital.

John Duncanson, Jennings Capital: Good morning, Barrie. Just wanted to pick your brain on going
further out. You’ve got the four, including Cordele, you’ve got the four new capacity expansions. We’ve
seen a number of plywood mills close permanently in the last three or four months. And we’ve got the
Martco OSB permanent closure in January.

There was quite a long list of potential new OSB mills and expansions. Can you just give us your
viewpoint on those – some of them have been cancelled, some of them have been delayed. Can you just
run down the list of ones that you think that might come up in 2008 or whenever?

Barrie Shineton: I suspect, John, that my list is exactly the same as your list. And I’m really reluctant to
talk about other peoples’ plans, I guess.

The four that certainly will start up or are starting up are Grant’s mill in Allendale, South Carolina. There’s
our mill in Georgia. There’s the new Martco mill. There’s Tolko’s Slave Lake, Alberta operation. And
LP’s mill in Alabama. Those mills certainly will start up. Beyond that I guess I can speculate only in the
same way you can speculate. But those mills will certainly start that I’ve mentioned.

John Duncanson: OK. That’s fair. That’s all I had. Thanks.

Barrie Shineton: Thanks, John.

Operator: Next we’ll hear from Richard Skidmore from Goldman Sachs.

Bob Trout, Goldman Sachs: Hi. Good morning, guys. It’s actually Bob Trout in for Rick. Just a quick
question for you. We’ve heard from some of your competitors that as long as market conditions permit
they will try to run full as much as possible to protect market share. And we’re just wondering if there’s a
pricing point at which you guys might shut down. And if not, does that suggest that the downturn may last
a bit longer than everybody’s expecting?

Barrie Shineton: Well I don’t think we’ve ever said that we’re going to burn cash to protect market share.
And certainly that wouldn’t be our operating philosophy. We know at what OSB price we take every one
of our OSB mills down. And I think I’ve said publicly before that we aren’t going to burn more cash by
operating our mills than we would by shutting them down. So we’re certainly prepared to take those
decisions. But in the first quarter we weren’t anywhere close to having to make that kind of call.

Bob Trout: OK. Thanks very much.

Operator: Next we’ll hear from Sean Steuart from TD Newcrest.

Sean Steuart, TD Newcrest: Thank you. A few questions, guys. First, Barrie, given the relative
strength of European OSB markets, do the freight logistics start to make sense where you consider
shipping some North American production to the European market? And if so, can you give us any sort
of volume indication? Or is that something that’s completely off the table right now?

Barrie Shineton: Well I would never give you any volume indication, Sean. But I guess if anybody can
ship from North America/Europe, we’re the company that should be able to do it. I mean, we have OSB
manufacturing assets in Europe, we have the sales organization, and we have a customer base.

And so we’re obviously in a position to look at that. And we do look at it on a regular basis. But the fact
is it’s very difficult to export from our perspective and make any money at it. The logistics, the shipping
costs, are very significant. The grades are substantially different. The performance specs of the OSB are
different. Every European country has a different standard. It’s a very difficult thing to do.




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I will confess that we have made some trial shipments in quarter one, but very, very small volumes. And
that’s about all I’m prepared to say. There are rogue shipments of OSB from North America that turn up
in Europe. But I think that’s all one-off business that’s not done by any manufacturer, it’s done by
probably retailers or wholesalers.

Sean Steuart: OK. And just wondering if you can comment a little bit on the fibre cost trend you’re
seeing in the U.S., how much pressure you might have seen in Q1 and what you expect in Q2.

Barrie Shineton: Generally we’re not seeing any pressure on fibre costs except in our two mills that are
in East Texas. And we did see fibre costs spike up in the fourth quarter and the first quarter. And that’s
really local competition from the pulp and paper industry. Other than that, our fibre costs have been
pretty flat. And in fact in Minnesota costs have come down quite sharply, over 20% from where they were
some quarters ago.

Sean Steuart: And then finally, a question for John. The new bond issue, is there a rate step-up feature
if you are downgraded by the bond rating agencies? I’m just trying to get clarity on that. And does it have
to be Moody’s and S&P? Or is there any detail you can give me on that?

John Tremayne: Yes, sure, of course there are details I can give you. There is a step-up, it’s ratings-
based. And essentially the grid is such that any agency downgrading below investment grade causes the
bonds to step up by 25 basis points.

So in English, if Moody’s were to downgrade us one notch, the cost on that debt moves from 6.45% to
6.70%.

Sean Steuart: OK. That’s great. Thanks, guys.

John Tremayne: OK. Thank you, Sean.

Operator: Again if you’d like to ask a question, please press *1 on your touch-tone telephone. Next we’ll
hear from Mark Bishop from RBC Capital Markets.

Mark Bishop, RBC Capital Markets: Thanks. Good morning. A couple of questions. First, on your
European operations, given the strength in Europe, just wondering what capability you might have to
ramp-up, particularly Genk, but the operations on the OSB side there, in terms of capex programs that
could get more capacity up.

Barrie Shineton: Mark, there’s nothing that we could take advantage of in the short term. Of course we
could invest money in Genk, make the press longer and put a second flaker in and those kind of things.
But those aren’t things we can do in the very short term. Both our Inverness OSB plant and our Genk
plant still have opportunities to ramp up their press capacity from where they’ve typically been running in
the past. So that’s the kind of thing we’ve been working on, the continuous improvement approach to
improve their performance there.

Mark Bishop: And the wood is available to do that on an incremental basis?

Barrie Shineton: Certainly in Inverness we have access to the lowest price small round wood logs in
Europe, actually. And we’re well positioned in Belgium in terms of wood supply. Genk’s price certainly
has been impacted by the overall trend in higher wood prices in Europe. But we aren’t short of wood.

Mark Bishop: OK. And then just shifting to your Canadian mills, can you remind us again what your
product profile is at those mills and how vulnerable you feel they are in this environment? And also just
where the costs of the inputs have gone, particularly fibre there?

Barrie Shineton: We’ve done a lot of work in the past to reorganize our Quebec mills – they’re some 90
miles apart. And we’ve taken approach to look at them as two production lines and one business. d so



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over the last couple of years taken a lot of costs out of that business. And they’ve performed
exceptionally well going into this downturn. I think in Canadian dollars their costs are back at 2003 levels
or something.

And your question on the product mix, they’re about 50% commodity and 50% specialty products.

Mark Bishop: OK and just a question back on the capex. I missed the 2007 guidance on total spend.
And also, John, if you could give us, or Barrie, an indication of how low you could bring that down. You’re
probably there but just given where we’re at.

John Tremayne: Yes. Mark, our plan this year is for $30 million in capex. That includes a few big items
on the energy system side. So it’s money relative to upgrading the energy systems in Nacogdoches,
Texas and also Genk, Belgium. And I think between the two of those it’s more than a third, less than a
half, of our capex this year. So absent those, yes, we could take our capex to very low levels. But I think
$30 million is a good number for this year. And certainly we wouldn’t be looking to reduce it further.

Mark Bishop: OK. Great. Thanks very much.

John Tremayne: Thank you.

Operator: Again as a final reminder, *1 if you’d like to ask a question. And next we’ll hear from Angie
Salam from Deutsche Bank.

Angie Salam, Deutsche Bank: Hi. I was just wondering, I know your liquidity position remains strong.
But I was wondering if you had any plans to come to the bond market again to shore it up as we head
through the trough.

John Tremayne: No. We have no plans to tap the bond market again. I think we’ve done that. We felt
that the outstanding strength of the U.S. bond market in the first quarter was an opportune time for us to
tap it. And we’ve done that. And we’ve refinanced the 2008 maturity that we’ve got, as Barrie indicated.
And our maturity profile looks very good right now. So we’re very happy with that.

Angie Salam: Thank you.

John Tremayne: Thank you, Angie.

Operator: And next we’ll hear from Ronnie Kaplan from Wolf Point Capital.

Ronnie Kaplan, Wolf Point Capital: Given your liquidity concerns, are there any thoughts on what you
would do with your dividend at this point in time? Or are you planning on keeping that in place for the rest
of the year?

John Tremayne: Well, just to be clear, you use the words “liquidity concerns”. And we’re not hugely
concerned.

Ronnie Kaplan: OK.

John Tremayne: We’ve got well over $100 million in undrawn bank lines. So clearly the Board looks at
the dividend every quarter. And they look at it based on the fundamentals in the business and our
forecast and so on. And you will have seen that they declared a dividend yesterday. And certainly in the
near term we don’t see a change in that.

Ronnie Kaplan: OK. And can you talk at all about what your view is on consolidation in the industry?
Are you of the mind that this is the appropriate time for that to occur? And whether you would be
interested in participating in that at all?




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John Tremayne: Well we’ve always indicated we are interested in participating in that. We’ve always
been of the view that we would rather buy assets than build them if they’re available at the appropriate
price. And I guess that’s the question mark. But I think only time will tell whether consolidation is a reality
in this industry.

Ronnie Kaplan: Right. And any thoughts on further expansion overseas at all into other markets?

Barrie Shineton: We have our Board over in Europe in June to go through our strategic view. And
certainly longer term we’ve always said we wanted to grow OSB. We’ve always said we wanted to grow
in North America and in Europe. And we’ll be focusing on Europe and what opportunities are there when
we have our Board over in Europe in June.

Ronnie Kaplan: Any interest in South America at all?

Barrie Shineton: We currently aren’t looking that direction. No.

Ronnie Kaplan: OK. Thank you.

John Tremayne: Thanks, Ronnie.

Operator: There appear to be no further questions at this time.

Barrie Shineton: Thank you, everybody. I appreciate you being on the phone call. Take care.

Operator: That concludes today’s conference. We appreciate your participation. Have a nice day.




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