Norbord Inc (OSB) Q3 2020 Earnings Call Transcript

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Norbord Inc (NYSE:OSB)
Q3 2020 Earnings Call
Nov 7, 2020, 8:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone and welcome to Norbord Inc’s Third Quarter Earnings Conference Call. As a reminder, today’s call is being recorded and webcast on Norbord’s website 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 Norbord’s February 1, 2020, Annual Information Form. And the cautionary statement contained in the forward-looking statement section of Norbord’s management’s discussion and analysis stated November 4, 2020.

And now, I’ll turn the conference over to Peter Wijnbergen, President and Chief Executing Officer. Please go ahead, sir.

Peter WijnbergenPresident and Chief Executive Officer

Well, thank you, Sandra and good morning, everyone. Welcome to our Q3 2020 conference call. I’m joined today by Robin Lampard, our CFO; Heather Colpitts, our Director of Corporate Affairs; and Robert Winslow, our Vice President of Investor Relations and Corporate Development. This morning, I want to take a moment to highlight a few key points about our Q3 results, including our decision to permanently close to 100 Mile House mill in British Columbia. I’ll then ask Robin to highlight a few financial items before I make some concluding comments and we move on to your questions.

Q3 was our strongest quarterly result ever. We generated $322 million of adjusted EBITDA, nearly 20% above our previous best quarter in Q2 of 2018. In North America, the continued recovery in US home construction activity carried over from Q2. Repair-and-remodeling was also strong in the quarter with demand running at record pace. Record low mortgage rates and the ongoing trend toward greater work-from-home options have created strong incentives for people to purchase new homes, undertake renovation, and do it yourself projects. Remote working has continued to drive demand for more affordable suburban homes, which is boosting single-family home building that consume 3 times as much OSB’s multifamily.

Industrial demand has also continued to recover and as now normalized back to and in some cases above pre-COVID levels. By way of reminder, we report capacity utilization rates based on our available capacity, which has included 100 Mile House, but excluded strand board into the dominator. On this basis, our North American mills produced at 86% of available capacity in Q3.

Now, if we exclude both the Cordele strand board and now the 100 Mile House mills from this calculation, we produced at 92% of capacity as we run our mills hard to meet very strong customer demand. Further excluding Line 1 Cordele mill, which was still curtailed for nearly half the quarter, we took just 22-mill days of downtime in Q3 compared to 143 in Q2. OSB suppliers struggled to keep up with the stronger than expected rebound in OSB demand, leading to record higher benchmark prices that have carried into the early portion of the fourth quarter.

Our adjusted EBITDA in Europe also increased from $2 million in Q2 to $16 million in Q3 on the strength of the recovery and demand and improving European OSB pricing. We continue to make great progress at our Inverness mill in the third quarter while the Phase 2 commissioning is now well advanced. The mill is now consistently producing at its Phase 1 capacity and starting to ramp up toward its Phase 2 capacity of 945 million square feet on the triage basis. This expansion will help us continue to supply substitution driven OSB demand growth in Europe over the years to come.

Now, through the decision to permanently close to 100 Mile House mill in British Columbia. This closure will reduce our stated North American capacity by 440 million square feet triage. As you know, the 100 Mile House mill has been indefinitely curtailed since August 2019 in response to a wood supply shortage and rising fiber costs owing to the mountain pine beetle epidemic and more recently significant wildfires. These factors led to a 50% reduction in the annual liable harvest for this region serving a mill. Earlier this year and then reaction to the pandemic, we adopted a more flexible operating strategy across our manufacturing platform to be more agile in responding to the changing market conditions and customer requirements while containing manufacturing costs.

As Norbord’s highest-cost mill and with an ongoing wood supply shortage in the region, it became clear that the 100 Mile House mill was unlikely to have a role to play in the future. Taken together, the current and expected ongoing wood supply shortages make the operation uneconomic and so we have decided to permanently close the mill. We recognized this is difficult news for our team in 100 Mile House and reiterate that this decision is not a reflection on the professionalism and commitment of our employees there or to the community of 100 Mile House. I want to thank our team and 100 Mile House for their effort in the face of extremely challenging industry conditions.

And with that, I’ll now pass the call over to Robin.

Robin LampardSenior Vice President and Chief Financial Officer

Thanks, Peter and good morning, everyone. As you update your models with our Q3 results, there are two factors, I want to draw your attention to. First, in light of the recent unprecedented and steep run up in North American benchmark OSB prices. I’ll remind you of the inherent lag in our realized prices versus these benchmarks during periods of rapidly changing prices. This lag, which cuts both ways of course occurs because of the timing impact of our order files for commodity and value added products as well as the roughly 25% of our North American volume that goes into specialty end users where negotiated prices don’t move up or down with the commodity benchmarks. And second, while we are optimistic about current market indicators, we also recognize that we are now entering the winter construction period when demand typically slows down.

Turning to our dividend, you all have seen that our Board increased the dividend to CAD0.60 per share this quarter on the back of record financial results and continued optimism about end market demand. This is entirely consistent with our variable dividend policy that gives us the flexibility to adjust the payout level up and down, as our operating results, outlook and balance sheet permit as well as being consistent with our historically balanced approach to capital allocation. It also recognizes the need for resilience and balance sheet flexibility given the significant uncertainty hanging over our positive outlook, which Peter will outline in a moment.

In recognition of our strong Q3 financial results and our positive outlook, we have returns to our 2020 — we returned our 2020 capital expenditures back to the original target of $100 million. And looking ahead to next year, we have a preliminary 2021 capex budget of $150 million. We will focus this higher budget on reducing manufacturing costs enhancing process safety across our mills, further investments to support the company’s industrial sales growth strategy and continuation of the Chamboard rebuild.

And with that I will pass the call back to Peter.

Peter WijnbergenPresident and Chief Executive Officer

Thank you, Robin. We are optimistic about the demand strength we’re currently seeing, but we also recognize there remains considerable uncertainty around the depth and duration of the economic impact of COVID-19 as well as their uncertain US election results and upcoming Brexit deadline. We further acknowledge that there is an apparent disconnect between the strong housing economy and a weaker macro economy that may eventually get reconciled one way or the other.

We remain vigilant and we will continue to focus on the health and safety of our employees first, as well as our customers’ needs and we will manage the business to be resilient and flexible. We have learned how to be significantly more agile in scaling our production down and up to aligned with customer demand, while managing cost. Our new flexible operating configuration is now our standard operating approach. So, should conditions change, we are well-positioned to respond.

And with that, we’ll jump right into questions, so I will turn things over to the operator, who will open up your lines.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] We will now take our first question from Ketan Mamtora from BMO Capital Markets. Please go ahead. Your line is open.

Ketan MamtoraBMO Capital Markets — Analyst

Thank you. Good morning, Peter, Robin. Congrats on a very strong quarter.

Peter WijnbergenPresident and Chief Executive Officer

Thank you.

Ketan MamtoraBMO Capital Markets — Analyst

First question Peter, I was just curious if you can talk a little bit about sort of order files that you are seeing for this time of the year obviously through the summer and into kind of September. You were running well above sort of the comfort level, but I’m just curious whether you’ve been able to sort of catch up to demand?

Peter WijnbergenPresident and Chief Executive Officer

Well, I think there’s sort of two things, Ketan, I would point to. First of all, we have enjoyed this incredibly strong pricing environment because demand really since May or maybe even earlier has been recovering significantly faster than we had anticipated and even bringing additional capacity on board in August sort of — it didn’t impact that significantly. The reality of OSB demand is that this impacted by seasonal factors and so we would fully expect demand to retreat in the winter months and so we are at the beginning of that season. And so certainly, when I look at our, what we are experiencing, we are now back on time, but our shipments no longer well behind like we were unfortunately earlier at the season.

Ketan MamtoraBMO Capital Markets — Analyst

Got it. That’s more in — most — similar to maybe two weeks to three weeks, is that more typical for this time, Peter, is that fair?

Peter WijnbergenPresident and Chief Executive Officer

That’s a fair assessment, yeah.

Ketan MamtoraBMO Capital Markets — Analyst

Got it. That’s helpful. And then just switching over to Line 1 at Cordele. I’m just curious, how the ramp up as our progress there. I think last quarter you said, you are able to hire only 25 people. So, as we kind of move to winter and spring of next year, I’m just curious kind of how do you anticipate ramping production there?

Peter WijnbergenPresident and Chief Executive Officer

Well, Ketan, I guess I want to point back to the comments we have made earlier. We started that mill up on an emergency basis and temporary basis, we were able to attract a few of the employees that we had to part race with the previous year and I’m very impressed by how the team in Cordele has handled that Southern situation. The other points that I have made in the past is, first of all, that we now consider that mill part of our flexible operating strategy. And in addition, as we have always repeated that we will only produce what we can sell to our customers. So that’s, I think — we do not make a habit of talking about our downtime ahead of schedule. So, you will have to wait until we got to next quarter results for me to be able to speak about that specifically.

Ketan MamtoraBMO Capital Markets — Analyst

Got it. That’s helpful. And then just a last question before I turn it over. On capital allocation, net leverage is down below 1 times now, given how much OSB prices had run up over the last few months. It does seem like Q4 will also be a pretty strong cash quarter. I’m just curious kind of how you think about capital allocation priorities or if not renewed the NCIB. So, if you can just talk about kind of two or three things that are kind of most important to Norbord right now from a capital allocation standpoint?

Peter WijnbergenPresident and Chief Executive Officer

Thanks, Ketan and I will ask Robin to answer that question.

Robin LampardSenior Vice President and Chief Financial Officer

Yeah. Good morning, Ketan. Listen, no change in our philosophy from what we’ve always talked about. We’ve always taken a very balanced approach to allocating capital in this company. You’ve heard us talk about our capital budget for next year, increasing it to $250 million from the $100 million this year, which is important. We’ve got — we have an ongoing roster of high return projects that will provide great returns for our shareholders that will execute on given our flexible balance sheet — given the state of our balance sheet and the capital that we have at our disposal, but you’ve also heard us talk about the uncertainties hanging over what appears today to be a very positive outlook.

And I think for us at Norbord right now and we talked about this last quarter as well, corporate resilience is a big focus and having a flexible balance sheet and now a flexible operating configurations, so that we can quickly adapt to whatever comes at us, that is very important to us right now. And so, we are prioritizing just being a little more cautious on that front and while continuing to be balanced in how we allocate capital. So, you’ve seen the dividend has been taken up to CAD0.60, which is kind of consistent with our range since we established the variable dividend policy back in 2013 and the NCIB certainly remains a tool in our toolkit and under the right circumstances, we will renew it and we can do so very quickly.

Ketan MamtoraBMO Capital Markets — Analyst

Got it. Thanks, Robin. I’ll turn it over. Good luck into 2021.

Robin LampardSenior Vice President and Chief Financial Officer

Thanks, Ketan.

Peter WijnbergenPresident and Chief Executive Officer

Thanks, Ketan.

Operator

Thank you. [Operator Instructions] Our next question comes from Sean Steuart with TD Securities. Please go ahead. Your line is open.

Sean SteuartTD Securities — Analyst

Thanks. Good morning everyone, two questions.

Peter WijnbergenPresident and Chief Executive Officer

Good morning, Sean.

Sean SteuartTD Securities — Analyst

Good morning. Wanted to start with resin, there seems to be a lot of short-term supply curtailments across the MDI sector. Can you give us some context on how you’re positioned and any expected cost inflation related to that through the fourth quarter into Q1 next year?

Peter WijnbergenPresident and Chief Executive Officer

Yeah. I think you’re — I think I can confirm that there has been a force majeure event that one of the key resin suppliers. We have invoked our contingency plans and at this point, we don’t expect any material impact on production or Q4 financials, but obviously, it always depends on how long this situations last.

Sean SteuartTD Securities — Analyst

Okay. And Peter, with respect to your comments on North American OSB demand. I’m wondering if you can provide a little more context on the repair-and-remodeling channel and it seems to be a lot of generic discussion around ongoing demand growth from that channel. And I’m just trying to gauge, have you seen a pronounced slowdown, it feels like there was a lot of volume pulled forward in the initial wake of the pandemic. Should we qualify this as a deceleration in year-over-year growth or are we seeing an apparent peak in volumes going into that channel?

Peter WijnbergenPresident and Chief Executive Officer

Yeah, Sean. I’ll try my best to answer that, but I would say that all throughout this year, we have seen demand from the channel and we are a very significant supplier through that channel. We have seen demand sort of above where it was at the same time last year, which in turn was above for it, was at that time in 2018. And you know that the volume into the big order into the R&R segment also has seasonality to it, so it’s important to compare it on a year-over-year basis and — but on that basis we continue to see significant strength in the segment.

Sean SteuartTD Securities — Analyst

Okay. Last question for me. The incremental capex next year, if we exclude Chambord spending from that $150 million. Can you give us a little bit more detail on that specific types of projects for discretionary spending, you’re looking at? And Robin you touched on fast payback expectations, any update you can give us on what those metrics look like for that type of…

Peter WijnbergenPresident and Chief Executive Officer

I’ll give you one example, Sean, our Board has just approved a renewal project for our Genk Belgium dryer, we have a single dryer there, and we intend to replace it with a larger single dryer that plan was originally built in the early 2000s and it is now dryer limited. And so, just kind of a project, I think it’s in the neighborhood of 10 million I don’t know if that’s Euros or dollars — that’s about the same anyways. Dollars would take about a year to implement, but then has significant uptick and we expect a very good return from that project. So, those are the kind of things that we’re focused on for next year. Further debottlenecking our processes where we need more volume or focusing on cost reduction projects or mix improvement show where we come from further focus on our specialty strategy projects.

Sean SteuartTD Securities — Analyst

And with respect to the debottlenecking part of that peer, any guidance you can give us on capacity creep and across the portfolio, we should think about?

Peter WijnbergenPresident and Chief Executive Officer

Well, as I think I tried to make that distinction, so we see continued demand growth in the European business based on substitution so that’s a place where we’re very much focused on debottlenecking to make more capacity available for our customers. In North America, our focus over the last year or two has been primarily on cost reduction, investments and so our efficiency investments and making more capacity available through our Specialty segment.

Sean SteuartTD Securities — Analyst

Understood. That’s all I have. Thanks very much everyone.

Peter WijnbergenPresident and Chief Executive Officer

Thanks, Sean.

Operator

Our next question comes from Hamir Patel from CIBC Capital Markets. Please go ahead. Your line is open.

Hamir PatelCIBC Capital Markets — Analyst

Hi. Good morning. Peter, what you expect to do with the press at 100 Mile House?

Peter WijnbergenPresident and Chief Executive Officer

Hi, Hamir. Well, the one thing I can tell you is that won’t be used for OSB production in North America. It’s difficult to do with that asset during this COVID pandemic, but in Europe, for example, where we have had oil presses to dispose off, we have earlier on, shall I go back about 10 to 15 years, we were able to sell some of that press technology, but more recently in Inverness we actually have scrapped the two oil pressers that were there. So we will look at what the appropriate action is to take once the COVID restrictions are a little bit eased up.

Hamir PatelCIBC Capital Markets — Analyst

Okay. Thanks, Peter. And Campo had recently indicated that they had sold their long — pull aboard site in the press there, do you see that starting up somewhere else in North America?

Peter WijnbergenPresident and Chief Executive Officer

I’m not aware of any plants anywhere in North America. I know that a very similar press was sold to Russia maybe or taken to Russia, five or six ago. So, but beyond that I can’t comment.

Hamir PatelCIBC Capital Markets — Analyst

Yeah. Fair enough. That’s all I had. I’ll turn it over. Thanks.

Peter WijnbergenPresident and Chief Executive Officer

Thanks, Hamir.

Operator

Our next question comes from John Babcock from Bank of America. Please go ahead. Your line is open.

John BabcockBank of America — Analyst

Hey. Good morning and thanks for taking my questions. Just quickly on the flexible operating structure and you’ve talked about this a little bit in the past, but I just wanted to get a little bit more color on how this impacts the overall efficiency at the plants and also from a cost perspective, whether you’re able to keep the mills running at a level that’s pretty comparable to how they would have been under your prior structure?

Peter WijnbergenPresident and Chief Executive Officer

Yeah. I mean, obviously, what we have learned during this past six months or seven months is that, some mill are technically much more capable to take this fluctuation in volume than others and so, our focus on this — for this flexible strategy is on those mills, particularly. And as you have seen from us over the last little while, we have been able to do so without a significant impact on our cost and that’s really where our focus has been.

John BabcockBank of America — Analyst

Okay. Thanks for that. And then just quickly to Chamboard [Phonetic]. I was just wondering, if you can remind us of some of the key factors that will ultimately get you to restart that recognizing it’s — more to demand focus. But I was wondering if you could provide a little bit more color on what exactly you’d be looking for in the market?

Peter WijnbergenPresident and Chief Executive Officer

Yeah. John, that’s a good question. As we have repeated in the past, whatever it is eight or 10 or 12 quarters, my answer is not significantly different. We continue to evaluate demand from the market and from our customers, but we are focused in particular about the sustainability of that increase in demand and so that’s really the key for us. Right now, we have a very positive outlook for next year, but we have also noted that there are some significant uncertainties right now that we’re still facing and so we will closely monitor how sustainable we feel the increase in demand is.

John BabcockBank of America — Analyst

All right. And then my last question before I turn it over. It sounds like some of these investments that you plan on making in 2021 are to help growth within the specialty side of things, and I was wondering if you might be able to talk about which end markets are ultimately seeing the strongest growth and which ones I guess you expect to remain strong into that year?

Peter WijnbergenPresident and Chief Executive Officer

Yeah. On the specialty side this year has been quite surprising. I think I have sort of talk in the past in very general terms as furniture, commercial construction and transportation and your transportation is a bit of a grabble of all sorts of different end users, but that’s an area where we really were caught by surprise this year in particular recreational vehicles average use remarkable volume of OSB, has been a big growth market this year and I guess that is one of these impacts — unanticipated impacts of the COVID crisis. Since people can no longer or it’s much more difficult to go on vacations abroad or maybe choose not to go on a cruise anymore, a lot more in North Americans have chosen to buy a RV and are joining the RV vacation front. So that’s a good example of where we have seen some significant and unexpected growth.

John BabcockBank of America — Analyst

Thank you.

Peter WijnbergenPresident and Chief Executive Officer

Thanks, John.

Operator

Our next question comes from Paul Quinn with RBC Capital Markets. Please go ahead. Your line is open.

Paul QuinnRBC Capital Markets — Analyst

Yeah. Thanks. Good morning — good afternoon, I guess. Just following up, a question on 100 Mile House and recognize it was a difficult decision besides the presses, is there are equipment that you could sell this year and is there associated tenure there you can also sell.

Peter WijnbergenPresident and Chief Executive Officer

No, there’s not much — most of that — there was no what is that called — good morning, first of all, Paul. Sorry. There is no — I think in British Columbia its called tree license that long term tenure, we did not have any that was associated with that mill. So it was all short term tenure primarily focused on the beetle killed wood and in terms of equipment obviously we will pull out whatever equipment, we can use with our other operations if it’s still in good shape. And with the press, I’ve already mentioned that earlier, but that’s sort of our perspective there. The mill has been put away very carefully, when we originally close it down and we will obviously therefore have equipment that can be used elsewhere in our operations.

Paul QuinnRBC Capital Markets — Analyst

Okay. Thanks, Peter. And then I guess on the MDI question, you stated no material impact. But have you switched — have you got adequate MDI suppliers or if you had a number of mills that are running 100% now?

Peter WijnbergenPresident and Chief Executive Officer

We have — I said, we have a invoked our contingency plan or implemented our contingency plan, we work very closely with our MDI suppliers and they have been for extremely responsive during difficult times. I should say that our European mills obviously are supplied from a different source and there has been no issues there. And in North America, we have had enough flexibility to be able to sort of react to this temporary demand or temporary challenge and obviously that may change, if a temporary becomes significantly longer than what the suppliers are currently indicating that will be.

Paul QuinnRBC Capital Markets — Analyst

Okay. And then just lastly, earlier this week when your OSB competitors mentioned that they expect OSB prices in Q4 to be higher than Q3. Is that your outlook as well?

Peter WijnbergenPresident and Chief Executive Officer

Well, I mean obviously, to start the quarter has been extraordinary from a pricing perspective. It’s the superlatives I don’t even know what words to use here anymore in terms of what we’ve seen with pricing. At the same time, as I mentioned earlier, we are going into the weaker demand periods seasonally periods of the year. And so with that I would expect that those kind of prices won’t sustain at these levels through the end of the year. Again, I’m no, not good at prognostication but that’s, that would be, I think it’s a reasonable assumption and so then the question is just, OK, how will things behave [Technical Issues]. Okay. Can you still hear me?

Paul QuinnRBC Capital Markets — Analyst

Yes.

Peter WijnbergenPresident and Chief Executive Officer

It’s maybe on your side, OK. Anyways, so it is possible, when the average is when everything [Technical Issues] affect us normally in a downward market, regain a little bit and may not realization compared to the [Technical Issues] but beyond that, I’m — I think it is — we do not like to give forward guidance when it comes to results or pricing. And so I think that’s all I can say.

Robin LampardSenior Vice President and Chief Financial Officer

Yeah. I would just echo that we in fact we do not give guidance for obvious reasons.

Peter WijnbergenPresident and Chief Executive Officer

Yeah.

Paul QuinnRBC Capital Markets — Analyst

All right.

Peter WijnbergenPresident and Chief Executive Officer

I’m being tapped here under the table, like, my shins are sore.

Paul QuinnRBC Capital Markets — Analyst

Thanks, so much guys. Best of luck.

Peter WijnbergenPresident and Chief Executive Officer

Thanks, Paul.

Operator

Our next question comes from Mark Weintraub with Seaport Global. Please go ahead. Your line is open.

Mark WeintraubSeaport Global — Analyst

Thank you. And maybe, following up on Paul’s question and recognizing that you don’t give guidance, could you share with us where OSB prices — your average OSB prices in North America quarter-to-date have been relative to the third quarter and roughly what percentage of the volume would be encompassed in that would — would that be for the fourth quarter?

Robin LampardSenior Vice President and Chief Financial Officer

Yeah. Hi, Mark. No, I cannot share anything from the fourth quarter for the same reason. We just, we don’t give guidance, nor do we disclose anything outside of our quarters. So I just can’t go there. You can see what’s happened with benchmark prices obviously and you have a sense for how we stack, where our volume goes right about 75% of our North American volume is tied to — is tied in one way or another to those random lengths prices in the 25% of our volume that goes into industrial and export uses is delinked from those. So that still applies.

Mark WeintraubSeaport Global — Analyst

Okay. So just like — I was just asking for what’s already happened as opposed to what’s going to happen in terms of the pricing. But if you understood that fine, I can move on.

Robin LampardSenior Vice President and Chief Financial Officer

I did understand that. Yeah. Still can’t go there.

Mark WeintraubSeaport Global — Analyst

Fair enough. And then second, in Europe noticeably that the price was pretty flat for third quarter versus second quarter, very much different than what we saw in the US, can you just remind us how pricing tends to work in Europe from a framework perspective.

Peter WijnbergenPresident and Chief Executive Officer

Of course, a good question. I mean pricing in Europe in general it’s negotiated, first of all, so there is no sort of commodity benchmark. Secondly, they tend to vary in the range of about 20% from top to bottom and it usually takes several years to go from one extreme to the other extreme from the numbers that we do publish which are a particular grade of OSB in the German markets. You can see that prices have come from — up from the recent peaks over the last year or so and have now flattened out. Demand — and in particular substitution demand in Europe has really gained strength during this COVID period because people have become increasingly aware of risk associated with being at the far end of a very long supply chain and are increasingly focusing on buying from domestically produced OSB.

Mark WeintraubSeaport Global — Analyst

And recognizing you don’t give forward guidance. If I think about the demand getting better and the price having come and all else equal, it would lead me to think that there would be positive bias going forward assuming no big shift in demand trajectory. Are there any other variables that I should be weighing heavily as I make my judgment?

Peter WijnbergenPresident and Chief Executive Officer

No, I think other than the — the overall risk and your assessment of how important that overall risk that we have indicated is, I think that is — those are the key elements.

Mark WeintraubSeaport Global — Analyst

Okay. Two, real quick ones, inventory in the channel, particularly in North America, where would you say OSB inventories are relative to where they typically would be this time of the year?

Peter WijnbergenPresident and Chief Executive Officer

For this time of the year they have now sort of I think as best as I can judge it based on comments that we receive from our customers. We as best as we can judge it inventory situation is now more normal to what we would see this time of the year. And of course, a lot of it depends on how long demand continues into the winter so, it’s always difficult to predict when that seasonality really kicks in, but that’s — other than that, I would say, we are probably back in line to where it would typically be.

Mark WeintraubSeaport Global — Analyst

Great. And one last one on the dividend. So, you increased to net recognizing it’s a variable dividend — you increased it — and it seems like that’s the dividend until things would change, is that the way to read it now and/or what would be the kind of thinking to have increased the base variable dividend as opposed to having done a special dividend. Given the extraordinary markets that we’ve been in, just kind of your thought process would be helpful.

Robin LampardSenior Vice President and Chief Financial Officer

Yeah, Mark. I mean ultimately obviously dividends are a Board decision. But the CAD0.60 level is consistent with our, with our range and the track record that we’ve established and obviously, we — it’s a decision and a discussion that happens every quarter. So I again can’t tell you it will stay there next quarter. It may or may not, but you heard us say, our outlook is positive, but there are, there is much more significant level of uncertainty hanging over that outlook than we would typically see in a cycle and for that reason we’re focused on both corporate and balance sheet flexibility and also operating flexibility and that will continue to be — that will continue to guide us going forward.

Mark WeintraubSeaport Global — Analyst

All right. Good. Thank you.

Robin LampardSenior Vice President and Chief Financial Officer

Thanks, Mark.

Operator

Our next question comes from Andrew Kuske with Credit Suisse. Please go ahead. Your line is open.

Andrew KuskeCredit Suisse — Analyst

Thank you. Good morning. I think the first question is for Robin and it’s just on the MIP and $43 million of savings year-to-date, which is an impressive number given all that’s happened this year. And I guess when we look ahead and you’re no longer in a flexible operating strategy, as you’ve been running in some of the plants, do you see the cost structure that you’ve managed to have this year and really benefit from, is that going to be sustainable as you really ramp up productions in fact for the margins to even become better?

Robin LampardSenior Vice President and Chief Financial Officer

Yeah. That’s a good question, Andrew. Yes. Our view is that the bulk of that is sustainable. It’s been one of our big learnings, silver linings if you will, coming out of COVID is quickly learning how to be more flexible with their operating configuration in a way that still contains our manufacturing costs. So I think you heard us talk last quarter about trading off downtime for lower maintenance cost where that trade-off makes sense and that’s a big part of it. So I think the majority of it is sustainable. But there has certain MIP only includes controllable to be clear, MIP includes just the controllable elements of our cost structure. We have had a tailwind on the uncontrollable side from lower resin prices so far this year, but if you look at controllables I would expect that part of it to be sustainable based on what we can see and how we’ve learned to be flexible and contain our costs.

Andrew KuskeCredit Suisse — Analyst

Thank you. That’s very positive. And then I think on the last call, we talked a little bit about just some hiring issues you had, I think it’s at Cordele, but I guess what the profit share that you’ve got with your employees just retaining employees, especially in the environment we’re in, shouldn’t be that difficult, drawing new employees and I guess the challenge is really on the skill side. But with the profit share that it looks like you’ve posted this year, I would think you wouldn’t really have any hiring issues, could you talk a little bit about just hiring a retention.

Peter WijnbergenPresident and Chief Executive Officer

Yeah. Sure, Andrew. I think what you’re referring to is to challenge we mentioned around taking the people back in our Cordele line one start up for emergency start-up that we had in early August. We mentioned that — I think in 2019 we had to part ways with about 47 of our employees when we shut that line down. Most of those employees had found other jobs nearby because in late 2019, the employment market was still extremely tight. So when we needed to make the decision to start-ups line back up on a very quick basis there in early August, we anticipated some difficulty getting all of those people back and that’s indeed been the case, now that they have had other jobs and we’re reluctant to give those up to come back to work for us.

So having said that, if I would say that the mill has responded extremely well and was able to do quite well even with that limited number of employees during the during that period. Overall, you’re absolutely, right. Our retention of employees has been extremely good. We have very limited turnover in most of our operations and profit share is a long-term part of that strategy and I think this year to everybody’s surprise, will be a very good year or maybe now in hindsight is not a surprise anymore, but it certainly would have been in April, profit share numbers will be very attractive.

Andrew KuskeCredit Suisse — Analyst

Okay. That’s great. Thank you very much.

Peter WijnbergenPresident and Chief Executive Officer

Thanks, Andrew. Okay. Thank you, everyone. As always, Robin, Heather and Robert and I are available to respond to any further questions you may have. Thank you for your participation today. Hope you all stay safe and we look forward to reporting on our progress next quarter. With that Sandra. I’ll hand it back to you.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Peter WijnbergenPresident and Chief Executive Officer

Robin LampardSenior Vice President and Chief Financial Officer

Ketan MamtoraBMO Capital Markets — Analyst

Sean SteuartTD Securities — Analyst

Hamir PatelCIBC Capital Markets — Analyst

John BabcockBank of America — Analyst

Paul QuinnRBC Capital Markets — Analyst

Mark WeintraubSeaport Global — Analyst

Andrew KuskeCredit Suisse — Analyst

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