june 30, 2011
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June 30, 2011
PRT Forest Regeneration Income FundCorporate & Investor Update
2
Corporate and Investor Update
Outline
Recent performance and current state of our industry
Industry outlook
Key strategies for growth
3
Corporate and Investor Update
Current Industry Status
Downturn started in 2006 with US housing downturn/credit crisis/economic recession
Canadian Forest Industry is highly dependent on US market
Stronger CA$, low commodity prices, softwood lumber tariffs…..
China has been increasingly buying wood fiber from western North America
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Corporate and Investor Update
The worst housing recession in over 50 years…….
Canadian and American Historic Housing Starts
0
500
1,000
1,500
2,000
2,500
3,000
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01
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03
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05
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07
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09
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11
E
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Corporate and Investor Update
The effects on our business were severe
2006 2010 Δ 06/10
Market RealityHousing starts (prior year) 2,335,000 703,000 -70%Seedlings ordered 228,000,000 131,000,000 -43%Blocks sown 2,497,000 1,345,000 -46%Average revenue/seedling block 18.60$ 17.32$ -7%Annual revenue 51,574,000$ 25,965,000$ -50%Operating Income 11,229,000$ 2,811,000$ -75%Capacity Utilization 87% 71% -16%
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Corporate and Investor Update
We stayed focussed, and adapted to maximize our opportunities
Performance 2006 2010 Q1-2011 Δ 06/10 or 11Safety - days lost per worker year 1.45 0.95 TBD -34%Reliability index/100 74.6 97.5 TBD 22.9 Nursery locations 15 12 13 -2Capacity (seedling blocks) 3,236,000 1,804,000 1,875,000 -42%Capacity utilization 87% 71% 89% 2%Outdoor and second crops 43.0% 42.4% 40.5% -2.5%Market share estimate 33.3% 33.9% 35.5% 2%SG&A and Nursery OH expense 9,489,000$ 7,588,000$ TBD -20%Annual capex spending 2,567,000$ 1,501,000$ TBD -42%Annual gross margin % 40.1% 40.1% TBD 0%Term debt 7,178,000$ 1,128,000$ 1,078,000$ -85%Annual cash available for distribution 9,099,000$ 2,119,000$ TBD -77%
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Corporate and Investor Update
Everyone chipped in
Supervisors, managers, executives and directors took wage cuts from 2 to 15%
Union members gave wage concessions Adjustments made to non-union wage scales Distributions were suspended to Unitholders
And more
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Corporate and Investor Update
Some Key Achievements
Achieved record contract delivery reliability Heightened focus on continuous improvement - improved KPI’s Product development achievements
– Outdoor grown spruce– Container grown bareroot replacement seedling– Lower cost stock sizes – Successful Cranberry & Willow plant propagation
Numerous process improvement achievements Successfully defended & increased market share Achieved increased volume from new markets Strengthened relationships with key partners for new market
development (CellFor/Rutgers/SUNY/Willow Biomass Group) Developed new decision support systems Established new credit lines to fund growth
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Corporate and Investor Update
Balance Sheet Strong
Suspension of distributions provided us the flexibility to fund capex and restructuring costs
An unfortunate snow loss provided us with a significant cash insurance settlement– The proceeds gave us the opportunity to retire most of
our term debt, shore up working capital and fund future capex
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Corporate and Investor Update
And the results of our efforts showed
2008 2009 2010Seedlings 167,300,000 128,300,000 130,900,000Revenue 38,789,000$ 30,062,000$ 25,965,000$ Gross Margin 35.8% 34.5% 40.1%Operating income 4,093,000$ 2,555,000$ 2,811,000$ Adj Pre tax Earnings (Loss)1 740,000$ 876,000$ 1,080,000$ Distributable Cash 3,602,000$ 1,816,000$ 2,119,000$ Total Bank Debt 11,799,000$ 8,720,000$ 1,128,000$
1 Before asset disposal gains/losses, impairment charges, closure costs or other write downs
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Corporate and Investor Update
The Outlook is improving…but not from the usual sources
Housing starts – US double dip?– Canada recovered
China exports increasing Improved Forest Industry profitability on higher lumber and
pulp prices & cost reduction efforts– Addressing deferrals
Fires & MPB?
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Corporate and Investor Update
Housing Markets
Source: RISI
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Corporate and Investor Update
Canada recovered, but relatively small
Source: RISI
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Corporate and Investor Update
China: Softwood Log Imports
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Corporate and Investor Update
China’s lumber imports are soaringCanada has overtaken Russia
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Corporate and Investor Update
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Corporate and Investor Update
Risks to the outlook
Chinese market share/global competition– Cost of logs is high
– Russia expected to lower their export tariff
Speed of the US housing market recovery
US currency weakness
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Corporate and Investor Update
Challenges we still face
Short Term - Low seedling prices Mid Term - More volatility in harvest (and silviculture) Long Term - MPB effect - BC reduction in AAC
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Corporate and Investor Update
StrategyLever off Our Strengths
Reliable plant propagation and cost effective production of high volume orders, grown in multiple locations over a wide geographic area
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Corporate and Investor Update
Our Goal
To provide highly reliable seedling propagation services for forestry and other customers, throughout North America
Our mission is to provide the most trusted growing services, best suited to the needs of our customers
“Trusted to Grow”
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Corporate and Investor Update
Our Responsibility to our Shareholders
Our business strategy provides a path to recover value lost since the announcement of the Trust Tax in Oct 2006 due to the forestry downturn.
Earnings and cash flow will drive share value
Trust Tax Announced
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Corporate and Investor Update
How Will We Do It?
1. Recovery in core forestry markets– “The future will not look like the past”
PRT Seedling Order Forecast vrs NA Housing Starts
100
150
200
250
300
2004
2005
2006
2007
2008
2009
2010
F
2011
F
2012
F
2013
F
2014
F
See
dli
ng
s (m
illi
on
s)
0.5
1
1.5
2
2.5
3
Sta
rts
(mil
lio
ns)
PRT Orders NA Housing Starts
NA Housing Trend Line
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Corporate and Investor Update
How Will We Do It?
2. Expansion of core forestry markets
i. Midwest USA
ii. Northeast USA
iii. Southeast USA
iv. Canadian Maritime provinces
v. Value added environmentally focussed sales (Global Seedlings & PRT Promo)
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Corporate and Investor Update
How Will We Do It?
3. Energy Crops (Bionera)i. Cutting salesii. Plantation establishmentiii. Consulting expertise
4. Growing Services for delivery of improved plant genetics
i. CellFor (specialized seedlings for forestry)
ii. Cranberry starter plantsiii. Starter plants for two or
more new crops (yet to be identified)
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Corporate and Investor Update
The Intended Results
Growth in Revenue and cash flow will drive increases in shareholder value
New markets will create a more diversified company, increasing stability and lowering the impact of forestry market cycles
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Corporate and Investor Update
Summary We have adapted for sustainability and future
growth Cyclical forestry downturn - excellent
prospects for a significant recovery from today’s levels
Market expansion is possible in our core forestry business
We have identified new products which fit with our business and help achieve diversification
We will lead by emphasizing innovation in seedling products and continuous improvement in growing methods
Corporate and Investor Update
June 30, 2011
Questions?
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