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Business Update Aug 2011 PRT Growing Services Ltd. PowerPoint PPT Presentation


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Business Update Aug 2011 PRT Growing Services Ltd. PRT – The Legal Stuff. Forward Looking Statements

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Business Update Aug 2011 PRT Growing Services Ltd.

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Business update aug 2011 prt growing services ltd

Business Update

Aug 2011

PRT Growing Services Ltd.


Business update aug 2011 prt growing services ltd

PRT – The Legal Stuff

Forward Looking Statements

This business update contains forward-looking statements that involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations for customer orders; the outlook for the forest industry, US and Asian housing markets, and future reforestation programs; and other statements that are not historical fact. Risks and uncertainties include, but are not limited to, future commodity prices and exchange rates, agricultural risks, our ability to grow and supply products in accordance with defined specifications, customer credit risks, and other risks identified from time to time in the Fund’s annual report, and annual information return. These risks and uncertainties may cause actual results to differ materially from the expectations expressed herein. As such, readers are cautioned to not to place undue reliance on forward-looking statements.

Forward-looking statements are based on current expectations and neither the Fund nor PRT assumes any obligation to update such information to reflect later events or developments, except as required by law.


Business update aug 2011 prt growing services ltd

PRT – Company Profile

  • The largest producer of container grown forest seedlings in North America

  • 23 year operating history – over 2 billion seedlings grown

  • Annually contracted production

  • 181 million seedlings in 2011 – 153 core forestry; approximately 190 million expected in 2011.

  • 13 nursery sites; over 375 employees

  • Market leader in key market regions


Business update aug 2011 prt growing services ltd

Competitive Advantage

  • Multiple locations - reduces risks

  • Most diverse range of growing climates and species

  • Contract delivery reliability rating is high

  • Extensive experience with container growing

  • Largest producer

    • scale economies

    • capacity to handle large customer needs

    • Attract and retain the best people

PRT Summit

PRT Red Rock

PRT

Cold storage

PRT Beaverlodge

PRT Coldstorage

PRT Vernon

PRT Coldstorage

PRT Dryden

PRT Kirkland Lake

PRT Campbell River

PRT Coldstream

PRT Corporate Office

PRT Harrop

PRT Armstrong

PRT Oregon


Contracted revenue system

  • Customers contract with PRT before sowing seedlings

  • Annual take-or-pay service contracts, with progress payments

  • Approximately one-third of seedling volume is from multi-year contracts

  • Diverse customer base

Contracted Revenue System


Business update aug 2011 prt growing services ltd

Harvested Area  Seedling Demand

Typically 600 – 700* million seedlings planted per year in Canada

Source: National Forestry Database Program & Management Estimates

* Note that national statistics are not available for 2010 which reflects further impact of the recession of the forest industry which began at the end of 2008. In 2009 the report indicates that planting fell by approximately 6% over 2007 in PRT’s core Canadian markets. The seedlings planted total shown above in 2008 includes a 26% increase in planting by the province of Quebec for that year.


Business update aug 2011 prt growing services ltd

Seedling Demand – lag between harvest and replanting

In PRT’s Canadian market region – there is typically a two year lag between harvest and replanting – this is demonstrated below

Source: National Forestry Database Program & Management Estimates


Business update aug 2011 prt growing services ltd

Dominant Market Position in Key Forestry Markets

* Management Estimates


Business update aug 2011 prt growing services ltd

Geographically Diversified Markets


Business update aug 2011 prt growing services ltd

More Stable Pricing versus Forest Industry


Business update aug 2011 prt growing services ltd

US Housing Market Collapse

Historically Increasing Volume as a Result of Growth Strategies

PRT Annual Contracted Seedling Blocks Volume (000’s)

PRT Annual Contracted Seedling Blocks Volume (000’s)

- Excludes effect of mid period acquisitions


Business update aug 2011 prt growing services ltd

US Housing Market Collapse

Higher energy prices and F/X

Financial Performance

Revenue and EBITDA History

Operating Income Before Site Consolidation Charges


Business update aug 2011 prt growing services ltd

Efficient Long-Term Assets

Low and predictable capital maintenance requirements

Maintenance and Sustaining Capital Expenditures as a Percentage of Revenue (10 year history)


Business update aug 2011 prt growing services ltd

Financial Position – PRT Inc.

Maintaining Low Leverage in Current Cycle - Capacity for Growth as Markets Recover

Millions of dollars

*excludes current portion of term debt.


Business update aug 2011 prt growing services ltd

Key Risks

  • Forest Industry customers – financial (credit) risk

  • US housing market

    • Are we starting to see a rebound?

    • Timing/pace of recovery is uncertain

  • Asian markets – sustainability

  • Expansion into new markets – timing and profitability


Business update aug 2011 prt growing services ltd

Managing Financial (Credit) Risk

  • Credit risk management includes:

    • credit policy

    • progress payments

    • contract language protection

    • possession of trees

  • Layers of protection through government – unique aspects of protection arising from public land tenures in Canada

    • forest company reforestation obligation with attachment to tenures

    • Ontario trust funds

    • PRT’s experience with past forest company bankruptcies

  • Historical losses are extremely low (0.05% of total revenue since 1997)


Business update aug 2011 prt growing services ltd

Key Growth Opportunities

  • Market recovery from cyclical lows

  • Entry into new market areas

    • Exploit PRT’s reliability and technology advantages

  • Backlog in reforestation exists

    • Under-stocked plantations, pine beetle and fire damage

  • Industry consolidation – industry currently fragmented

  • Responses to climate change

    • Biofuels

    • Carbon sequestration

    • Green up projects


Business update aug 2011 prt growing services ltd

Increasing demand from Pacific Rim offsets lower US Seedling Demand


Business update aug 2011 prt growing services ltd

A US Housing Recovery Will Drive Later Seedling Demand

APA U.S. Housing ForecastSingle Family & Multifamily Only*

Updated May 2010

APA Forecast 200920102011

Single Family445,100 525,000 800,000

Multifamily108,900 90,000135,000

Total554,000 615,000 935,000

Forecasts (000) 20102011

RISI (4/26/’10) 7201,040

FEA* (4/8/’10) 702 1,029

Freddie Mac (5/11/’10) 6801,100

RBC* (4/17/’10)661884

NAR* (5/10/‘10) 659980

Wells Fargo (4/24/’10) 650760

NAHB (4/23/’10) 646991

WWPA (3/8/’10)618719

APA (4/1/‘10) 615935

Average660940

*FEA: Forest Economic Advisors.

*NAR: National Assoc. of Realtors.

*RBC: Royal Bank of Canada

Million U.S. Starts

*Add approx. 80,000 manufactured homes to get total housing production in the U.S.


Business update aug 2011 prt growing services ltd

Market Expansion Opportunities


Business update aug 2011 prt growing services ltd

Increasing Reforestation Backlog in BC

  • The MPB has destroyed 692 million cubic meters of merchantable Pine (51%) to date.

  • 56% is expected to be destroyed by 2016

1980

1985


Business update aug 2011 prt growing services ltd

Increasing Concerns over Climate Change

  • Diversify markets to take advantage of emerging opportunities

    • PRT Promotional Products initiative

    • PRT Energy Crops: carbon sequestration and offset projects


Business update aug 2011 prt growing services ltd

Compelling Valuation

  • Undervalued Assets - Trading at a significant discount to fair value

  • Earnings are cyclically depressed

  • Positive free cash flow through cycle

  • Restructuring and cost reduction efforts mostly complete

  • Strong financial & operational risk management strategies in place

    • Diversified production locations

    • Reduced US currency exposure

    • Forward natural gas buying program

    • Term debt reduced to extremely low levels

    • Interest rates fixed on term debt


Business update aug 2011 prt growing services ltd

Summary

  • Solid competitive position – industry leader

  • Experienced management team

  • Proven track record in business – 23years and over 2 billion trees

  • Contracted cash flow with low maintenance and capital expenditures

  • Managing balance sheet – very low leverage

  • Results impacted by the unprecedented cyclical downturn in the forest industry

  • Poised for significant growth opportunities as markets recover


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