PRT Forest Regeneration Income Fund
TSX : PRT.UN

PRT Forest Regeneration Income Fund

August 05, 2011 16:01 ET

PRT Announces Improved Results for the First Half of 2011

VICTORIA, BRITISH COLUMBIA--(Marketwire - Aug. 5, 2011) - PRT Forest Regeneration Income Fund (TSX:PRT.UN) (the "Fund") today announced results for its second quarter, ended June 30, 2011.

Forest seedlings generally take from six months to a year or more to grow, with most being grown and harvested within the calendar year. The Fund`s quarterly results generally reflect only a portion of the revenue that accrues over the full crop cycle, and, accordingly, PRT's results are best considered in an annual context. Excerpts from the Fund's financial report are included as part of this release.

First-Half Highlights

(For the six months ended June 30, 2011, as reported under IFRS)

  • Revenue increased 23.2% to $18.3 million compared with the first half of 2010.
  • Gross profit increased 2.6% to $7.3 million due to increased efficiencies in production.
  • The Fund increased first-half cash from operating activities before working capital changes by $1.6 million.
  • Earnings improved $0.02 per Unit to $0.17 per Unit for the first half.
  • The Fund's balance sheet is strong with only $1.3 million in term debt and financing leases outstanding and $17.1 million of available liquidity.
  • Unitholders approved the conversion of the Fund to a publicly traded corporation (expected to take place on October 1, 2011).

The Fund reported operating earnings of $3,181,000 and total comprehensive income of $1,656,000 ($0.17 per Unit), compared with $1,725,000 and $154,000 ($0.02 per Unit), respectively, for the first-half of 2010. The improved performance reflects a 41% increase in seedling order volume over 2010, mainly attributable to improving forestry markets due to stabilization of the US housing market and growth in Chinese lumber exports. However, later seedling sowing schedules in 2011 caused revenue growth to lag order volume growth in the period, and lower average pricing, particularly for new seedling products, will partially offset revenue growth in 2011.

Cash Available for Distribution of $2,036,000 ($0.21 per Unit) compares with $1,705,000 ($0.17 per Unit) for the same period in 2010. The Fund's business is highly seasonal, with the second quarter typically being the highest revenue period. As such, Cash Available for Distribution realized in the first half of the year is expected to be used in the second half of the year to fund operations and capital maintenance programs. Operating earnings increased more than Cash Available for Distribution because of the effect of exit activities charged to earnings in the previous-year period, which do not affect the calculation of distributable cash. Gross and operating margin improvements of 2.6% and 5.8%, respectively, resulted from scale economies due to increased volumes, nursery cost containment, and continuous improvement efforts. In addition, margins benefited from operating leverage, as certain elements of operating costs remain fixed despite volume increases.

Operating earnings and Cash Available for Distribution are terms that do not have standardized meanings under IFRS and may not be comparable to similar measures provided by other reporting entities. Cash Available for Distribution is the Fund's measure of free cash flow from operating activities; however, in the current economic environment the Fund is not making distributions to finance capital expenditures and charges for business restructuring and corporate conversion. The Trustees of the Fund have announced their intention to consider dividend payments after PRT's proposed corporate conversion is complete and industry conditions show sustained improvement. Standardized Distributable Cash—a comparable measure of cash flow prepared under guidance issued by the Canadian Institute of Chartered Accountants—totaled $0.37 per Unit in the first half of 2011, compared with $0.34 per Unit in 2010.

For the three months ended June 30, 2011, the Fund reported total comprehensive income of $1,203,000 ($0.13 per Unit) and Cash Available for Distribution of $1,251,000 ($0.13 per Unit). Aggregate results were in line with management's expectations given the economic environment and the seasonal nature of PRT's business.

President and CEO Rob Miller observed, "Our results for the first half of the year are encouraging and demonstrate that our strategies to adapt to the forest industry downturn are paying off. The US housing market remains in difficult shape, and the timeline for its recovery is uncertain. At the same time, our customers have made significant headway in developing new markets in Asia, and this has brought an increase in harvesting activity to meet their needs. We have remained ready to respond to the resulting increase in silviculture work, allowing us to reopen our shuttered Kirkland Lake, Ontario, facility and to achieve margin improvements from the increased volume and improved capacity utilization.

While the future pace of the US housing market recovery is uncertain, midterm recovery prospects remain promising, and this will have further positive long-term effects on our business. Despite this prospect, we continue to believe it is prudent to diversify our business further to spawn additional growth and stability. In addition to geographic expansion within forest seedling markets, we see opportunities to expand our product line as well. Our strategy to pursue opportunities outside forestry, including in the energy crop sector, will enable us to develop significant new revenue streams over the long term. These present unique opportunities to expand and diversify our markets while levering off our core expertise in seedling propagation. By focusing on improving our key operational capabilities, managing our balance sheet, and developing new markets, we will maximize long-term value creation for Unitholders."

Adoption of IFRS

The Fund adopted International Financial Reporting Standards ("IFRS") for 2011, with a restatement of 2010 comparatives and a transition date of January 1, 2010. As a consequence, reported results are not directly comparable with the historical financial statements of the Fund that were prepared in accordance with Canadian generally accepted accounting principles ("GAAP") before the adoption of IFRS. Full reconciliations to GAAP were reported in the March 31, 2011, condensed consolidated interim financial statements of the Fund.

Management's discussion and analysis for the Fund and the information circular are available at www.sedar.com.

About the Fund

PRT is the largest producer of container-grown forest seedlings in North America, with 13 nursery locations expected to produce more than 175 million seedlings in 2011. Units of the Fund are listed for trading on the Toronto Stock Exchange under the trading symbol PRT.UN.

Conference Call and Taped Replay

The Fund will host a conference call to further discuss the matters contained in this press release. The call will take place on Monday, August 8, 2011, at 11:00 AM PST, 2:00 PM EST. To participate in this conference call, please call 1-877-407-8031 or 201-689-8031.

Persons unable to participate in the conference call may listen to a recorded version by dialing 1-877-660-6853, account #286, conference ID#366585. This option is available through August 12, 2011. A recorded webcast of the call may also be accessed from the Fund's website, at www.prt.com.

The Fund's next earnings conference call is expected to take place on Thursday, November 10, 2011, after the release of the Fund's third-quarter 2011 earnings information.

Forward-Looking Statements

This press release 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 housing markets, and 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 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.

Excerpts from the Fund's quarterly financial report (unaudited):
Condensed Consolidated Interim Statements of Financial Position (unaudited)
(in thousands of dollars) As at June 30, As at December 31,
Note 2011 2010
Assets
Current assets
Cash and cash equivalents $ 3,565 $ 92
Accounts receivable 4 5,307 6,147
Inventories 5 930 1,079
Agricultural produce 6 62 73
Biological assets, current 6 261 511
Prepaid expenses and deposits 408 218
Unbilled revenue 2,876 2,400
Property, plant and equipment held for sale 150 -
13,557 10,520
Non-current assets
Property, plant and equipment 7 36,028 36,127
Intangible assets 8 244 264
Investment in associate 277 282
Biological assets, non-current 6 176 169
36,725 36,842
$ 50,282 $ 47,362
Liabilities
Current liabilities excluding net assets attributable to unitholders
Accounts payable and accrued liabilities $ 2,948 $ 2,407
Provisions 10 57 139
Unearned revenue 1,708 1,052
Current portion of finance lease 11 67 91
Current portion of long-term debt 12 198 198
4,978 3,886
Non-current liabilities excluding net assets attributable to unitholders
Finance lease 11 250 281
Long-term debt 12 780 880
Deferred tax liabilities 13 2,152 1,956
Unit option grants 14 343 243
8,504 7,246
Net assets attributable to unitholders 41,778 40,116
$ 50,282 $ 47,362
Memorandum Note: Total Unitholders interests
Capital contributions (liability) 14, 15 $ 96,400 $ 96,393
Cumulative deficit 15 (54,730) (56,373)
Accumulated other comprehensive income 108 95
Net assets attributable to unitholders $ 41,778 $ 40,116

See accompanying notes to these consolidated financial statements.

Condensed Consolidated Interim Statements of Operations and Comprehensive Income (Loss)
(unaudited)
(in thousands of dollars, except per Unit amounts) Three months ended June 30, Six months ended June 30,
Note 2011 2010 2011 2010
Revenue $ 10,963 $ 8,580 $ 18,254 $ 14,820
Expenses
Costs of production 7,010 5,682 10,984 9,305
Selling, general and administration 2,215 1,514 4,037 3,797
Loss (gain) on foreign exchange (12) (111) 51 (7)
Earnings before the following 1,749 1,495 3,181 1,725
Interest paid 26 57 58 205
Amortization of property, plant and equipment 7 588 600 1,184 1,239
Amortization of intangibles 10 54 19 111
Equity in earnings of investee (2) 12 5 27
Loss on disposal of property, plant and equipment 26 17 121 75
Profit before income taxes 1,101 756 1,795 68
Recovery of (provision for) income taxes 13 132 11 (152) 101
Profit for the period 1,233 767 1,643 169
Exchange differences on translating foreign operations 2 (107) 58 (21)
Tax recovery (provision) on other comprehensive income (31) 51 (45) 6
Other comprehensive income (loss) (29) (56) 12 (15)
Total comprehensive income $ 1,204 $ 711 $ 1,656 $ 154
Basic and diluted income per Trust Unit 16 $ 0.13 $ 0.08 $ 0.17 $ 0.02
Weighted average number of Trust Units outstanding 16 9,757,484 9,726,339 9,757,484 9,726,339

See accompanying notes to these consolidated financial statements.

Condensed Consolidated Interim Statements of Net Assets Attributable to Unitholders (unaudited)


Capital
Contributions
(Unitholder
Liability)
Accumulated
Other
Comprehensive
Income
Translation
Reserve





Cumulative Deficit



Total Net Assets
Attributable to
Unitholders
(in thousands of dollars)
Balance at January 1, 2010 $ 96,303 $ - $ (55,704) $ 40,599
Units issued under ESOP 44 - - 44
Profit for the period - - 169 169
Translation of foreign operations - (21) - (21)
Tax on other comprehensive income - 6 - 6
Balance at June 30, 2010 96,347 (15) (55,536) 40,797
Balance at January 1, 2011 96,394 95 (56,373) 40,115
Units issued under ESOP 6 - - 6
Profit for the period - - 1,643 1,643
Translation of foreign operations - 58 - 58
Tax on other comprehensive income - (45) - (45)
Balance at June 30, 2011 $ 96,400 $ 108 $ (54,730) $ 41,778

See accompanying notes to these consolidated financial statements.

Condensed Consolidated Interim Statements of Cash Flows (unaudited)
(in thousands of dollars) Six months ended June 30,
Note 2011 2010
Cash flows from operating activities
Profit for the period $ 1,643 $ 169
Items not affecting cash
Amortization of property, plant and equipment (excluding seedling containers) 1,184 1,239
Seedling container amortization included in costs of production 291 333
Amortization of intangibles 19 111
Loss on disposal of property, plant and equipment 121 75
Equity in earnings of investee 5 27
Unrealized loss on foreign exchange 26 139
Unrealized gain on interest rate swaps - (64)
Recovery of (provision for) future income taxes 13 152 (101)
Unit option grants 14 100 45
3,540 1,973
Net change in non-cash working capital balances 17 1,732 2,388
5,272 4,361
Cash flows from financing activities
Repayment of long-term debt (100) (3,987)
Repayment of finance lease (54) (35)
Decrease in operating line - (3,566)
Issuance of Trust Units 14 6 44
(147) (7,544)
Cash flows from investing activities
Repayment of loans by investee - 20
Purchase of property, plant and equipment (1,636) (1,030)
Disposal of property, plant and equipment (net of disposal costs) (16) -
Proceeds from disposal of property, plant and equipment - 5,044
(1,652) 4,033
Increase in cash and cash equivalents 3,473 850
Cash and cash equivalents - beginning of period 92 -
Cash and cash equivalents - end of period $ 3,565 $ 850

See accompanying notes to these consolidated financial statements.

Contact Information

  • PRT Forest Regeneration Income Fund
    Tony Pollard
    VP Finance/CFO
    (866) 553-8733 ext. 229
    www.prt.com