PRT Forest Regeneration Income Fund
TSX : PRT.UN

PRT Forest Regeneration Income Fund

March 17, 2011 17:59 ET

PRT Announces Improved Results for Year Ended December 31, 2010

VICTORIA, BRITISH COLUMBIA--(Marketwire - March 17, 2011) - PRT Forest Regeneration Income Fund (TSX:PRT.UN) (the "Fund") today announced results for its fourth quarter and year ended December 31, 2010. Excerpts from the Fund's annual audited financial report are included as part of this release.

For the year ended December 31, 2010, the Fund reported operating earnings of $2,811,000 and a net loss of $36,000 ($zero per unit) as compared to operating earnings of $2,555,000 and a net loss of $2,203,000 ($0.19 per unit) in 2009. Net loss for the year included $1.0 million in non-recurring costs related to the substantial completion of previously announced nursery closures.

As well, the Fund received payment for an insurance claim in early 2010, and has used a portion of the funds to retire the Fund's Canadian bank term debt of $3.7 million. This significantly lowered interest expenses in the year, and together with other cost containment efforts has put the Fund in much stronger financial position for the developing recovery in the forest seedling industry.

For the three months ended December 31, 2010, the Fund recorded net earnings of $581,000 ($0.06 per unit) compared to a net loss of $512,000 ($0.06 per unit) for the corresponding 2009 period, reflecting lower margins and the impact of non-recurring charges in 2009.

Cash Available for Distribution of $2,119,000 ($0.22 per unit) in 2010 compares to $1,816,000 ($0.19 per unit) for 2009. Operating Earnings and Cash Available for Distribution increased year-over-year despite a 13.6% revenue decline, due mainly to significantly improved production margins. Margin improvements resulted from nursery consolidations in the previous two years and continuous improvement initiatives. For the fourth quarter, Cash Available for Distribution totaled $704,000 or $0.07 per unit, down somewhat from the same period last year due to lower volumes and seasonal factors. Operating Earnings and Cash Available for Distribution are terms which do not have standardized meaning under Canadian generally accepted accounting principles ("GAAP"), 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 in order to finance capital expenditures and business restructuring charges. Standardized Distributable Cash – a comparable measure of cash flow prepared under guidance issued by the Canadian Institute of Chartered Accountants – totaled $0.22 per unit in 2010, as compared to $0.25 per unit in 2009.

Revenues in the year decreased by $4.1 million or 13.6%. Traditional forest contract volumes declined by 0.8% while non-traditional contract volumes increased 4.8% in 2010, but the net increase was not enough to fully offset price declines from smaller seedling sizes and highly competitive market conditions. Relative to PRT's combined markets, however, management estimates that market share has improved year-over-year. While production margins improved, selling, general and administration costs continued to trend lower in 2010 due to ongoing cost reduction efforts.

The Fund is required to convert its financial reporting from GAAP to International Financial Reporting Standards ("IFRS") effective January 1, 2011. Analysis of the effects of this change are presented in the Fund's December 31, 2010 Management's Discussion and Analysis. The first reporting period under IFRS will be as at and for the quarter ending March 31, 2011.

The Fund also announced in late December that it intends to ask its Unitholders to approve the conversion of the Fund to a corporation at its annual and special meeting of Unitholders anticipated to be held on June 13, 2011.

President and CEO, Rob Miller, observed, "The unusually sharp and protracted decline in US housing markets and the general economy created difficult operating conditions for our company and our forest product industry customers in the past few years, and our revenues and profitability declined. 2010 had the lowest order volumes in this cycle. Nevertheless, we took action to adapt our business for the downturn and generated positive cash flow from operations, maintained and enhanced our market share and continued to invest in new growth strategies that we believe will enable us to generate new growth and diversify our markets.

We have seen new markets open up for the forest products industry, particularly in Western Canada, as lumber exports to China grew by almost 90% in 2010, and with this we are witnessing a significant increase in lumber production and timber harvesting. As a result we are expecting an increase of over 30% in seedling volumes for 2011, which will improve our capacity utilization and allow us to re-open our Kirkland Lake, Ontario nursery. In North America we continue to see a lag in the recovery of US housing markets, and the future pace of this recovery is uncertain. Nevertheless, mid-term recovery prospects remain promising for US housing and the effect this will have on our business.

Recent price pressure, combined with the trend to smaller seedling sizes means short term revenue growth will lag volume growth. However if we see continued increases in lumber demand in 2011 this will bode well for our markets in 2012. We have positioned the Fund to weather the downturn, by remaining focused on maximizing cash flow and on providing exceptional customer service, which leaves us well placed to benefit from a continuing recovery in forest seedling markets, as housing returns to more typical levels.

We also believe that our strategy to pursue opportunities outside of forestry including the bioenergy 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."

Management's Discussion and Analysis for the Fund is 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 170 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 March 18, 2011 at 11:00 AM PST, 2:00 PM EST. To participate in this conference, please call 1-877-407-8031 or 201-689-8031.

Persons unable to attend the conference call may listen to a recorded version by dialing 1-877-660-6853, account # 286, and the conference ID# 366582. This option is available through April 7, 2011. A recorded web cast version 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 May 25, 2011 after the release of the first 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 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.

Excerpts from the Fund's annual audited financial report:        
 
Consolidated Balance Sheets        
As at December 31, 2010 and 2009        
(in thousands of dollars)        
    2010   2009
Assets        
   Current assets        
           Cash and cash equivalents $ 92 $ -
           Accounts receivable (note 19)   6,147   11,237
           Inventories (note 4)   1,576   1,422
           Prepaid expenses and deposits   218   224
           Unbilled revenue   1,167   1,801
    9,200   14,684
 
Investment (note 5)   281   333
Property, plant and equipment (note 6)   26,277   26,674
Property, plant and equipment held for sale (note 7)   -   775
Intangible assets (note 8)   264   429
 
  $ 36,022 $ 42,895
 
Liabilities        
   Current liabilities        
           Operating line (note 9) $ - $ 3,566
           Accounts payable and accrued liabilities   2,407   1,799
           Current portion of long-term debt (note 10)   230   1,698
    2,637   7,063
 
Long-term debt (note 10)   898   3,456
 
Future income taxes (note 11)   81   103
    3,616   10,622
 
Unitholders' Equity        
Capital contributions (note 12)   90,485   90,395
 
Cumulative earnings   13,946   13,982
Unit option grants   159   80
Cumulative distributions declared (note 13)   (72,184)   (72,184)
    32,406   32,273
  $ 36,022 $ 42,895

Commitments (note 18)

Subsequent events (note 22)

Consolidated Statements of Operations, Comprehensive Income (Loss) and Cumulative Earnings

For the years ended December 31, 2010 and 2009        
(in thousands of dollars, except per unit amounts)        
 
    2010   2009
 
Revenue $ 25,965 $ 30,062
 
Expenses        
Costs of production   15,562   19,693
Selling, general and administration   7,588   7,905
Loss (gain) on foreign exchange   4   (91)
 
Earnings before the following   2,811   2,555
 
Interest   281   561
Amortization of property, plant and equipment   1,374   2,691
Amortization of intangibles   165   267
Equity in earnings of investee (note 5)   (89)   (88)
Loss (gain) on disposal of property, plant and equipment (note 15)   105   (1,797)
Long-lived asset impairment charges   -   2,558
Exit activity charges (note 14)   1,034   566
 
Loss before income taxes   (59)   (2,203)
 
Recovery of income taxes (note 11)   23   374
 
Net loss and comprehensive income (loss)   (36)   (1,829)
 
Cumulative earnings - beginning of year   13,982   15,811
 
Cumulative earnings - end of year $ 13,946 $ 13,982
 
Basic and dilluted loss per Trust Unit (note 13) $ - $ (0.19)
 
Weighted average number of Trust Units outstanding (note 13)   9,736,409   9,671,961
Consolidated Statements of Cash Flows        
For the years ended December 31, 2010 and 2009        
(in thousands of dollars)        
 
    2010   2009
Cash flows from operating activities        
Net Loss $ (36) $ (1,829)
Items not affecting cash        
       Amortization of property, plant and equipment        
           (excluding seedling containers)   1,374   2,691
       Seedling container amortization included in costs of production   665   851
       Amortization of intangibles   165   267
       Recovery of future income taxes   (22)   (222)
       Loss (gain) on disposal of property, plant and equipment   105   (1,797)
       Long-lived asset impairment charges   -   2,558
       Equity in earnings of investee (note 5)   (89)   (88)
       Unrealized loss (gain) on foreign exchange   202   (248)
       Unrealized gain on interest rate swaps   (63)   (59)
       Unit option grants (note 12)   79   55
    2,380   2,179
Net change in non-cash working capital balances (note 16)   1,643   1,190
 
    4,023   3,369
Cash flows from financing activities        
Distributions paid to Unitholders (note 13)   -   (192)
Repayment of long-term debt   (4,209)   (266)
Decrease in operating line   (3,566)   (2,489)
Issuance of Trust Units (note 12)   90   146
 
    (7,685)   (2,801)
Cash flows from investing activities        
Repayment of loans by investee   20   20
Dividend from investee   120   -
Purchase of property, plant and equipment   (1,785)   (935)
Disposal costs of property, plant and equipment   (103)   -
Proceeds from disposal of property, plant and equipment (notes 7 & 15)   5,502   155
    3,754   (760)
 
Increase (decrease) in cash and cash equivalents   92   (192)
 
Cash and cash equivalents - beginning of year   -   192
 
Cash and cash equivalents - end of year $ 92 $ -

Supplemental cash flow information (note 16)

Contact Information

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