Victoria, British Columbia, Canada, 25 November 2009 -- (Marketwire) -- Pacific Regeneration Technologies Inc. (PRT) (TSX:PRT.UN
) announced today that it will discontinue seedling production at PRT Kirkland Lake, its nursery in northeastern Ontario, for an indefinite period until market conditions improve. It also announced that PRT Summerland, located in the Okanagan region of British Columbia, will be consolidated with PRT's three other sites in the region. Both actions will take place once crops currently in production are completed, expected within the next 30 days. Cold storage operations at PRT Kirkland Lake will continue to serve local customers.
PRT Kirkland Lake is a comparatively high production cost facility because it uses propane fuel for greenhouse heat. The PRT Summerland nursery site is leased under a short-term agreement, and current production can be readily consolidated with nearby sites in the Okanagan valley.
"The closure and site consolidation will improve economies of scale in light of the continued downturn in demand for tree seedlings across PRT's market areas, while still allowing us to provide a high level of localized customer service," said Rob Miller, president and chief executive officer of PRT. "Forest seedling demand is strongly influenced by U.S. house construction and with continued weakness in U.S. housing markets this year we are anticipating some further decline in seedling demand for 2010. Next year's demand is expected to be down approximately 5% to 10% from 2009, which will be approximately 50% off its peak in 2006. There is also a risk that the pace of the U.S. housing market recovery could be slow. Accordingly, after careful review, we are taking these steps to improve our capacity utilization, production costs and efficiency. We have selected these two sites based on anticipated customer needs over the next few years."
Miller continued, "Despite a weak market outlook for 2010, we expect demand to improve over time as U.S. housing starts recover. Seedling demand may also strengthen if jurisdictions across North America invest in tree planting to combat global warming, and if British Columbia and Alberta accelerate programs to replant forests devastated by the mountain pine beetle. PRT will retain nursery assets from the closed facilities in order to meet future demand as markets recover.
"We regret the impact these announcements will have on our employees at Kirkland Lake and Summerland. These teams have worked hard to provide reliable, cost effective seedlings for our customers and we thank them for their efforts in this regard. Unfortunately, the current market conditions warrant our taking action to reduce excess capacity so that we can continue to provide our customers with competitively priced services."
PRT, North America's largest supplier of container-grown forest seedlings, estimates it will have annual capacity of approximately 165 million seedlings after giving effect to these actions, but expects to have substantial opportunity to expand capacity beyond this at existing sites. PRT's contracted customers include more than 100 North American forest products companies. These customers have reduced purchases of seedlings due to a severe contraction in demand for lumber, which in turn is related mainly to a sharp decline in U.S. housing starts. As a result, PRT is currently contracted to produce approximately 124 million seedlings in 2009, down from 230 million in 2006.
In 2010, PRT will operate 12 nurseries in Ontario, western Canada, and the United States. The Summerland nursery will be consolidated into the company's three other sites in the Okanagan valley. PRT will continue to serve Ontario customers from its Dryden, Ontario, nursery.
The closures are expected to result in an estimated after-tax charge of CAD 450,000 to earnings, which will be recorded in the fourth quarter.
Pacific Regeneration Technologies Inc., is wholly owned by the PRT Forest Regeneration Income Fund (TSX:PRT.UN - News).