Interview with: David Scott, CEO - featuring: their design, production and sales of protective products for law enforcement, military, fire and EMS personnel for markets in Canada and the United States.

Pacific Safety Products Inc. (PSP-TSX Venture)

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Now that Pacific Safety Products is a major player in law enforcement and the Department of National Defense in Canada, they are positioned to expand into the United States

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Defense
Safety Products
(PSP-TSX Venture)

Pacific Safety Products Inc.

2821 Fenwick Road
Kelowna
, B.C. Canada V1X 5E4
Phone: 250-491-0911


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David Scott
Chief Executive Officer

Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
March 23, 2006

BIO:
David Scott - Chief Executive Officer

Mr. Scott recently retired as Chief Executive Officer and President of General Dynamics Canada. His responsibilities included operations in the United States, Canada and the United Kingdom, with annual sales in excess of $750 million dollars, and the management of over five thousand employees. Mr. Scott brings 35 years experience in the Aerospace and Defence industry, holding executive positions in both Operations and Program Management in Canada and the United States.

Company Profile:
PSP is a world leader in the design, production and sales of protective products for law enforcement, military, fire and EMS personnel. “We bring everyday heroes home safely.” TM

CEOCFO: Mr. Scott, what was your vision when you joined Pacific Safety, and how has that developed?
Mr. Scott: “I joined Pacific Safety in 2003 as a director of PSP and I was asked to be a director because of my background in aerospace and defense. The company was then embarking on diversifying their core product line from law enforcement to include defense. Subsequently, in September of 2005, I became CEO of Pacific Safety Products and the vision is to take it to the next level of development in our markets and expand from Canada into the United States. We also wanted to increase our participation in the defense market for protective systems and that is still the vision, but right now it’s the execution that we are working on.”

CEOCFO: How do execute and what’s next?
Mr. Scott: “When I became CEO, I assessed the organization with respect to what the skill sets were that we had, what our market was and I spoke to a number of significant customers of ours to understand their views of our products and services. I then started to adjust some of our products lines to emphasize the benefits and value of what we brought to the market and over time have started to develop additional skill sets that we can employ in the organization. We looked at how we can work as a unified organization, because we have multiple locations, some through acquisitions and we were trying to make sure that the integration process was complete so that everyone had a common operating picture.”

CEOCFO: Can you give us a picture of the industry between Canada and the United States?
Mr. Scott: “The industry for protective systems and protective clothing, with respect to Canada and the United States, there are similarities, but obviously, the markets in the United States is huge compared to Canada. The similarities start with there being a few large players and a lot of smaller players who work around the fringes. It is an industry that has a need to continually innovate, because of the textile markets and the new products being brought onto the markets by the textile manufacturers. It is relatively low cost with regards to R&D; the quality is paramount, because we are in the business to protect someone’s life, so the quality of the product is the most essential part to the approach to the market.”

CEOCFO: Where do you stand in the industry?
Mr. Scott: “With respect to Canada we are a major player; we probably occupy a space of about 65 to 70% of the law enforcement market in the large cities as well as the provincial police forces. With respect to the Department of National Defense in Canada, we are currently a significant supplier of protective equipment with our fragmentation protection vests and chemical protection suits. Our fragmentation vests are now used with the deployment in Afghanistan. With respects to the U.S. market we are still have our toes just gingerly in the water, but we are making some sales with our traditional product lines in the U.S. and have done so for a number of years. We have also expanded now to included direct sales, as well as distribution sales for law enforcement. In the near future we hope to be able to pursue U.S. federal government agency business and the Department of Defense business, by having a facility located in the United States. However, that is still in the consideration phase.”

CEOCFO: You had a profitable quarter, which I know is significant for you; tell us about your financial situation?
Mr. Scott: “The company has gone through what I describe as a ‘saw tooth’ chart if you were looking at a graph; in terms of profitability, where some years we have been profitable and others not. The awarding of these two contracts from the Department of National Defense in Canada was a significant occurrence; however, the volume was something greater than the company had typically experienced in the past. As a result, it took us a little longer to get into production than had been anticipated and in the meantime, we were investing considerably in some new product development areas. Therefore, we had a rather weak 1st Quarter this year; we had done some restructuring during that quarter and it was reflected in a write off of just under $600 thousand Canadian. This last quarter is more reflective of what the company can do; we are in full production on these major contracts, we are meeting our production targets for our costs and our order book is growing significantly from both domestic sales and additional sales in the United States. Therefore, I think the quarter reflects what the organization can do.”

CEOCFO: Why should people be buying from Pacific Safety as opposed to your competitors?
Mr. Scott: “We provide a quality product; we are incredibly responsive to our customers and provide tailored solutions. In addition, we are relatively small in size, so we are able to be proactive and also react to the customer requirements in a very short period of time. Therefore, we think that is one of the discriminating factors with regard to buying a PSP product, as well as the support that we provide to our customers throughout the use of the product.”

CEOCFO: Where does the support play a factor?
Mr. Scott: “I believe that it is the maintenance of the quality of the product. We have a lifetime testing program, so that when we deliver a product to a customer at prearranged scheduled dates, we will take that product in the field and retest it to make sure that its protective qualities have not deteriorated over time as a result of wear or exposure to environmental conditions. We also work very closely with some very significant customers in providing that type of support. We have what is probably the best ballistics test lab in Canada, outside of a government lab.”

CEOCFO: You have a number of safety related products as well as the personal and body armor; what is the range and what areas are growing the most for you?
Mr. Scott: “I believe the growth over the next 2 years will continue to be in the defense market. I think the application of technology to textiles or smart textiles; will be where the biggest growth will occur; where the individual dismounted soldiers will have sensors and health monitoring capabilities woven into the fabric of his ballistic vest or his fragmentation protection vest, or his chemical protection suit. Therefore, I think that is a significant area of growth. I believe that homeland security and generally the protection of critical infrastructure, both in the United States and Canada will be a growth area and that may include suppression devices or sensory devices, but I believe that we can play in this area because of our experience in the core markets. The third part of our business is emergency medical response, where we provide basic kit bags for first responders. Because we have a market with first responders that is significant here in Canada and to a lesser extent, in the United States, I think that we want to grow that market by adding additional products. I would like to point out that we are in the process of bringing on-stream two different products, although I can’t speak specifically right now because we haven’t signed the agreements yet, however they will broaden our products and allow us to penetrate more first responder business.”

CEOCFO: Do you see consolidation in the industry and will you be looking at acquisitions?
Mr. Scott: “We see consolidation for sure and at some point the bow wave for DoD (Department of Defense)) business in the United States that is currently aimed at the military I think will start to lessen and that will prompt the need for revenue growth through acquisition by the big players. For ourselves, given our size, an acquisition is probably necessary downstream over the next 2 and 3 years, to sustain the growth that we’ve seen through organic growth. However, I think that there is a lot of opportunity for organic growth for safety products in the next 2 years and I think that we will take a look at acquisitions in a measured fashion and ensure that if we are going to do something like that, we can make that work and bring real value to our shareholders as opposed to just growing the order book for the sake of growing the order book.”

CEOCFO: Is reaching investors a focus for you?
Mr. Scott: “It is! We are not terribly widely held, but we do have investor relations internally. For our current investors I would say that we are able to perform to the markets expectations and we will continue to be profitable and continue to grow the top-line. We are interested in attracting new investors and I think that the best way to attract is to demonstrate our ability to perform, both on the top line and the bottom line.”

CEOCFO: In closing, what should potential investors know that doesn’t jump off the page when they first look at the company?
Mr. Scott: “I would say that we are in a marketplace that has seen significant growth overall in the 4 years, since September 11, 2001. We are in a market that is addressing the needs of an apprehensive society and I believe that we are swimming with the tide in being in this marketplace. I think in the next 2 or 3 quarters, we will be able to show that indeed is the case.”


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“I believe the growth over the next 2 years will continue to be in the defense market. I think the application of technology to textiles or smart textiles; will be where the biggest growth will occur; where the individual dismounted soldiers will have sensors and health monitoring capabilities woven into the fabric of his ballistic vest or his fragmentation protection vest, or his chemical protection suit. Therefore, I think that is a significant area of growth. I believe that homeland security and generally the protection of critical infrastructure, both in the United States and Canada will be a growth area and that may include suppression devices or sensory devices, but I believe that we can play in this area because of our experience in the core markets. The third part of our business is emergency medical response, where we provide basic kit bags for first responders. Because we have a market with first responders that is significant here in Canada and to a lesser extent, in the United States, I think that we want to grow that market by adding additional products.” - David Scott

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