Pinnacle Renewable Holdings Reports Fiscal 2018 Second Quarter Results
/NOT FOR DISTRIBUTION IN THE UNITED STATES/
VANCOUVER, Aug. 1, 2018 /CNW/ - Pinnacle Renewable Holdings Inc. ("Pinnacle" or the "Company") (TSX: PL) today announced its financial results for the 13-week period ("Q2 2018") and 26-week period ("YTD 2018") ended June 29, 2018.
Q2 2018 Highlights
- Adjusted EBITDA¹ totaled $14.9 million, compared to $14.4 million in Q2 2017;
- Net profit per share increased to $0.19, compared to $0.13 in Q2 2017
- Pinnacle's Entwistle production facility has entered into commercial production;
- Pinnacle secured four long-term, take-or-pay contracts with new customers in Japan, including Hanwa Co. Ltd., Sumitomo Corporation, and Toyota Tsusho Corporation;
- Pinnacle entered into a long-term, take-or-pay contract with CGN Daesan Power Corp., representing its first long-term supply agreement in the South Korean market and the Company's largest contract to date in Asia; and,
- Pinnacle's contracted backlog increased to $5.1 billion at quarter end and the weighted average remaining life of the Company's portfolio of off-take contracts has been extended to more than nine years.
"We had a very successful quarter in securing long-term off-take contracts with new customers in Japan and South Korea, thereby diversifying our customer base, significantly growing our contracted backlog and further extending the weighted average remaining life of our contract portfolio," said Robert McCurdy, Chief Executive Officer. "Our operations performed well in the quarter and we remain on track to meet our target of between $61 to $65 million in Adjusted EBITDA for Fiscal 2018. We continue to excel in safety at our facilities, including the commissioning of our new Entwistle production facility and the construction of the new Smithers facility."
Q2 2018 Financial Results
Revenue for Q2 2018 totaled $85.1 million, an increase of 22.3% compared to $69.6 million in Q2 2017. The increase was attributable to higher sales volume, a higher proportion of Cost, Insurance, Freight ("CIF") contracts, and higher-priced U.K. and European contracts. With CIF contracts, Pinnacle procures and pays for shipping, which includes insurance and all other charges, up to the port of destination for the customer. These costs are included in the price charged to the customer and as such, are included in revenue and cost of distribution. Industrial wood pellet sales volumes increased 16.0% to approximately 385,000 MT in Q2 2018, compared to approximately 332,000 MT in Q2 2017.
Adjusted Gross Margin¹ was $18.1 million, or 21.3% of revenue, in Q2 2018 compared to $17.0 million, or 24.4% of revenue, in Q2 2017. The decline in Adjusted Gross Margin Percentage¹ was primarily due to higher production costs, as Pinnacle managed the timing of the ramp-up of sales contracts and new production facilities through the purchase of higher cost, third-party pellets, partially offset by increased average sales prices.
Net profit and comprehensive income was $6.5 million in Q2 2018, compared to $1.3 million in Q2 2017. The increase was primarily attributable to a $5.8 million decrease in finance costs which are non-recurring following the completion of Pinnacle's initial public offering, partially offset by a $1.7 million increase in income tax expense.
Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA")¹ was $14.9 million in Q2 2018, compared with $14.4 million in Q2 2017. Higher production and selling, general and administrative ("SG&A") expenses were offset by increased revenue.
Recent Company Developments and Outlook
Pinnacle signed new long-term contracts totaling $2.2 billion with new customers in Asia during Q2 2018 including its first long-term contract in South Korea, representing the first long-term industrial wood pellet contract to ever be signed in that market. With the inclusion of these new contracts, which have longer terms than Pinnacle's existing contracts and extend past 2030, the weighted average remaining life of the Company's portfolio of off-take contracts with customers has been extended from seven years as at March 30, 2018, to more than nine years as at June 29, 2018. The Company's contracted backlog increased from $3.0 billion as at March 30, 2018 to $5.1 billion as at June 29, 2018.
With the new long-term supply agreements contracted in YTD 2018, Pinnacle is now focused on increasing its industrial wood pellet production capacity. The Company expects to increase capacity at its existing facilities through its continuous improvement programs. Pinnacle also now expects to expand its production capacity by advancing development of greenfield and brownfield production facilities. The Company may also partially fulfill new contracted volumes through the acquisition of existing production facilities in North America.
On June 29, 2018, Pinnacle's Entwistle production facility ("Entwistle") entered into commercial production. The Company will gradually ramp-up production at Entwistle to ensure all machine centres are performing optimally and expects to achieve full run-rate production of 400,000 metric tons per annum ("MTPA") in the second quarter of Fiscal 2019. Pinnacle continues to advance construction of the new Smithers production facility ("Smithers") and expects initial pellet production at Smithers to commence in the fourth quarter of Fiscal 2018. Full run-rate production of 125,000 MTPA is anticipated in the third quarter of Fiscal 2019.
Market Update
In South Korea, the Renewable Portfolio Standard ("RPS") policy aims to increase the share of energy generated from renewable sources to 10% by 2023. The RPS mandates power producers that have power generating facilities with installed capacities over 500 megawatts to produce a minimum proportion of their power using new and renewable energy sources. In addition, the RPS introduces a Renewable Energy Certificate ("REC") program whereby energy generated using new and renewable sources are certified with RECs and power generators can meet their obligatory new and renewable energy supply target by purchasing RECs from other generators. For purposes of the REC, a weighting is assigned to power generated from each energy source. Energy generated from biomass has an assigned REC weighting of 1.5. According to Hawkins Wright, biomass demand growth has been the strongest in South Korea over the past five years, where industrial pellet consumption increased by a compound annual growth rate of more than 58% between 2013-2017, reaching 2.5 million MT.
Executive Appointment
Pinnacle is pleased to announce the appointment of Ranj Sangra as General Counsel and Corporate Secretary, effective July 31, 2018. Mr. Sangra will lead the Company's legal, compliance, and corporate governance functions, reporting directly to Robert McCurdy, CEO.
Mr. Sangra joins Pinnacle from Ritchie Bros. Auctioneers (NYSE & TSX: RBA) where he served most recently as Vice President, Legal Affairs. In this senior management position, he led contract negotiations and corporate affairs, and played an integral role in M&A activities and oversaw corporate governance matters. Prior to Ritchie Bros., Mr. Sangra was Legal Counsel at CHC Helicopter Corporation. Prior thereto, he was an Associate at McCarthy Tetrault LLP in Vancouver, B.C. Mr. Sangra earned his J.D. from the University of Toronto and holds a B.A. from the University of British Columbia.
Dividend
The Board of Directors today approved the payment of the Company's Q2 2018 dividend of $0.15 per Common Share. Payment will be made on August 20, 2018 to shareholders of record as at August 9, 2018.
Selected Consolidated Financial Information
The following tables set forth selected financial information for Q2 2018 and YTD 2018 compared to the corresponding prior year periods. Such information has been derived from Pinnacle's unaudited interim condensed consolidated financial statements and accompanying notes.
| (In thousands except per share amounts) |
Q2 2018 |
Q2 2017 |
YTD 2018 |
YTD 2017 |
|||||||||
| 13 weeks |
13 weeks |
26 weeks |
26 weeks |
||||||||||
| Consolidated Statements of Profit (Loss) and Comprehensive Income (Loss) Data |
|||||||||||||
| Revenue |
$ |
85,084 |
$ |
69,556 |
$ |
156,106 |
$ |
137,403 |
|||||
| Costs and expenses: |
|||||||||||||
| Production |
53,893 |
44,863 |
102,413 |
89,409 |
|||||||||
| Distribution |
13,138 |
7,868 |
21,168 |
16,928 |
|||||||||
| Selling, general and administration |
4,265 |
3,493 |
13,482 |
6,699 |
|||||||||
| Amortization of equipment and intangible assets |
5,381 |
5,570 |
10,739 |
11,174 |
|||||||||
| Profit (loss) before finance costs and other (income) expense |
$ |
8,407 |
$ |
7,762 |
$ |
8,304 |
$ |
13,193 |
|||||
| Finance cost |
41 |
5,835 |
423 |
11,662 |
|||||||||
| Other (income) expense |
(320) |
131 |
17,663 |
124 |
|||||||||
| Net profit (loss) before income taxes |
$ |
8,686 |
$ |
1,796 |
$ |
(9,782) |
$ |
1,407 |
|||||
| Income tax (expense) recovery: |
|||||||||||||
| Current |
- |
- |
- |
- |
|||||||||
| Deferred |
(2,182) |
(469) |
3,512 |
(365) |
|||||||||
| Net profit (loss) and comprehensive income (loss) |
$ |
6,504 |
$ |
1,327 |
$ |
(6,270) |
$ |
1,042 |
|||||
| Net profit (loss) per share attributable to owners |
|||||||||||||
| Basic and diluted |
$ |
0.19 |
$ |
0.13 |
$ |
(0.24) |
$ |
0.06 |
|||||
| Consolidated Statements of Cash Flows |
|||||||||||||
| Cash provided by (used in) |
|||||||||||||
| Operating activities before net change in non-cash operating working capital |
$ |
14,091 |
$ |
13,409 |
$ |
23,581 |
$ |
24,363 |
|||||
| Net change in non‑cash operating working capital |
$ |
(4,557) |
$ |
(1,765) |
$ |
13,342 |
$ |
(956) |
|||||
| Financing activities |
$ |
(9,476) |
$ |
7,005 |
$ |
4,088 |
$ |
(2,765) |
|||||
| Investing activities |
$ |
(10,459) |
$ |
(22,758) |
$ |
(37,896) |
$ |
(26,511) |
|||||
| (In thousands except per MT amounts) |
Q2 2018 |
Q2 2017 |
YTD 2018 |
YTD 2017 |
|||||||||
| 13 weeks |
13 weeks |
26 weeks |
26 weeks |
||||||||||
| Other Financial Data |
|||||||||||||
| Adjusted EBITDA(1) |
$ |
14,861 |
$ |
14,418 |
$ |
26,818 |
$ |
26,574 |
|||||
| Adjusted EBITDA per MT(1) |
$ |
38.60 |
$ |
43.43 |
$ |
37.61 |
$ |
40.76 |
|||||
| Adjusted Gross Margin per MT(1) |
$ |
47.13 |
$ |
51.20 |
$ |
46.36 |
$ |
48.49 |
|||||
| Adjusted Gross Margin Percentage(1) |
21.3% |
24.4% |
21.2% |
23.0% |
|||||||||
| Maintenance capital expenditures |
$ |
1,279 |
$ |
1,368 |
$ |
2,317 |
$ |
2,365 |
|||||
| Growth capital expenditures |
$ |
9,240 |
$ |
21,390 |
$ |
35,694 |
$ |
24,146 |
|||||
| Operating Data |
|||||||||||||
| MT of industrial wood pellets sold |
385 |
332 |
713 |
652 |
|||||||||
| (In thousands) |
June 29, |
December 29, |
|||||||||||
| 2018 |
2017 |
||||||||||||
| Selected Consolidated Statements of Financial Position Data |
|||||||||||||
| Cash |
$ |
22,345 |
$ |
18,908 |
|||||||||
| Property, plant and equipment |
$ |
266,503 |
$ |
238,196 |
|||||||||
| Total assets |
$ |
450,996 |
$ |
433,645 |
|||||||||
| Term debt and shareholders' debentures (including current portion) |
$ |
195,111 |
$ |
285,694 |
|||||||||
| Total non-current liabilities |
$ |
190,448 |
$ |
318,811 |
|||||||||
| Total equity |
$ |
206,555 |
$ |
35,204 |
|||||||||
| Notes: |
|
| (1) |
See "Non-IFRS Measures". |
Financial Statements
Pinnacle's unaudited interim condensed consolidated financial statements and Management's Discussion & Analysis for Q2 2018 / YTD 2018 are available on the Company's website at pinnaclepellet.com or on SEDAR at www.sedar.com.
Conference Call
Robert McCurdy, CEO, Leroy Reitsma, President & COO, and Andrea Johnston, CFO, will host a conference call for investors and analysts on Thursday, August 2, 2018 at 10:00 am (ET) / 7:00 am (PT). The dial-in numbers for the conference call are (416) 764-8609 or 1-888-390-0605. A live webcast of the call will be accessible via Pinnacle's website at: http://pinnaclepellet.com/investors/presentations-events
To access a replay of the conference call dial (416) 764-8677 or 1-888-390-0541, passcode: 486290 #. The replay will be available until August 9, 2018. The webcast will be archived following conclusion of the call.
About Pinnacle
Pinnacle is a rapidly growing industrial wood pellet manufacturer and distributor and the third largest producer in the world. The Company produces renewable fuel for electricity generation in the form of industrial wood pellets, which are used by global utilities and large-scale power generators to produce renewable and reliable baseload power. Pinnacle is a trusted supplier to its customers, who require reliable, high quality fuel supply to maximize utilization of their facilities. Pinnacle takes pride in its industry leading safety practices. The Company operates seven industrial wood pellet production facilities in western Canada, a port terminal in Prince Rupert, B.C., and currently has a new production facility under construction in Smithers, B.C. Pinnacle has entered into long-term take-or-pay contracts with utilities in the U.K., Europe and Asia that represent 109% of its production capacity through 2021 and nearly 101% of its production capacity through 2026.
Forward-Looking Information
This news release may contain "forward-looking information" within the meaning of applicable securities laws in Canada. Forward-looking information may relate to Pinnacle's future financial outlook and anticipated events or results and may include information regarding its financial position, business strategy, growth strategies, budgets, operations, financial results, taxes, dividend policy, plans and objectives. Particularly, information regarding the Company's expectations of future results, performance, achievements, prospects or opportunities or the markets in which it operates is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "targets", "expects" or "does not expect", "is expected", "an opportunity exists", "budget", "scheduled", "estimates", "outlook", "forecasts", "projection", "prospects", "strategy", "intends", "anticipates", "does not anticipate", "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might", "will", "will be taken", "occur" or "be achieved". In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management's expectations, estimates and projections regarding future events or circumstances. If any of the opinions, estimates or assumptions underlying the forward-looking information prove incorrect, actual results or future events might vary materially from those expressed in the forward-looking information. The Company has no obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws in Canada. Actual results and the timing of events may differ materially from those anticipated in the forward-looking information as a result of various factors, including those described in "Risk Factors" which are described in the Company's Annual Information Form ("AIF") filed March 27, 2018 on SEDAR.
We caution that the list of risk factors and uncertainties is not exhaustive and other factors could also adversely affect our results. Readers are urged to consider the risks, uncertainties and assumptions carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such information. See "Forward-looking Information" and "Risk Factors" in the Company's most recent AIF and its Management's Discussion & Analysis for the second fiscal quarter ended June 29, 2018 available on SEDAR (www.sedar.com) for a discussion of the uncertainties, risks and assumptions associated with these statements.
(1) Non-IFRS Financial Measures
This news release makes reference to certain non-IFRS measures. These measures are not recognized measures under IFRS, and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management's perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We use non-IFRS measures including "EBITDA", "Adjusted EBITDA", "Adjusted EBITDA per Metric Ton", "Adjusted Gross Margin", "Adjusted Gross Margin per Metric Ton", "Adjusted Gross Margin Percentage" and "Free Cash Flow". These non-IFRS measures are used to provide investors with supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS measures. We also believe that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Our management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of management compensation. As required by Canadian securities laws, we reconcile these non-IFRS measures to the most comparable IFRS measures in our Management Discussion & Analysis for the second fiscal quarter ended June 29, 2018.
SOURCE Pinnacle Renewable Holdings Inc.
Investor Relations, Pinnacle Renewable Energy, Tel: 1-877-737-4344, Email: [email protected], Web: www.pinnaclepellet.com
Share this article