Pinnacle Renewable Holdings Reports Fiscal 2018 Third Quarter Results
/NOT FOR DISTRIBUTION IN THE UNITED STATES/
VANCOUVER, Nov. 5, 2018 /CNW/ - Pinnacle Renewable Holdings Inc. ("Pinnacle" or the "Company") (TSX: PL) today announced its financial results for the 13-week period ("Q3 2018") and 39-week period ("YTD 2018") ended September 28, 2018.
Q3 2018 Summary
- Revenue increased 6.4% to $87.6 million, compared to $82.4 million in Q3 2017;
- Record volume of 421,000 metric tons ("MT") shipped in the quarter led by a 4.7% same-facility production volume increase;
- Adjusted EBITDA¹ totaled $14.5 million, compared to $16.8 million in Q3 2017, reflecting the impact of CN rail disruptions, record B.C. forest fires, and Entwistle Facility commissioning issues;
- Net profit per share was $0.04;
- Pinnacle announced an agreement to acquire 70% stake in an industrial wood pellet production facility in Aliceville, Alabama, marking its entry into the U.S. Southeast fibre basket and the formation of a new strategic partnership with the Westervelt Company;
- The Company now expects to generate Adjusted EBITDA¹ between $57 and $60 million, below the fiscal 2018 guidance of $61 to $65 million, due to the impact of commissioning costs and lower than expected production at the Entwistle facility in the quarter; and
- At quarter end, Pinnacle's contracted backlog was $5.0 billion and the weighted average remaining life of the Company's portfolio of off-take contracts was more than nine years.
"Our 4.7% same-facility production volume increase in Q3 2018 compared to the same period last year, reflects strong production performance despite a challenging environment. Our operations in the quarter were impacted by the record level of forest fires in B.C., rail disruptions and Entwistle facility commissioning issues. With the fire season now over, and our Entwistle storage silo now complete, we expect to realize higher production volumes and lower costs in the fourth quarter," said Robert McCurdy, Chief Executive Officer. "The fourth quarter will also be highlighted by initial production volumes from our new Smithers, B.C. facility and our recently acquired production facility in Aliceville, Alabama, in the important Southeast U.S. fibre basket. During 2018, we will have added 795,000 metric tons of run-rate capacity and we will be well positioned in 2019 to deliver from our nine production facilities."
Q3 2018 Financial Results
Revenue for Q3 2018 totaled $87.6 million, an increase of 6.4% compared to $82.4 million for the 13-week period ended September 29, 2017 ("Q3 2017"). The increase was primarily attributable to increased sales volume and higher sales prices per MT, partially offset by a change in sales mix. Industrial wood pellet sales volumes increased 8.8% to approximately 421,000 MT in Q3 2018, compared to approximately 387,000 MT in Q3 2017.
Adjusted Gross Margin¹ was $17.9 million, or 20.5% of revenue, in Q3 2018 compared to $19.4 million, or 23.5% of revenue, in Q3 2017. The decreases in Adjusted Gross Margin¹ and Adjusted Gross Margin Percentage¹ were primarily due to higher cash conversion costs associated with the start-up at the Entwistle Facility, partially offset by higher revenue from a planned higher sales price per MT. High repairs and maintenance expenditures at the Entwistle Facility related to initial delivery fibre quality issues, CN service failures and lower than projected production levels due to delays in construction of the storage silo increased cash conversion costs by approximately $3.7 million.
Net profit and comprehensive income was $1.5 million in Q3 2018, compared to a net loss and comprehensive loss of $6.0 million in Q3 2017. The variance was primarily attributable to a $9.5 million decrease in other expense and a $2.1 million decrease in finance cost, partially offset by a $3.7 million decrease in profit before finance costs and other (income) expenses.
Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA")¹ was $14.5 million in Q3 2018, compared to $16.8 million in Q3 2017. The decrease was primarily attributable to increased production costs, partially offset by higher revenue.
Recent Company Developments and Outlook
On October 15, 2018, Pinnacle closed the acquisition of a 70% interest in an operating industrial wood pellet production facility located in Aliceville, Alabama (the "Aliceville Facility") from The Westervelt Company ("Westervelt"), a diversified land resources company, at a purchase price of approximately U.S. US$37.1 million. Westervelt retained a 30% interest in the Aliceville Facility. Run-rate EBITDA¹ per MT is expected to be in line with Pinnacle's other production facilities and the capital cost of the Aliceville Facility, inclusive of the capital spending program, will be within the Company's target range of 4.0x to 5.5x run-rate EBITDA¹. Pinnacle and Westervelt are currently undertaking a US$10 million capital spending program to improve safety, product quality and plant efficiencies, with 70% of such costs being attributable to Pinnacle.
Pinnacle funded the purchase of its 70% stake in the Aliceville Facility through a draw on its credit facility and cash on hand. It is expected that the purchase will provide accretive free cash flow per share on an annualized basis.
Pinnacle expects initial pellet production at the Smithers Facility to commence in the middle of November 2018 as the Company completes construction.
As a result of the impact on production volumes and costs of CN rail disruptions, record B.C. forest fires, and the Entwistle Facility commissioning issues outlined above, Pinnacle has revised its estimated Adjusted EBITDA range for Fiscal 2018 from $61 to $65 million to $57 to $60 million. The Company has now completed the storage silo, improved the quality of the inbound fibre, and advanced the commissioning curve of the Entwistle Facility. The Company expects improved performance at the Entwistle Facility in November and December of 2018.
Dividend
The Board of Directors today approved the payment of the Company's Q3 2018 dividend of $0.15 per Common Share. Payment will be made on November 23, 2018 to shareholders of record as at November 14, 2018.
Selected Consolidated Financial Information
The following tables set forth selected financial information for Q3 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.
Q3 2018 |
Q3 2017 |
YTD |
YTD |
|||||
(In thousands except per share amounts) |
13 weeks |
13 weeks |
39 weeks |
39 weeks |
||||
Consolidated Statements of Profit (Loss) and Comprehensive Income (Loss) Data |
||||||||
Revenue |
$ |
87,606 |
$ |
82,366 |
$ |
243,712 |
$ |
219,769 |
Costs and expenses: |
||||||||
Production |
57,222 |
51,628 |
159,635 |
141,037 |
||||
Distribution |
12,360 |
11,568 |
33,528 |
28,496 |
||||
Selling, general and administration |
5,374 |
4,222 |
18,856 |
10,921 |
||||
Amortization of equipment and intangible assets |
6,719 |
5,365 |
17,458 |
16,539 |
||||
Profit (loss) before finance costs and other (income) expense |
$ |
5,931 |
$ |
9,583 |
$ |
14,235 |
$ |
22,776 |
Finance cost |
4,360 |
6,469 |
4,783 |
18,131 |
||||
Other (income) expense |
(399) |
9,146 |
17,264 |
9,270 |
||||
Net profit (loss) before income taxes |
$ |
1,970 |
$ |
(6,032) |
$ |
(7,812) |
$ |
(4,625) |
Income tax (expense) recovery: |
||||||||
Current |
- |
- |
- |
- |
||||
Deferred |
454 |
(2) |
(3,058) |
363 |
||||
Net profit (loss) and comprehensive income (loss) |
$ |
1,516 |
$ |
(6,030) |
$ |
(4,754) |
$ |
(4,988) |
Net profit (loss) per share attributable to owners |
||||||||
Basic and diluted |
$ |
0.04 |
$ |
(0.97) |
$ |
(0.18) |
$ |
(0.91) |
Consolidated Statements of Cash Flows |
||||||||
Cash provided by (used in) |
||||||||
Operating activities before net change in non-cash operating working capital |
$ |
14,211 |
$ |
15,460 |
$ |
37,692 |
$ |
39,823 |
Net change in non‑cash operating working capital |
$ |
(11,923) |
$ |
(3,925) |
$ |
1,519 |
$ |
(4,881) |
Financing activities |
$ |
(5,268) |
$ |
10,412 |
$ |
(1,180) |
$ |
7,647 |
Investing activities |
$ |
(12,093) |
$ |
(16,385) |
$ |
(49,989) |
$ |
(42,896) |
Q3 2018 |
Q3 2017 |
YTD |
YTD |
|||||
(In thousands except per MT amounts) |
13 weeks |
13 weeks |
39 weeks |
39 weeks |
||||
Other Financial Data |
||||||||
Adjusted EBITDA(1) |
$ |
14,454 |
$ |
16,772 |
$ |
41,272 |
$ |
43,346 |
Adjusted EBITDA per MT(1) |
$ |
35.60 |
$ |
43.34 |
$ |
36.88 |
$ |
41.72 |
Adjusted Gross Margin per MT(1) |
$ |
44.15 |
$ |
50.06 |
$ |
45.56 |
$ |
49.08 |
Adjusted Gross Margin Percentage(1) |
20.5% |
23.5% |
20.9% |
23.2% |
||||
Maintenance capital expenditures |
$ |
3,132 |
$ |
2,126 |
$ |
5,449 |
$ |
4,491 |
Growth capital expenditures |
$ |
9,020 |
$ |
14,284 |
$ |
44,714 |
$ |
38,430 |
Operating Data |
||||||||
MT of industrial wood pellets sold |
421 |
387 |
1,134 |
1,039 |
||||
September |
December |
|||||||
(In thousands) |
2018 |
2017 |
||||||
Selected Consolidated Statements of Financial Position Data |
||||||||
Cash |
$ |
7,276 |
$ |
18,908 |
||||
Property, plant and equipment |
$ |
271,076 |
$ |
238,196 |
||||
Total assets |
$ |
447,908 |
$ |
433,645 |
||||
Term debt and shareholders' debentures (including current portion) |
$ |
191,273 |
$ |
285,694 |
||||
Total non-current liabilities |
$ |
188,490 |
$ |
318,811 |
||||
Total equity |
$ |
206,494 |
$ |
35,204 |
||||
Financial Statements
Pinnacle's unaudited interim condensed consolidated financial statements and Management's Discussion & Analysis for Q3 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 Tuesday, November 6, 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: 111972 #. The replay will be available until November 13, 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 sustainable fuel for renewable electricity generation in the form of industrial wood pellets. This fuel is used by large-scale thermal power generators as a greener alternative to produce reliable baseload renewable 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 and one in Alabama, owns a port terminal in Prince Rupert, B.C. and is currently constructing a new production facility 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 106% of its production capacity through 2021 and nearly 98% 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 third fiscal quarter ended September 28, 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 third fiscal quarter ended September 28, 2018.
SOURCE Pinnacle Renewable Holdings Inc.
Investor Relations, Pinnacle Renewable Energy, Tel: 1-877-737-4344, Email: [email protected], Web: www.pinnaclepellet.com
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