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News Release - February 21, 2019Pinnacle Renewable Energy Reports Fiscal 2018 Fourth Quarter and Year-End Results and Announces New Off-take Contracts in Japan and South Korea

 /NOT FOR DISTRIBUTION IN THE UNITED STATES/

VANCOUVER, Feb. 21, 2019 /CNW/ - Pinnacle Renewable Energy ("Pinnacle" or the "Company") (TSX: PL) today announced its financial results for the 13-week period ("Q4 2018") and 52-week period ("Fiscal 2018") ended December 28, 2018.

Financial Summary

Fiscal 2018 Operating Highlights

"We grew and diversified our customer base with nearly $3 billion in new, long-term contracts in Japan and South Korea," said Rob McCurdy, CEO of Pinnacle.  "Our same-facility production volume increased 3%  in 2018, reflecting record performance at our Burns Lake and Lavington Facilities.  However, our 2018 financial performance was negatively impacted by challenges commissioning the Entwistle Facility and rail service disruptions."

Leroy Reitsma, COO of Pinnacle added, "We made strong progress in advancing our growth objectives in 2018, completing the construction of two new production facilities and acquiring the facility in Aliceville, which increases Pinnacle's run-rate production capacity by more than 56%. While the fire event that occurred on February 11, 2019 at our Entwistle facility is of concern to everyone at Pinnacle, we are working diligently to resolve this incident and resume production."    

Q4 2018 Financial Results
Revenue for Q4 2018 totaled $103.7 million, an increase of 42.2% compared to $73.0 million for the 13-week period ended December 29, 2017 ("Q4 2017"). The increase was primarily attributable to increased sales volume. Industrial wood pellet sales volumes increased 41.6% to approximately 473,000 MT in Q4 2018, compared to approximately 334,000 MT in Q4 2017. Revenue in Q4 2018 was negatively impacted by lower production volumes than expected due to commissioning issues at the Entwistle Facility and challenges with the Company's rail services provider.

Adjusted Gross Margin¹ was $16.7 million, or 16.1% of revenue, in Q4 2018 compared to $15.9 million, or 21.8% of revenue, in Q4 2017. The decrease in Adjusted Gross Margin Percentage¹ was primarily attributable to higher than expected production and cash conversion costs associated with the start-up at the Entwistle Facility, partially offset by higher revenue from increased sales volume.

Net profit and comprehensive income was $7.5 million in Q4 2018, compared to $0.1 million in Q4 2017. The variance was primarily attributable to a $7.7 million decrease in finance costs, partially offset by a $1.5 million increase in income tax expense.

Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA")¹ was $13.8 million in Q4 2018, an increase of 7.8% compared to $12.8 million in Q4 2017, reflecting increased revenue, partially offset by higher production costs associated with the start-up of the Entwistle Facility and increased logistics costs due to challenges with the Company's rail services provider. Adjusted EBITDA for Q4 2018 was also impacted by constant heavy precipitation along the Pacific coast of British Columbia, which constrained loading volumes at the Company's port terminals.

Fiscal 2018 Financial Results
Revenue for Fiscal 2018 totaled $347.4 million, an increase of 18.7% compared to $292.7 million for the 52-week period ended December 29, 2017 ("Fiscal 2017"). The increase was primarily attributable to increased sales volume and an increase in average sales price per MT. Industrial wood pellet sales volumes totaled approximately 1.6 million MT, compared to approximately 1.4 million MT in Fiscal 2017.

Adjusted Gross Margin¹ was $67.6 million, or 19.5% of revenue, in Fiscal 2018 compared to $66.9 million, or 22.9% of revenue, in Fiscal 2017. The decrease in Adjusted Gross Margin Percentage¹ was primarily due to higher production costs associated with start-up at the Entwistle Facility, planned higher fibre costs, and higher fibre costs for incremental production volume from the Company's legacy production facilities as they increased production to offset the shortfall at the Entwistle Facility, partially offset by higher revenue from an increase in the average sales price per MT.

Adjusted EBITDA¹ was $55.1 million in Fiscal 2018, compared to $56.1 million in Fiscal 2017. The decrease was attributable to higher production costs associated with start-up at the Entwistle Facility and increased logistics costs due to challenges with the Company's rail services provider, partially offset by increased revenue.

Recent Customer Wins
On December 14, 2018, Pinnacle entered into its second long-term, take-or-pay contract with CGN Daesan Power Co., Ltd. ("Daesan"), a subsidiary of CGN New Energy Holdings Co., Ltd, a diversified independent power producer in Asia.  Under the terms of the contract, Pinnacle will supply 75,000 MTPA of industrial wood pellets to Daesan beginning in 2022.

On December 28, 2018, Pinnacle entered into its second long-term, take-or-pay contract with Sumitomo Corporation ("Sumitomo"), a large, diversified trading company in Japan.  Under the terms of the contract, Pinnacle will supply 50,000 MTPA of industrial wood pellets to Sumitomo starting in the second half of 2020 for a one-year term. Following the initial one-year term, Pinnacle will supply a total of 150,000 MTPA to Sumitomo for the duration of the contract. 

Entwistle Update
On February 11, 2019, Pinnacle temporarily suspended operations at its Entwistle Facility (the "Facility") due to a fire and explosion that occurred at the dryer area of the Facility.  The Company is currently investigating the cause of the incident and developing action plans to restart the facility.   Pinnacle's priority is to manage the impacts of the incident on its employees, contractors, customers, suppliers, and the neighboring community. Management, Alberta Labour Occupational Health & Safety ("OH&S"), local fire authorities, Pinnacle's insurance adjusters and equipment suppliers, as well as third-party experts, are engaged in an investigation into the accident.  OH&S released control of the site back to the Company on February 20, 2019.

Pinnacle is now working with its insurers, suppliers and contractors to evaluate the damage and develop a plan to restart the dryer area. The rest of the Facility sustained little damage and Pinnacle will resume production of wood pellets in March 2019 from dry fibre. The Company is working with its customers to mitigate the impact of the temporary suspension of operations at the Facility. 

Prior to the incident, the Company was successfully ramping up the Facility. The storage silo is now fully operational and unit train delivery service commenced in Q4 2018.  Fibre processing was improving and daily production rates were meeting the Company's previously established ramp-up curve. Management expects consistent performance improvement once the Facility resumes production. 

New Production Facilities
Pinnacle's new Smithers Facility commenced production in November 2018 and is ramping production as anticipated at this stage of commissioning.  Commercial production commenced December 29, 2018.  The Aliceville Facility has been operating consistently since acquisition.  The Aliceville and Smithers Facilities are positioned to contribute to Adjusted EBITDA growth in Fiscal 2019.

Outlook
Pinnacle expects to see continued strong execution in the strategic growth plan of the business in 2019. The Aliceville and Smithers Facilities added in Q4 2018 will contribute to 2019 growth as they ramp up production.

Pinnacle is executing on its fibre diversification strategy. This has mitigated fibre availability issues resulting from sawmill curtailments that have been announced by some B.C. forest products companies. As a result, Pinnacle will procure a greater proportion of higher cost harvest residuals (pulp logs and bush grind).  The Company expects the impact to be mainly limited to some of its fibre sourcing at its Burns Lake and Meadowbank Facilities.

The financial impact of the recent temporary suspension of operations at the Entwistle Facility is difficult to estimate at this early date.  Pinnacle will resume reduced production of wood pellets at the Facility in March 2019 through the use of dry fibre. The Company will provide an update when it obtains further information regarding the timeline for recommencement of the dryer area. The Company anticipates providing 2019 guidance at that time.

Dividend
The Board of Directors today approved the payment of the Company's Q4 2018 dividend of $0.15 per Common Share. Payment will be made on March 14, 2019 to shareholders of record as at March 5, 2019.

Selected Consolidated Financial Information

The following tables set forth selected financial information for Q4 2018 and Fiscal 2018 compared to the corresponding prior year periods. Such information has been derived from Pinnacle's audited consolidated financial statements and accompanying notes.



Q4 2018


Q4 2017


Fiscal 2018


Fiscal 2017


Fiscal 2016

(In thousands except per share amounts)


13 weeks


13 weeks


52 weeks


52 weeks


53 weeks












Consolidated Statements of Profit (Loss) and Comprehensive
Income (Loss) Data








Revenue

$

103,728

$

72,958

$

347,440

$

292,727

$

266,338

Costs and expenses:











Production


73,472


47,377


233,107


188,414


173,693

Distribution


13,371


9,925


46,899


38,421


39,474

Selling, general and administration


3,933


4,347


22,789


15,268


12,331

Amortization of equipment and intangible assets


7,220


5,280


24,678


21,819


21,211

Profit (loss) before finance costs and other (income) expense 

$

5,732

$

6,029

$

19,967

$

28,805

$

19,629

Finance cost


(1,740)


6,120


3,042


24,251


1,000

Other (income) expense


(1,626)


(358)


15,638


8,912


7,796

Net profit (loss) before income taxes 

$

9,098

$

267

$

1,287

$

(4,358)

$

10,833

Income tax expense (recovery):











Current


-


-


-


-


(2)

Deferred


1,643


163


(1,415)


526


(5,569)

Net profit (loss)

$

7,455

$

104

$

2,702

$

(4,884)

$

5,262

Net profit (loss) per share attributable to owners











Basic and diluted

$

0.22

$

(0.04)

$

0.05

$

(0.22)

$

0.11












Consolidated Statements of Cash Flows











Cash provided by (used in)











Operating activities before net change in non-cash operating working capital

$

14,565

$

11,305

$

52,257

$

51,128

$

44,742

Net change in non‑cash operating working capital

$

3,998

$

(15,302)

$

5,517

$

(20,183)

$

(14,126)

Financing activities

$

61,110

$

41,165

$

59,930

$

48,812

$

(20,958)

Investing activities

$

(68,809)

$

(29,786)

$

(118,798)

$

(72,682)

$

(13,250)

























Q4 2018


Q4 2017


Fiscal 2018


Fiscal 2017


Fiscal 2016

(In thousands except per MT amounts)


13 weeks


13 weeks


52 weeks


52 weeks


53 weeks












Other Financial Data











Adjusted EBITDA(1)

$

13,830

$

12,775

$

55,102

$

56,121

$

43,922

Adjusted EBITDA per MT(1)

$

29.24

$

38.25

$

34.61

$

40.87

$

33.68

Adjusted Gross Margin per MT(1)

$

35.23

$

47.70

$

42.49

$

48.74

$

40.72

Adjusted Gross Margin Percentage(1)


16.1%


21.8%


19.5%


22.9%


19.9%

Maintenance capital expenditures

$

2,610

$

4,549

$

8,059

$

9,040

$

4,434

Growth capital expenditures

$

20,358

$

24,586

$

65,072

$

63,016

$

8,916

Operating Data











MT of industrial wood pellets sold


473


334


1,607


1,373


1,304

























December 28,


December 29,


December 30,





(In thousands)


2018


2017


2016
















Selected Consolidated Statements of Financial Position Data










Cash

$

18,028

$

18,908

$

12,112





Property, plant and equipment

$

330,899

$

238,196

$

175,849





Total assets

$

627,294

$

433,645

$

353,511





Term debt and shareholders' debentures (including current portion)

$

241,925

$

285,694

$

234,142





Total non-current liabilities

$

321,637

$

318,811

$

263,600





Total equity

$

229,013

$

35,204

$

37,951





 

Financial Statements
Pinnacle's audited consolidated financial statements and Management's Discussion & Analysis for Fiscal 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 Friday, February 22, 2019 at 11:00 am (ET) / 8:00 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: 639760 #. The replay will be available until March 1, 2019.  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 eight industrial wood pellet production facilities in western Canada and one in Alabama, and owns a port terminal in Prince Rupert, 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 102% 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 most recent Annual Information Form ("AIF") filed  on SEDAR (www.sedar.com). 

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 fiscal year ended December 28, 2018 available on SEDAR 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 fiscal year ended December 28, 2018.

SOURCE Pinnacle Renewable Energy Inc.

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