- NOT FOR DISTRIBUTION IN THE UNITED STATES –
VANCOUVER, May 8, 2019 /CNW/ - Pinnacle Renewable Energy ("Pinnacle" or the "Company") (TSX: PL) today announced its financial results for the 13-week period ended March 29, 2019 ("Q1 2019").
Q1 2019 Highlights
"Our strong first quarter revenue growth reflects early contributions from our new production facilities and the continued market demand," said Rob McCurdy, CEO of Pinnacle. "While our profitability in the quarter was negatively impacted by the fire event at Entwistle and higher costs due to record and near record cold temperatures in our northern mill locations, our outlook for the remainder of 2019 is positive. We have restarted operations at Entwistle, our Smithers and Aliceville facilities are moving towards full production as expected, and we are undertaking significant upgrades to our Williams Lake and Meadowbank Facilities that will better position us to adapt to cyclical changes in wood fibre supply in B.C., while also improving production capacity and operating efficiencies."
Q1 2019 Financial Results
Revenue for Q1 2019 totaled $89.6 million, an increase of 26.2% compared to $71.0 million for the 13-week period ended March 30, 2018 ("Q1 2018"). The increase was primarily attributable to higher sales volume as the Company produced and sold pellets from its Entwistle and Aliceville production facilities in Q1 2019, while there were no sales from these facilities in Q1 2018.
Adjusted Gross Margin¹ was $10.9 million, or 12.2% of revenue, in Q1 2019, compared to $14.9 million, or 21.0% of revenue, in Q1 2018. The decline in Adjusted Gross Margin¹ was primarily attributable to higher costs resulting from the Entwistle Incident (described below), higher costs from adverse weather conditions, and increased third-party pellet purchases, partially offset by increased revenue from higher sales volumes. Adjusted Gross Margin¹ for Q1 2019 also reflects the Company's adoption of IFRS 16². Excluding the impact of the implementation of IFRS 16² and the Entwistle Incident, Q1 2019 Adjusted Gross Margin¹ was $11.3 million, or 12.6% of revenue.
The Company reported a net loss of $6.3 million in Q1 2019, compared to $12.8 million in Q1 2018. The change in net loss reflects lower selling, general and administrative ("SG&A") expenses, and reduced income tax expense, partially offset by lower gross margin, higher amortization costs, reflecting the Company's new production facilities, and increased finance costs, reflecting non-cash mark-to-market adjustments on foreign exchange contracts. Excluding the impact of the implementation of IFRS 162 and the Entwistle Incident, net profit in Q1 2019 was $0.2 million. Comprehensive loss for Q1 2019 was $6.8 million.
Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA")¹ totaled $8.3 million in Q1 2019, compared to $12.0 million in Q1 2018. Increased revenue was offset by higher production costs, including higher fibre and conversion costs due principally to colder and wetter weather in the quarter, and costs associated with the Entwistle incident, partially offset by the impact of IFRS 16². Excluding the impact from the Entwistle Incident and the adoption of IFRS 16², Q1 2019 Adjusted EBITDA¹ was $8.7 million.
Production Facility Upgrades
Subject to completion of consultation and environmental permitting processes, in the second quarter of Fiscal 2019, Pinnacle will commence upgrades at its Williams Lake and Meadowbank production facilities, located within the Cariboo region of B.C., with the installation of new fibre drying and air filtration equipment, and improvements to access infrastructure. The upgrades will allow the two facilities to process a broader array of available fibre sources in the region, and achieve a series of safety and environmental advancements. Upon completion of the upgrades, the Williams Lake and Meadowbank facilities will have an increase of 80,000 MTPA in combined overall production capacity. This strategic investment will enhance the operating flexibility of the Williams Lake and Meadowbank facilities and better position Pinnacle to adapt to cyclical changes in wood fibre supply within the B.C. interior. Further, the equipment, technology and infrastructure improvements will result in improved facility operating efficiencies, lower emissions, local employment opportunities and greater overall facility safety. The capital cost of the upgrades is expected to be approximately $34 million, resulting in an estimated capital cost to run-rate EBITDA ratio of approximately 5.0x to 5.5x. Pinnacle will fund the upgrades from draws on its credit facilities. Pinnacle expects the facility upgrades to be completed and commence commissioning by the end of the fourth quarter of Fiscal 2019.
On February 11, 2019, a fire and explosion occurred in the dryer area of Pinnacle's Entwistle production facility causing damage to the dryer and surrounding equipment (the "Entwistle Incident"). On March 29, 2019 Pinnacle resumed operations at the Entwistle facility at approximately 25-30% of production capacity with dry fibre. The Company plans to restart the dryer in the fourth quarter of Fiscal 2019. Pinnacle expects accelerated recommissioning of the Entwistle facility once the dryer area has restarted.
Capital costs and other expenses required to replace the dryer and restore the Entwistle facility are estimated to be $21.0 million to $25.0 million. Capital costs to replace the dryer area are estimated to be in the range of $13.0 million to $15.0 million, of which $2.2 million was reflected in construction in progress in property, plant and equipment as at March 29, 2019. Pinnacle expects substantially all of the capital replacement and expenses related to the Entwistle Incident to be recoverable through insurance.
As of March 29, 2019, Pinnacle has recognized $3.0 million of initial insurance proceeds (net of deductible) in accounts receivable on its balance sheet. Pinnacle is expecting to receive payment of this receivable in May 2019. The net income impact has been partially offset by the initial $3.0 million of insurance proceeds (net of deductibles) recorded in net income and in accounts receivable on the balance sheet as we expect to receive this amount in May 2019, which will positively impact free cash flow in Q2 2019.
Pinnacle expects to achieve strong execution in its strategic growth plan in 2019. The Company's Aliceville and Smithers facilities will contribute to 2019 production growth as they ramp up operations.
The financial outlook of the Entwistle facility is difficult to estimate at this time. As further information is obtained regarding the timeline for recommencement of the dryer area, including the amount of insurance recoveries to which Pinnacle is entitled, the Company will be in a better position to provide an update on its outlook for 2019. Although we expect to recommence operation of the dryer in Q4 2019, the Facility is not expected to provide a meaningful contribution in that quarter. Pinnacle remains confident that Entwistle will generate $19-$21 million in annual EBITDA when it achieves run-rate production.
Excluding all forecast contribution from the Entwistle facility for 2019, as well as any incremental costs or insurance recoveries relating to the Entwistle Incident, Pinnacle expects to achieve Adjusted EBITDA of $54 to $58 million for Fiscal 2019 (excluding the impact of the implementation of IFRS 16²).
The following table outlines the Company's guidance for Adjusted EBITDA¹, excluding the Entwistle Facility:
Adjusted EBITDA (incl. IFRS 16)
$62 - $66 million
Adjusted EBITDA (excl. IFRS 16)
$54 - $58 million
The Board of Directors today approved the payment of the Company's Q1 2019 dividend of $0.15 per Common Share. Payment will be made on May 28, 2019 to shareholders of record as at May 17, 2019.
Selected Consolidated Financial Information
The following tables set forth selected financial information for Q1 2019 compared to prior year periods. Such information has been derived from Pinnacle's unaudited interim consolidated financial statements and accompanying notes.
(In thousands except per share amounts)
Consolidated Statements of Profit (Loss) and Comprehensive Income (Loss) Data
Costs and expenses:
Selling, general and administration
Amortization of equipment and intangible assets
Profit (loss) before finance costs and other (income) expense
Other (income) expense
Net profit (loss) before income taxes
Income tax recovery (expense):
Net profit (loss) and comprehensive income (loss)
Net profit (loss) per share attributable to owners
Basic and diluted
Consolidated Statements of Cash Flows
Cash provided by (used in)
Operating activities before net change in non-cash operating working capital
Net change in non‑cash operating working capital
(In thousands except per MT amounts)
Other Financial Data
Adjusted EBITDA per MT(1)
Adjusted Gross Margin per MT(1)
Adjusted Gross Margin Percentage(1)
Maintenance capital expenditures
Growth capital expenditures
MT of industrial wood pellets sold
Selected Consolidated Statements of Financial Position Data
Property, plant and equipment
Total current liabilities
Total non-current liabilities
Pinnacle's unaudited consolidated financial statements and Management's Discussion & Analysis for Q1 2019 are available on the Company's website at pinnaclepellet.com or on SEDAR at www.sedar.com.
Robert McCurdy, CEO, Leroy Reitsma, President & COO, and Andrea Johnston, CFO, will host a conference call for investors and analysts on Thursday, May 9, 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: 458316 #. The replay will be available until May 16, 2019. The webcast will be archived following conclusion of the call.
Annual General Meeting
Pinnacle will hold its annual general meeting of shareholders on Tuesday, May 21, 2019 in the offices of McCarthy Tétrault LLP, located at 745 Thurlow Street, Suite 2400, in downtown Vancouver, B.C. The meeting will commence at 8:30 a.m. (PT).
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 nearly 109% of its production capacity through 2026.
(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 Q1 2019.
(2) IFRS 16 Implementation
Pinnacle adopted IFRS 16 Leases at the beginning of Fiscal 2019. IFRS 16 introduces a single, on-balance sheet accounting model for lessees. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. Right-to-use assets will be initially measured at cost, which includes the initial measurement of the lease liabilities and other costs, less lease incentives. Lease liabilities will initially be measured at the present value of future lease payments, and will subsequently be measured at amortized cost using the effective interest rate method. Pinnacle has elected to apply the modified retrospective approach upon adoption at December 29, 2018, measuring the right of use asset at an amount equal to the lease liability. The short-term and low-value recognition exemptions available under the standard was utilized, along with certain practical expedients. Accordingly, the comparative information presented for Fiscal 2018 has not been restated, i.e. it is presented, as previously reported, under IAS 17 and related interpretations. As a result of initially applying IFRS 16, in relation to the leases that were previously classified as operating leases, Pinnacle recognized $36.8 million of right-of-use assets and $36.8 million of lease liabilities as at December 29, 2018. Further, in relation to those leases under IFRS 16, Pinnacle has recognized depreciation and interest costs, instead of operating lease expense. During Q1 2019, the Company recognized $1.7 million of depreciation charges and $0.6 million of interest costs from these leases.
As a result of applying IFRS 16, Adjusted Gross Margin and Adjusted EBITDA for Q1 2019 have increased by $1.8 million related to lease payment expenses that were previously classified as operating leases under IAS 17. Also in relation to applying IFRS 16, Free Cash Flow for Q1 2019 has increased by $1.8 million related to lease payment expenses that were previously classified as operating leases under IAS 17, partially offset by a decrease of $0.6 million as interest and finance costs, net, include interest payment expense on capital leases under IFRS 16.
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 Q1 2019 available on SEDAR for a discussion of the uncertainties, risks and assumptions associated with these statements.
SOURCE Pinnacle Renewable Energy Inc.