Pinnacle on track to meet 2018 fiscal target

“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 Pinnacle CEO Robert McCurdy in a news release.

“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,” he said.

Pinnacle’s reported revenue for Q2 2018 totalled $85.1 million, an increase of 22.3 percent 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 per cent to approximately 385,000 MT in Q2 2018, compared to approximately 332,000 MT in Q2 2017.

Adjusted earnings before interest, taxes, depreciation and amortization was $14.9 million in Q2 2018, compared with $14.4 million in Q2 2017. Higher production and selling, general and administrative expenses were offset by increased revenue.

Pinnacle signed new long-term contracts totalling $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 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 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 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 per cent 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 per cent between 2013-2017, reaching 2.5 million MT.

Executive appointment
Pinnacle announced 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. Mr. Sangra earned his J.D. from the University of Toronto and holds a B.A. from the University of British Columbia.