Pinnacle Renewable Holdings Inc. (TSX: PL) is the parent company of operating company Pinnacle Renewable Energy Inc. (“Pinnacle” or “the Company”). Pinnacle is one of the world’s leading manufacturers and distributors of industrial wood pellets, which are used by global utilities and large-scale power generators as a fuel to produce renewable and reliable baseload power. The Company currently operates seven wood pellet production facilities throughout western Canada that process a wide range of wood fibre (primarily forest product residuals) sourced from forestry industry partners that harvest from sustainably certified forests. Pinnacle’s production facilities are all located on major rail lines allowing for efficient rail transport to one of two shipping terminals on the B.C. coast: Pinnacle’s wholly-owned Westview terminal in Prince Rupert, and the Fibreco Terminal at the Port of Vancouver. The Company takes pride in its industry leading health and safety practices. Pinnacle has entered into long-term take-or-pay contracts with utilities in the UK, Europe and Asia that represent 109% of its production capacity through 2021 and nearly 101% of production capacity through 2026.
Pinnacle is the world’s third largest producer of industrial wood pellets. With seven production facilities and a large industrial port terminal on the Pacific Coast of North America, Pinnacle is one of the only wood pellet suppliers with the scale and capability to serve major global utilities. Pinnacle is a trusted supplier of these utilities, which are expected to drive future growth in demand. Hawkins Wright, a leading, independent industry research body, forecasts that demand for industrial wood pellets will have a compound annual growth rate of 17.7% from 2016 through 2021.
Pinnacle has established vertically-integrated operations throughout the western Canadian fibre basket from wood fibre procurement contracts through to shipping contracts with reputable shippers. Pinnacle’s operating flexibility, strategically located production facilities, terminal operations and constant focus on operational efficiency combine to create a cost advantage relative to competitors. The Company is a lowest-quartile cost supplier to rapidly growing markets in both Europe and Asia.
Pinnacle has signed long-term, take-or-pay contracts with major utilities and power generators that represent 109% of its production capacity through 2021 and nearly 101% of production capacity through 2026, resulting in highly predictable cash flows. As at June 29, 2018, the Company’s contracted backlog was $5.1 billion, an increase of 70% from $3.0 billion in contracted backlog at the end of Fiscal 2017. Year-to-date in 2018, Pinnacle has entered into six new long-term supply agreements totalling approximately 735,000 metric tons per annum in Japan and South Korea.
Pinnacle has established a strong track record of developing, constructing, commissioning and operating new production facilities, and expanding / converting existing production facilities, on-time and on-budget. The Company’s most recent production facility development – Lavington – was completed in just 10 months, which was ahead of schedule, and capital costs were at the bottom end of the Company’s 4.0 x to 5.5 x capital cost to run-rate EBITDA target range. Pinnacle’s Entwistle production facility began commissioning in Q1 2018 and its Smithers production facility will commence production in Q4 2018, providing significant production growth. Several additional project development opportunities are currently being evaluated by Pinnacle.
Pinnacle’s financial performance has improved significantly since Fiscal 2014, with growth in profitability exceeding top-line growth due to increased scale. Adjusted EBITDA has increased at a compound annual growth rate (CAGR) of 46% since Fiscal 2014, Adjusted Gross Margin has increased at a 35% CAGR, and Revenue has increased at a 13% CAGR (to year-end 2017).
Pinnacle’s management team has a combined 35 years of experience in the wood pellet industry and more than 125 years of experience in the industrial sector. The team has a track record of driving growth in production, productivity, and profitability while maintaining industry-leading safety standards.
Based on current and near-term production capacity, Pinnacle expects to achieve 27% to 31% growth in the volume of wood pellets it sells by the end of Fiscal 2019, resulting in incremental Adjusted EBITDA of between $77 million and $81 million. The Company has identified and intends to pursue several new market development opportunities in geographies such as Eastern Canada, the U.S. Southeast, the U.S. Pacific Northwest, and Western Canada.
Each of our production facilities is located in close proximity to key fibre suppliers throughout B.C. and they are all located on major rail lines, ensuring efficient bulk transport of our wood pellets to one of two shipping terminals.