Pinnacle Renewable Holdings Inc. (TSX: PL) Investor Presentation, May 2018

Transcription

1 Pinnacle Renewable Holdings Inc. (TSX: PL) A preliminary prospectus and an amended and restated preliminary prospectus containing important information relating to the securities described in this presentation has been filed with the securities regulatory authorities in each of the provinces and territories of Canada. A copy of the amended and restated preliminary prospectus, and any amendment, is required to be delivered with this presentation. The amended and restated preliminary prospectus is still subject to completion. There will not be any sale or any acceptance of an offer buy the securities until a receipt for the final prospectus has been issued. This presentation does not provide full disclosure of all material facts relating to the securities offered. Investors should read the amended and restated preliminary prospectus and the final prospectus and any amendment for disclosure of those facts, especially risk factors relating to the securities Investor Presentation, May 208 offered, before making an investment decision.

2 Disclaimer FORWARD-LOOKING INFORMATION This presentation 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, forwardlooking 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 on SEDAR on March 27, 208. 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 AIF filed on SEDAR for a discussion of the uncertainties, risks and assumptions associated with these statements. NON-IFRS MEASURES This presentation 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 fourth quarter and year ended December 29, 207.

3 Capital Market Profile TSX: PL IPO issue price (February 6, 208) $.25 Recent closing price (May 3, 208) $4. Market Capitalization ~$465 million Quarterly Dividend $0.5 / share Ownership (millions of shares) Common Shares Owned ¹ ONCAP Entities 4. Other Shareholders.9 IPO Shareholders 5.3 Basic Shares Outstanding 3.3 Stock Options.7 Fully Diluted Shares Outstanding 33.0 Analyst Coverage. As at May 5, 208 2

4 Our Company 3 rd largest industrial pellet producer in a rapidly growing global market 7 production facilities, facility in development and a wholly-owned port terminal $3.8 billion of contracted backlog under long-term contracts with large utilities Lowest quartile cost supplier Annual capacity 3 of approximately,947,000 MTPA and 209E Adjusted EBITDA of $77 to $8 million Westview Rail line Pellet Plant Expansion Facility Port Office British Columbia Alberta Smithers Facility Network () Houston Prince George Burns Lake Meadowbank Entwistle⁴ Williams Lake Armstrong Vancouver (2) Richmond () Lavington () Management team that drives continuous improvements and delivers industry-leading safety. The Houston Facility, Lavington Facility and Smithers Facility are partially-owned facilities. 2. Pinnacle is not the owner of the Fibreco Terminal. 3. Includes wholly-owned, partially-owned and in-development facilities (please refer to the Annual Information Form filed March 27, 208 for further detail). 4. Commissioning of the new Entwistle Facility expected to be completed in Q2 208 Our mission is to be the world s most reliable producer and supplier of bioenergy products 3

5 Industry Growth The industrial wood pellet industry is experiencing an extended period of rapid demand growth Potential demand for pellets is expected to more than double from 206 to 202 European potential demand expected to be primary growth driver through 202; Asia forecast to drive potential demand growth beyond 202, largely driven by Japan By 2026, Hawkins Wright believes that global production capacity of pellets will need to almost double to meet expected potential demand, requiring 8.6 million MTPA of additional production capacity Global Industrial Wood Pellet Demand (millions of MT per annum) Japan M MT Current Capacity 5-203A 204A 205A 206A 207E 208E 209E 2020E 202E 2026E Source: Hawkins Wright The Outlook for Wood Pellets, No. 3, Quarter Potential demand is significantly higher than current operating capacity 4

6 Update on Contracts Addition of $800 million to contracted backlog YTD 208, we have entered into four new long-term supply agreements in Japan totaling $800 million, bringing the Company s contracted backlog as at May 22, 208 to $3.8 billion. Pinnacle expects to increase capacity at its existing facilities through its continuous improvement programs. The Company also now expects to expand its production capacity by advancing development of greenfield and brownfield production facilities. Pinnacle may also partially fulfill new contracted volumes through facility acquisition. Counterparty Annual Volume (MTPA) Start Year 70,000 Late ,000 Late Fiscal ,000 Early ,000 Late 2022 Strong progress in business development in Japan 5

7 Industry / Market Update Year-over-year demand growth as at December 207 was up 5% in Europe, 42% in South Korea, and 54% in Japan¹. European Parliament accepted the Renewable Energy Directive, which calls for a renewable energy target of 35% for EU members. Efforts to convert existing power generating units in the Netherlands to utilize wood pellets by Uniper SE and RWE AG, two of Europe s largest power generators and energy traders, remain on schedule. Both units are expected to commission during 208. Drax received subsidy support for its fourth generating unit in the U.K., allowing Drax to utilize wood pellets more continuously and at a slightly elevated overall level starting in 208/209. The Engie plant at Rodenhuize, Belgium re-started in Q 208, offsetting the effect of the delayed start of the Lynemouth power station in the U.K. Pinnacle is currently negotiating with various counterparties to secure long-term take-or-pay contracts in Asia to meet growing demand.. Source: Hawkins Wright, January 208 Forest Energy Monitor Continued positive market momentum 6

8 Investment Highlights Leading Producer and Global Supplier of Bioenergy Products in a Rapidly Growing Global Market 2 Vertical Integration and Operational Efficiencies Result in an Attractive Cost Position 3 Long Term Contracted Revenue with Stable Free Cash Flow Characteristics 4 Proven Project Development Capabilities and Attractive Project Pipeline 5 Experienced Management Team Driving Operational Efficiencies 7

9 Leading Producer and Global Supplier of Bioenergy Products in a Rapidly Growing Global Market Industry consolidating around three global suppliers with scale and capabilities required to service major global utilities Growth in potential demand expected to be driven by major utilities, concentrating procurement around global enterprise suppliers Nameplate Production Capacity of Global Industrial Wood Pellet Suppliers (209, 000s of MT per annum) We are one of only three global enterprise suppliers in a fragmented market Global Enterprise Suppliers 2 Enviva 3 Graanul Pinnacle -,200 2,400 3,600 # of Facilities Major utilities demand reliable, long term supply from counterparties with established operational capabilities Trusted supplier to the global utility market Captive Utility Suppliers Drax Biomass RWE (Georgia Biomass) FRAM Highland Pellets German Pellets (Texas) Smaller The Navigator Company Regional & Tanac SA (Brazil) Merchant Suppliers Pacific BioEnergy Westervelt Zilkha Biomass Plantation Energy Source: Hawkins Wright The Outlook for Wood Pellets, No. 3, Quarter 3 207, publicly available disclosure. Nameplate capacity includes capacity under construction or financed for completion by 209. Entwistle and Smithers facilities Represents 2 Excludes capacity associated with Enviva s pending acquisition of The Navigator Company s Greenwood Facility (460,000 MTPA). 3 Companies provide pellets for industrial & heating end markets. 3 3 Denotes capacity under construction One of three global enterprise suppliers expected to supply approximately 33% of global demand by 209 8

10 2 Vertical Integration and Operational Efficiencies Result in an Attractive Cost Position Strategically located production facilities Pellet Facility Expansion Facility Port Office Houston 2 Burns Lake 3 Meadowbank 4 Williams Lake 5 Lavington 6 Armstrong A Westview British Columbia Alberta Illustrative Cost to Transport One GJ Energy 00 km 7 Entwistle Truck (Raw Fibre) $2.00 Rail (Pellets) $0.4 B Fibreco 2 A 8 2 Prince George 3 7 Sea (Pellets) $0.0 Edmonton 8 Smithers 4. Houston, Lavington and Smithers are partially owned facilities. 2. Pinnacle is not the owner of the Fibreco Terminal. Vancouver B Richmond 6 5 Calgary Integrated network and scale create significant barriers to entry and position Pinnacle as a lowest quartile cost supplier to Europe and Asia 9

11 3 Long Term Contracted Revenue Highly contracted revenue and backlog momentum 04% of our production capacity is fully contracted through 202 and nearly 87% through to 2026 (on an aggregated basis) Contracted backlog at $3.8bn as of May 22, 208. This reflects an increase of 26.7% from contracted backlog of $3.0bn at the end of Fiscal 207 We continue to advance contract negotiations with additional counterparties focused on long-term supply Contracted Production Profile 23% 27% 27% 26% % 7% 26% 08% 06% 04% 00% 79% 74% 73% 73% 67% 208E 209E 2020E 202E 2022E 2023E 2024E 2025E 2026E Contracted Production Contracts Subject to Extension Option Uncontracted Production YTD 208, $800 million was added to the backlog 0

12 Completed (under budget) Commissioning Final Development 2,000.0,800.0,600.0,400.0,200.0, Proven Project Development Capabilities and Attractive Project Pipeline Lavington, BC Key Project Facts Capital Costs $43.7 million (Our share: $32.8 million 2 ) Run-Rate EBITDA Construction Multiple At the bottom end of our target range of 4.0 to 5.5x Historical & Forecast Tons Sold (000s MT),750 -,800, Facility Year Operation Commenced or Acquired Smithers Q4 8 Status Entwistle, AB Capital Costs $92 million (4.4 to 4.8x Run-Rate EBITDA) Run-Rate EBITDA $9 to $2 million Status Smithers, BC Production commenced in Q 208 Full run-rate production expected in Q2 209 Capital Costs $22 million 3 (4.2 to 5.x Run-Rate EBITDA) Run-Rate EBITDA Status Commissioned in Q4 205 Construction period of 0 months Safely completed under budget Approximately $4.5 to $5.0 million (our share) Production commencement expected in Q4 208,373 Note: Run-Rate EBITDA is the incremental annual earnings, before depreciation and amortization, finance expense and provision for income taxes, the Company expects to generate from the project. 207 Represents total cost of project (00% share). 2 Represents Pinnacle s proportionate share of Lavington project cost (75% share, remaining 25% owned by Tolko). 3 Represents Pinnacle s proportionate share of the midpoint of Smithers project cost estimate of $2 to $23 million (70% share, remaining 30% owned by West Fraser). 4 Includes wholly-owned, partially-owned and in-development facilities (please refer to the Annual Information Form dated March 2, 208 for further detail) LTM 209E Annual Capacity Strong track record of successful project development 4 Entwistle Q 8 Lavington 205 Westview 203 Burns Lake 20 Meadowbank 2008 Armstrong 2007 Houston 2006 Williams Lake 2004

13 5 Experienced Management Team Driving Operational Efficiencies Key accomplishments of the management team Same-facility production growth of 8% from Fiscal 204 to Fiscal 207 Owning safety culture with > 90% MIR improvement since Fiscal 204 Delivered significant growth projects on time and on budget, including Lavington and to-date progress with Entwistle Revenue and Adjusted EBITDA CAGRs of 3% and 46% from Fiscal 204 to Fiscal 207 Contracted revenue backlog of $3.8 billion as at May 22, 208 Awards Exporter of the Year 203 Export Award Rob McCurdy Pacific Region 207 Manufacturing MVP Award 206 Scott Bax Top 36 Most Influential Leaders in the Biomass Industry in 206 2

14 Financial Review & Outlook 3

15 Q 208 Financial Review (In thousands CAD) Q 208 (3 weeks) Q 207 (3 weeks) Variance Revenue 7,022 67, % Adjusted Gross Margin 4,909 4,69 2.0% Adjusted EBITDA,957 2,56 (.6%) Free Cash Flow 9,003 9,296 (3.2%) Cash from operations¹ 9,490 0,954 (3.4%) Metric Tons sold 328, , Before net change in non-cash operating working capital On track to meet our target of $6-$65 million in Adjusted EBITDA for Fiscal 208 4

16 207 Financial Review Production (millions of MT per annum) Revenue (C$ millions) Adjusted Gross Margin (C$ millions) Adjusted EBITDA (C$ millions) 5

17 Capitalization (C$ 000s) As at March 30, 208 As at December 29, 207 Cash and cash equivalents $32,525 $8,908 Debt Revolving loan - $22,000 Term debt $88,950 $90,83 Shareholders debentures payable - $88,88 2 Common and Preferred Shares classified as liabilities - $25,992 3 Total Debt $88,950 $327,686 Net Debt $56,425 $308, Adjusted EBITDA - $56,2 4 Debt / 207 Adjusted EBITDA - 5.8x 4 Net Debt / 207 Adjusted EBITDA - 5.5x 4. The company negotiated amended credit facilities in December 207 which provides for $200M in Term Debt. 2. The IPO was completed February 6, 208. Shareholders debentures payable were retired with proceeds received from the Offering. 3. All shares previously classified as liabilities were converted to Commons Shares upon IPO closing. 4. Pinnacle is not a public company in 207 6

18 Significant Adjusted EBITDA Growth Growth Drivers: Incremental EBITDA of approximately $7 million driven by a higher average FOB sales price on all volumes in accordance with the terms of our existing off-take contracts and increased production; Approximately 337,000 MT of additional production from new Entwistle Facility, and approximately $7 million of EBITDA from that production as a result of our existing off-take contracts; and Approximately 89,000 MT of additional production from new Smithers Facility, and approximately $4 million of EBITDA from that production as a result of our existing off-take contracts. Adjusted EBITDA Highlights and Growth Estimates (C$ millions) $77-$8 $56 $6-$65 $34 $44 $ E 209E Future growth will be generated by continued production expansion, cost efficiencies and increased pricing 7

19 Growth Strategy 8

20 Strategic Fit Financial Attractiveness Capacity to Execute Identified Growth Projects Customer demand driving development funnel Qualifications Before a Capital Project is Undertaken Development Blueprint Development Funnel Securing long term sales agreements for our production output Project Identification and Initial Evaluation 2 3 Selecting logistically advantageous locations Securing a sustainable long term supply of wood fibre million MTPA Conceptual Design and Engineering 300, ,000 MTPA 3 Projects 4 Obtaining all permits and authorizations 3 Final Development and Construction 5 Utilizing proven engineering, design, construction, and commissioning program 525,000 MTPA Entwistle and Smithers 9

21 Future Growth Proven ability to exploit growth opportunities We have identified and intend to pursue several new production development opportunities in geographies such as Western Canada, Eastern Canada, U.S. Southeast, and the U.S. Pacific Northwest Strategic acquisition targets are assessed based on the quality of the asset, price and ability to integrate within our network of production facilities Satisfy end market demand Support fibre suppliers BC AB QC NL WA OR PEI NB NS Leverage development and operational expertise TX MS LA AL NC SC GA FL Enhance geographic, customer and wood fibre supply diversity Significant room to grow 20