Pinnacle Renewable Energy reports revenue growth, warns of COVID-19 impact
Despite the coronavirus pandemic putting a strain on the lumber industry in British Columbia and several issues reported in Q1, Pinnacle reported increases in revenue and production. However, the company warned of potential impacts to its fibre supply and costs in the coming months.
Pinnacle reported revenue of $109.7 million (€72.1 million) in Q1 2020 compared to $89.6 million (€58.8 million) of revenue in the 13-week period ending 29 March 2019. Production costs were $86.1 million (€56.5 million) for Q1 2020, an increase of $19 million (€12.4 million) or 28.3% compared to the $67.1 million (€44.1 million) for Q1 2019.
Despite the overall positive financial results, Pinnacle highlighted some challenges experienced in Q1. The firm said sales in the first quarter included a “significant volume” of high-cost finished pellet inventory from year end, and third-party purchased pellets with no margin, which were used to fulfil customer obligations due to production shortfall as a result of the Entwistle incident – a fire and explosion in February 2019 that damage the dryer facilities.
In January, derailment in BC damaged Pinnacle leased railcars and resulted in some lost pellets, while severe cold weather disrupted rail supplies and resulted in some facility downtime. CN Rail disruptions resulted in around 20,000 metric tonnes (MT) of lost production, with a $2.1 million (€13.8 million) EBITDA impact.
Pinnacle’s Aliceville facility was also down for five days during flooding at the facility’s dock. The firm’s adjusted gross margin was negatively impacted due to the prolonged pellet storage on barges during the flooding.
In Q1 2020, Pinnacle sold 510,000 MT of industrial wood pellets compared to 402,000 MT in the same period last year. The firm said production at its Entwistle facility exceeded expectations in Q1 since recommissioning the dryer system following the 2019 fire.
Rob McCurdy, CEO of Pinnacle, said: “With little foresight on how and when the COVID-19 pandemic will come to an end, management and the board made the difficult but prudent decision to reduce the dividend during this period.
“We have not seen a change in demand for industrial wood pellets and have strength with our long-term take-or-pay contracts supporting the company; however, the lumber industry, particularly in British Columbia, is under pressure as the economy continues under stress, and this in turn will impact our fibre supply and increase our costs.”
In terms of new projects, ground was broken at its new industrial wood pellet production facility in the southeast US – the Demopolis facility – in Q1. Commissioning the new facility with initial industrial wood pellet production is expected in Q2 2021 and is expected to produce 360,000 MTPA. Pinnacle also resumed construction of its High Level facility as planned in March 2020 with the arrival of improved weather conditions. The High Level facility is on track and expected to be completed in Q4 2020, producing 200,000 MTPA.