Pinnacle Renewable Energy 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 to buy the securities until a receipt for the final prospectus has been issued. This presentation does not provide full disclosure of all material facts Q2 2019 Earnings Conference Call: August 13, 2019 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 offered, before making an investment decision.
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, 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. 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 second quarter ended June 28, 2019. 1
Speakers 2
Highlights from Q2 2019 3
Q2 2019 Highlights 478,000 MT sold in Q2 2019 with Revenue up 22% from Q2 2018 $6.9 billion backlog by the end New customer contract signed with GS Global (100,000 MTPA in 2022) , and following Q2 with Mitsubishi (up to 120,000 MTPA in 2021) of Q2 2019 New facility construction in High Level, Alberta in partnership 170,000 to 200,000 MTPA with Tolko expected Optimizing production flows Fibre sourcing challenges due to BC curtailments Aliceville and Smithers facilities achieving production levels Positive 2019 Adjusted EBITDA above the commissioning curve Contribution Combined production increase Williams Lake and Meadowbank upgrades commenced of 80,000 MTPA Rate and service stability for Five-year rail rate agreement signed with CN Western Canada operations Currently operating at 25-30% Entwistle on target to restart in Q4 2019 capacity 4
Financial Summary and Outlook 5
Q2 2019 Financial Review Q2 2019 Q2 2018 ($millions, except for %) (13 weeks) (13 weeks) Revenue 104.2 85.1 Production Costs 69.9 53.9 Distribution Costs 13.0 13.1 SG&A Expenses 5.1 4.3 Net profit 2.4 6.5 Adjusted Gross Margin 21.2 18.1 Adjusted Gross Margin (excluding IFRS 16 and Entwistle impact) 17.6 18.1 Adjusted Gross Margin % 20% 21% Adjusted EBITDA 16.1 14.9 Adjusted EBITDA (excluding IFRS 16 and Entwistle impact) 13.6 14.9 Free cash flow 7.2 10.0 Free Cash Flow (excluding IFRS 16 and Entwistle impact) 8.2 10.0 • 22.4% revenue growth over Q2 2018 due to higher sales volumes • Financial results impacted by Entwistle incident and fibre supply constraints 6
Entwistle Production Facility Q2 2019 Update • Entwistle Incident – Resumed production in March at 25-30% capacity using dry fibre – Working with customers and partners to mitigate impact – Plan to restart the dryer in Q4 2019 on schedule – Concurrently installing a destoner to enable improved fibre flow and quality, while reducing future downtime. • Restoration Costs – Capital asset costs to replace the dryer and restore the facility estimated at $13-$15 million, with $5.2 million incurred YTD – Other costs estimated at $8-$10 million with $5.8 million incurred YTD, and remainder to be incurred through year-end • Insurance Proceeds – All capital and operational costs expected to be recoverable under insurance policies, net of deductibles – Capital: $8 million recognized as of end of Q2 2019 – $5 million in Q2 2019 will positively impact Q3 cashflow – Business interruption: $4.5 million recognized in Q2 2019 will positively impact Q3 cashflow 7
Outlook & Strategic Plan 2019 Outlook Permanent curtailments have low level impact on Pinnacle • BC lumber curtailments have resulted in fibre and production cost increases • Entwistle repairs continue as we return the plant to its commissioning curve, on schedule for Q4 2019, with minimal contribution expected in the quarter Strategic Plan 1 No direct impact but closure tightens supply in Prince George region 2 Closure of Norbord 100 Mile sawmill created more fibre availability for the area 3 Closure of Quest was expected. Quest is • Successful completion of three new customer contracts in 2019 not a supply mill to Pinnacle • Williams Lake and Meadowbank expansions underway • Construction of the High Level facility to commence in Q3 2019 • Fibre procurement team successfully replacing sawmill residual reductions and continue improving fibre processing, haulage and cash conversion costs 8
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