Pinnacle Renewable Holdings Inc. (TSX: PL) A preliminary prospectus - - PowerPoint PPT Presentation

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

• f 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 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

• ffered, before making an investment decision.

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

1

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

• pportunity 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

• therwise, 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, 2018. 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, 2017.

2

Capital Market Profile

(millions of shares)

Common Shares Owned ¹ ONCAP Entities 10.4 Other Shareholders 1.4 Public Shareholders 19.5 Basic Shares Outstanding 31.3 Stock Options 1.7 Fully Diluted Shares Outstanding 33.0

Ownership Analyst Coverage

1. As at June 27, 2018

IPO issue price (February 6, 2018) $11.25 Recent closing price (June 27, 2018) $14.54 Market Capitalization ~$480 million Quarterly Dividend $0.15 / share

TSX: PL

3

British Columbia Alberta

Rail line Pellet Plant Expansion Facility Port Office Westview Houston Burns Lake Williams Lake Vancouver Richmond Armstrong Lavington Entwistle⁴ Meadowbank Prince George Smithers

Our mission is to be the world’s most reliable producer and supplier of bioenergy products

Our Company

7 production facilities, 1 facility in development and a wholly-owned port terminal $5.1 billion of contracted backlog under long-term contracts with large utilities Lowest quartile cost supplier Facility Network Management team that drives continuous improvements and delivers industry-leading safety

3rd largest industrial pellet producer in a rapidly growing global market

Annual capacity3 of approximately 1,947,000 MTPA and 2019E Adjusted EBITDA of $77 to $81 million

1. 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, 2018 for further detail).

(1)

(1)

(1) (2)

4

0.4 3 6 9.4 10.8 12.7 12.9 16 21 24 27 29 36

• 5

10 15 20 25 30 35 40 45 50 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E 2026E

Potential demand is significantly higher than current operating capacity

Global Industrial Wood Pellet Demand (millions of MT per annum)

Source: Hawkins Wright —The Outlook for Wood Pellets, No. 13, Quarter 3 2017.

• Potential demand for pellets is expected to more than double from 2016 to 2021
• European potential demand expected to be primary growth driver through 2021; Asia forecast to drive potential

demand growth beyond 2021, 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 18.6 million MTPA of additional production capacity

The industrial wood pellet industry is experiencing an extended period of rapid demand growth

20.9M MT Current Capacity

Industry Growth

Japan

5

Update on Contracts

• YTD 2018, we have entered into six new long-term supply agreements in Japan and South Korea totaling $2.3

billion, bringing the Company’s contracted backlog as at June 29, 2018 to $5.1 billion.

Addition of $2.3 billion to contracted backlog

Counterparty Annual Volume (MTPA) Start Year 70,000 Late 2019 170, 000 2021 30,000 Late Fiscal 2021 315, 000 2021 75,000 Early 2022 75,000 Late 2022

Strong progress in business development in Asia

6

Continued positive market momentum

Industry / Market Update

• Year-over-year demand growth as at December 2017 was up 15% in Europe, 42% in

South Korea, and 54% in Japan¹.

• 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 2018.

• 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 2018/2019.

• Japan’s government envisages that renewable sources could supply 22-24% of national

electricity supply by 2030, within which biomass could hold a 3.7-4.6% share. If this is realised, Japan will require approximately 20Mt/y of biomass (in pellet equivalent terms) ².

• In South Korea, the Renewable Portfolio Standard policy aims to increase the share of

energy generated from renewable sources to 10% by 2023. Looking further ahead, the government’s draft energy strategy for 2030 indicates that an additional 1GW of biomass power capacity may be needed².

• Pinnacle is currently negotiating with various counterparties to secure long-term take-
• r-pay contracts in Asia to meet growing demand.

1. Source: Hawkins Wright, January 2018 Forest Energy Monitor 2. Source: Hawkins Wright, April 2018 Asian Pacific Biomass

7

Investment Highlights

Leading Producer and Global Supplier of Bioenergy Products in a Rapidly Growing Global Market

1

Vertical Integration and Operational Efficiencies Result in an Attractive Cost Position

2

Long Term Contracted Revenue with Stable Free Cash Flow Characteristics

3

Proven Project Development Capabilities and Attractive Project Pipeline

4

Experienced Management Team Driving Operational Efficiencies

5

8

One of three global enterprise suppliers expected to supply approximately 33% of global demand by 2019

Leading Producer and Global Supplier of Bioenergy Products in a Rapidly Growing Global Market

1

Nameplate Production Capacity of Global Industrial Wood Pellet Suppliers

(2019, 000s of MT per annum) 1

We are one of only three global enterprise suppliers in a fragmented market



Major utilities demand reliable, long term supply from counterparties with established

• perational capabilities



Trusted supplier to the global utility market



Source: Hawkins Wright —The Outlook for Wood Pellets, No. 13, Quarter 3 2017, publicly available disclosure.

1 Nameplate capacity includes capacity under construction or financed for completion by 2019. 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.

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

• 1,200

2,400 3,600 Enviva Graanul Pinnacle Drax Biomass RWE (Georgia Biomass) FRAM Highland Pellets German Pellets (Texas) The Navigator Company Tanac SA (Brazil) Pacific BioEnergy Westervelt Zilkha Biomass Plantation Energy Global Enterprise Suppliers Captive Utility Suppliers Smaller Regional & Merchant Suppliers

Denotes capacity under construction

# of Facilities 7 12 8 3 1 3 1 1 1 1 1 1 1

3

Represents Entwistle and Smithers facilities

1

2

9 Vancouver Richmond Prince George Calgary Edmonton

Integrated network and scale create significant barriers to entry and position Pinnacle as a lowest quartile cost supplier to Europe and Asia

Pellet Facility Expansion Facility Port Office

Vertical Integration and Operational Efficiencies Result in an Attractive Cost Position

2

Strategically located production facilities

8 1 2 B 5 6 4 3 7

British Columbia Alberta

Fibreco 2 Entwistle Smithers1

8 7 B 1. Houston, Lavington and Smithers are partially owned facilities. 2. Pinnacle is not the owner of the Fibreco Terminal.

Westview

A

Houston1

1

Burns Lake

2

Williams Lake

4

Lavington1

5

Armstrong

6

Meadowbank

3

Illustrative Cost to Transport One GJ Energy 100 km Truck (Raw Fibre) $2.00 Rail (Pellets) $0.14 Sea (Pellets) $0.01

A

10

YTD 2018, $2.3 billion was added to the backlog Contracted Production Profile

3

Highly contracted revenue and backlog momentum

Long Term Contracted Revenue

• 109% of our production capacity is fully contracted through 2021 and nearly 101% through to 2026 (on an

aggregated basis) − Contracted backlog at $5.1bn as of June 29, 2018. This reflects an increase of 70% from contracted backlog of $3.0bn at the end of Fiscal 2017

• We continue to advance contract negotiations with additional counterparties focused on long-term supply

108% 106% 104% 117% 103% 98% 97% 91% 85% 23% 27% 27% 26% 26%

2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E Contracted Production Contracts Subject to Extension Option

11

Proven Project Development Capabilities and Attractive Project Pipeline

4

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.

1 Represents total cost of project (100% 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 $21 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 21, 2018 for further detail).

Key Project Facts

Completed (under budget) Commissioning Final Development Entwistle, AB

Capital Costs

• $92 million (4.4 to 4.8x Run-Rate EBITDA)

Run-Rate EBITDA

• $19 to $21 million

Status

• Production commenced in Q1 2018
• Full run-rate production expected in Q2

2019

Smithers, BC

Capital Costs

• $22 million3 (4.2 to 5.1x Run-Rate EBITDA)

Run-Rate EBITDA

• Approximately $4.5 to $5.0 million (our

share) Status

• Production commencement expected in Q4

2018

Lavington, BC

Capital Costs

• $43.7 million1 (Our share: $32.8 million2)

Run-Rate EBITDA Construction Multiple

• At the bottom end of our target range
• f 4.0 to 5.5x

Status

• Commissioned in Q4 2015
• Construction period of 10 months
• Safely completed under budget

1,373 210 230 72 230 380 300 400 125

• 200.0

LTM 2019E Annual Capacity

1,750 - 1,800 1,947 Historical & Forecast Tons Sold (000s MT)

Facility Year Operation Commenced or Acquired Smithers

Q4 18

Entwistle

Q1 18

Lavington

2015

Westview

2013

Burns Lake

2011

Meadowbank

2008

Armstrong

2007

Houston

2006

Williams Lake

2004

2017

Strong track record of successful project development

4

12

Experienced Management Team Driving Operational Efficiencies

5

Same-facility production growth of 18% from Fiscal 2014 to Fiscal 2017



Awards

“Owning safety” culture with > 90% MIR improvement since Fiscal 2014



Delivered significant growth projects on time and on budget, including Lavington and to-date progress with Entwistle



Revenue and Adjusted EBITDA CAGRs of 13% and 46% from Fiscal 2014 to Fiscal 2017



Contracted revenue backlog of $5.1 billion as at June 29, 2018



Exporter of the Year 2013 Export Award Manufacturing MVP Award 2016 Rob McCurdy Pacific Region 2017 Scott Bax Top 36 Most Influential Leaders in the Biomass Industry in 2016

Key accomplishments of the management team

13

Financial Review & Outlook

14

Q1 2018 Financial Review

(In thousands CAD)

Q1 2018

(13 weeks)

Q1 2017

(13 weeks)

Variance Revenue 71,022 67,847 4.7% Adjusted Gross Margin 14,909 14,619 2.0% Adjusted EBITDA 11,957 12,156 (1.6%) Free Cash Flow 9,003 9,296 (3.2%) Cash from operations¹ 9,490 10,954 (13.4%) Metric Tons sold 328,000 320,000

• On track to meet our target of $61-$65 million in Adjusted EBITDA for Fiscal 2018

1. Before net change in non-cash operating working capital

15

2017 Financial Review

Production1 (millions of MT per annum) Revenue (C$ millions) Adjusted Gross Margin (C$ millions) Adjusted EBITDA (C$ millions)

16

Capitalization

(C$ 000s)

• As at March 30, 2018

As at December 29, 2017

Cash and cash equivalents $32,525 $18,908 Debt Revolving loan

• $22,000

Term debt $188,9501 $190,8131 Shareholders’ debentures payable

• $88,8812

Common and Preferred Shares classified as liabilities

• $25,9923

Total Debt $188,950 $327,686 Net Debt $156,425 $308,778

1. The company negotiated amended credit facilities in December 2017 which provides for $200M in Term Debt. 2. The IPO was completed February 6, 2018. 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.

17

Significant Adjusted EBITDA Growth

Adjusted EBITDA Highlights and Growth Estimates (C$ millions) 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 $17 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

• f EBITDA from that production as a result of our existing off-take contracts.

Future growth will be generated by continued production expansion, cost efficiencies and increased pricing

$18 $34 $44 $56 $61-$65 $77-$81

2014 2015 2016 2017 2018E 2019E

18

Growth Strategy

19

Selecting logistically advantageous locations

2

Identified Growth Projects

Project Identification and Initial Evaluation 1.0 – 1.5 million MTPA Conceptual Design and Engineering 300,000 – 400,000 MTPA 3 Projects Final Development and Construction 525,000 MTPA Entwistle and Smithers Strategic Fit Financial Attractiveness Capacity to Execute Development Blueprint Development Funnel Qualifications Before a Capital Project is Undertaken Securing long term sales agreements for our production

• utput

1

Obtaining all permits and authorizations

4

Utilizing proven engineering, design, construction, and commissioning program

5

Securing a sustainable long term supply of wood fibre

3 Customer demand driving development funnel 1 2 3

20

Significant room to grow

Future Growth

BC AB QC GA AL MS LA TX OR WA SC NC NL NB NS PEI FL

Satisfy end market demand



Leverage development and

• perational expertise



Enhance geographic, customer and wood fibre supply diversity



• 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

Proven ability to exploit growth opportunities

Support fibre suppliers

