positioned for growth - transalta · 2017-07-28 · strategic initiatives since 2012 – realigned...

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Business Review & Outlook

Positioned for Growth

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This presentation may contain forward looking statements, including statements regarding the business and anticipated financial performance

of TransAlta Corporation in 2014, 2015 and subsequent years. All forward looking statements are based on our beliefs and assumptions based

on information available at the time the assumptions were made and on management’s experience and perception of historical trends, current

conditions and expected future developments, and other factors deemed appropriate in the circumstances. These statements are not

guarantees of our future performance and are subject to a number of risks and uncertainties that may cause actual results to differ materially

from those contemplated by the forward looking statements. In particular, this presentation contains forward looking statements pertaining to,

among other things: expectations relating to the timing of the completion and commissioning of projects under development and their attendant

costs; our estimated spend on growth and sustaining capital and productivity projects; expectations in terms of the cost of operations, capital

spend and maintenance; expectations in respect of future electricity prices and the impact of natural gas prices on electricity prices; the impact

of certain hedges on future reported earnings and cash flows; expectations related to future earnings, cash flow and funds from operations;

expectations for demand for electricity in both the short-term and the long-term and the resulting impact on electricity prices; expected impacts

of load growth on electricity supply and the development of additional generation; expectations in respect of generation availability, capacity

and production; expected financing of our capital expenditures; expected governmental regulatory regimes and legislation and their anticipated

impact on us; our trading strategy and the expected results from our trading activities; and expectations in respect to the global economic

environment. Factors that may adversely impact our forward looking statements include risks relating to, among other things: fluctuations in

market prices and availability of fuel supplies required to generate electricity and in the price of electricity; the regulatory and political

environments in the jurisdictions in which we operate; environmental requirements and changes in, or liabilities under, these requirements;

changes in general economic conditions including interest rates; operational risks involving our facilities, including unplanned outages at such

facilities; disruptions in the transmission and distribution of electricity; effects of weather; disruptions in the source of fuels, water, or wind

required to operate our facilities; natural disasters; the threat of domestic terrorism and cyber-attacks; equipment failure; energy trading risks;

industry risk and competition; fluctuations in the value of foreign currencies and foreign political risks; the need for additional financing

counterparty credit risk; insurance coverage; reliance on key personnel; labour relations matters; and risks associated with development

projects and acquisitions. The foregoing risk factors, among others, are described in further detail in the Risk Management section of our 2013

annual MD&A and under the heading “Risk Factors” in our 2014 Annual Information Form.

Except to the extent required by law, we assume no obligation to publicly update or revise any forward looking statements, whether as a result

of new information, future events or otherwise. All forward looking statements in this presentation are expressly qualified in their entirety by

these cautionary statements. For information on our risks please refer to our 2014 Annual Information Form which has been filed on SEDAR

and can be accessed at www.sedar.com.

Unless otherwise specified, all dollar amounts are expressed in Canadian dollars.

This presentation may contain references to comparable earnings comparable earnings per share, comparable EBITDA, funds from

operations, and funds from operations per share which are not defined under IFRS. Refer to the Non-IFRS financial measures section of

TransAlta’s 2013 annual MD&A for an explanation and, where applicable, reconciliations to net earnings attributable to common shareholders

and cash flow from operating activities. The presentation may also contain references to gross margin and operating income, which are

Additional IFRS measures. Please refer to the Additional IFRS measures section of the MD&A.

Forward Looking Statements

http://www.sedar.com/

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Agenda

Strategic & Financial Objectives and Initiatives

2013 Year in Review

2014 Key Priorities and Outlook

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Strategic & Financial Objectives

And Initiatives

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Action Benefit

Sale of CE Generation for

U.S.$193.5 million

Dividend re-sized to $0.72

per share annually to align

with the Company’s

business objectives

Provides an attractive and

sustainable dividend

Improves the credit metrics and

balance sheet

Increases cash flow per share

Generates an additional $120

million per year in free cash flow

Today’s Announcements

Ability to Execute our Growth Strategy is Enhanced

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Objectives for driving long-term value for shareholders

Deliver Sustainable Dividend and Maintain

Financial Strength

Attractive and sustainable dividend

Competitive payout ratio with excess cash flow for growth

Strong balance sheet and investment grade credit ratings

Access to multiple sources of capital

Optimize base business

Re-contract to stabilize cash

flows and extend asset life

Continuously manage operating

and fuel costs

Maintain strong availability across

the fleet

Prudently and rigorously manage

sustaining capital expenditures

Position the Canadian coal fleet

to capture significant upside post

PPA

Invest in profitable growth

Growth through acquisitions and

greenfield

Disciplined returns and leverage

Target markets with strong

fundamentals and growth

opportunities

Focus on gas and renewable

generation – targeting primarily

contracted opportunities

Positioned For Growth & Value Creation

Integrated

Approach

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Strategic Initiatives since 2012

– Realigned Centralia’s cost structure to lower market prices

– Invested or announced ~$730 million in growth delivering ~$80 million per year in

EBITDA

– Created TransAlta Renewables Inc. as a competitive growth vehicle

– Re-contracted ~835 MW of capacity under long-term agreements and expanded

C&I Energy Services business

– Reduced corporate costs by $25 - $30 million

Today’s Initiatives

– Sale of CEGen for US$193.5 million, enhancing the balance sheet for growth

– Aligned dividend to the Company’s growth and financial objectives, increasing free

cash flow by ~$120 million/year

Executing the Strategy

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Initiatives Since 2012

Improvements across several parts of the company more than offset reductions from

US Coal, due to lower prices, and from Canadian Coal, due to higher unplanned

outages and penalties

$600

$700

$800

$900

$1,000

$1,100

$1,200

2012EBITDA

US Coal CDN Coal Gas &Renewables(excluding

growth)

Trading Corporate Growth 2013EBITDA

Under

Performance

"Back to

Basics" Restructuring

New

Richmond /

Solomon

Low

Prices

$M Comparable EBITDA

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Sale of CE Generation and Aligning Dividend

Increase in financial strength and cash

flow for growth

Ensure a strong balance sheet and

investment grade ratings throughout the

commodity cycle and to fund growth

$1.16

$0.72

Previous Revised

Enhancing our ability to Grow

Initiatives accretive to cash flow per share

Significant improvement in credit metrics

~$200 million of proceeds from CE Gen sale

~$120 million of incremental cash flow

annually from revised dividend

Attractive & Sustainable Dividend¹

Enhanced Financial Strength

¹ Assumes 50% debt treatment of preferred shares

¹ Annualized level. Dividend declared and paid quarterly.

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Strong Near and Long-term Cash Flows

Dividend and payout

ratio aligned to

business objectives,

generating

significant excess

cash flow

Significant increase in

cash flows once Alberta

legislated PPAs expire

¹Illustrative representation of estimated average EBITDA over period. Actual EBITDA could vary from those shown due to a

number of factors

$ millions

FFO Range 750$ 775$ 800$ 825$

Sustaining Capital¹ (350)$ (350)$ (350)$ (350)$

Pfd Share/Other Distributions (100)$ (100)$ (100)$ (100)$

Free Cash Flow (FCF) 300$ 325$ 350$ 375$

Common Share Dividends (194)$ (194)$ (194)$ (194)$

Excess Cash Flow 106$ 131$ 156$ 181$

Dividend/FCF Payout Ratio 65% 60% 56% 52%

¹ Average sustaining capital over a three year cycle

Range of Potential Cash Flows

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2008 2009 2010

2011 2013 2012 2014

694 MW

Canadian Hydro

80 MW

Kent Hills 123 MW

Ardenville / Kent Hills 2 19 MW

Bone Creek

450 MW

Keephills 3

125 MW

Solomon

68 MW

New Richmond

2011

132 MW

Summerview 2 / Blue Trail

2010

144 MW

Wyoming Wind

Disciplined growth with a focus on contracted assets

TransAlta’s 5-Year Growth Track Record

~ 1,800 MW added in our core markets over 5 years1

¹Indicative illustration based on annualized EBITDA contributions.

Western Australia

Natural Gas Pipeline

Wyoming Wind

begins contributing

in 2014

Australia pipeline

begins contributing

in 2015

2015

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Positioned for Growth

TransAlta has flexibility to deliver growth using two strong companies

Lower payout ratio at TransAlta and significant post Alberta PPA cash flows supports

re-investment in growth and strong balance sheet

TransAlta Renewables Inc. well positioned to grow, creating value for both sets of

shareholders

• Moderate payout ratio

• Moderate – High Growth

• Higher payout ratio

• Low – Moderate Growth

• Risk Profile:

• Development risk

• Construction risk

• Operating and resource risks

• Mix of contracted & merchant

price risk

• Trading

• Risk Profile:

• No material development and

construction risks

• Operating and resource risks

• Predominately contracted

• Relatively stable and predictable

sustaining capital

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Attractive Valuation

Metrics Relative to Comparable Companies

TEV/2014E EBITDA

Dividend Yield²

Competitive Dividend Yield

¹ Debt does not include preferred shares 2 For TransAlta, based on a 10-day weighted average share price of $14.63

Debt¹/2014E EBITDA

Balance Sheet Strength 0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0xTA Corp TA Renewables Other Companies

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

8.0x

9.0x

10.0xTA Corp TA Renewables Other Companies

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%TA Corp TA Renewables Other Companies

Previous

Revised

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2013 Year in Review

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• 10-year power contract at Southern

Cross in Australia

• 20-year power contract at Ottawa

• 11-year power contract at Centralia

• 24-year power contracts at CE Gen

• 640 MW C&I Energy Services

contracts

• Created TA Renewables

• Full contribution of $318 mm

Solomon gas generation facility

• Commissioned $212 mm 66 MW

New Richmond wind farm

• Acquired $109 mm 144 MW

Wyoming wind

• Advanced Sundance 7

• Fleet Availability of 88% compared

with target of 89-90%

• Unplanned outages at Canadian

Coal did not meet expectations

• Safety IFR < 1.0

• Comparable EBITDA of $1,023 mm,

in line with 2012

• Free Cash Flow of $295 mm,

increase of $37 mm from 2012

• Sustaining Capital of $341 mm

• Trading margins returned to

historical levels

2013 Year in Review

Operational Financial

Growth Contracting

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2013 Business Segment Performance

Business Unit 2012 2013 Primary Drivers

Generation Segment

U.S. Coal $148 $66 • Lower prices and expiring

contracts

Cdn Coal $373 $309 • Higher unplanned outages

Gas $312 $327 • Growth

Hydro $127 $147 • Higher volumes & prices

Wind $151 $180 • Growth

Sub-total Generation $1,111 $1,029

Energy Trading Segment ($13) $61 • Return to “back to basics”

Corporate Segment ($83) ($67) • Corporate realignment

Consolidated EBITDA $1,015 $1,023

Comparable EBITDA ($ millions)

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2013 Fourth Quarter Business Segment Performance

Business Unit 2012 Q4 2013 Q4 Key Drivers

Generation Segment

U.S. Coal $37 $14 • Lower prices and expiring

contracts

Cdn Coal $102 $68 • Higher unplanned outages

Gas $99 $82 • Lower Alberta prices

Hydro $32 $21 • Lower Alberta prices

Wind $54 $58 • Growth offset by icing in

Eastern Canada and lower

Alberta prices

Sub-total Generation $324 $243

Energy Trading Segment $8 $20 • Return to “back to basics”

Corporate Segment ($20) ($21)

Consolidated EBITDA $312 $242

Comparable EBITDA ($ millions)

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2013 FFO and FCF

2012 2013

Comparable EBITDA $1,015 $1,023

Interest ($225) ($238)

Cash taxes ($13) ($39)

Other adjustments $11 ($17)

Funds from Operations $788 $729

Sustaining Capital ($439) ($341)

Preferred Share Dividends ($32) ($38)

NCI Cash Distributions ($59) ($55)

Free Cash Flow $258 $295

Free cash flow increased by $37 million in 2013

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Sustaining Capital

2013 sustaining capital of $341 mm is lower than 2012 due to fewer planned outages

$M

$184

$286

$153

$114

$115

$126

$21

$38

$62

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

2011 2012 2013

Major Maintenance Routine Mining Capital

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Fleet Availability

Availability Unplanned Outage Rate

2012 2013 2012 2013

Centralia(1) 90.8% 91.9% 2.9% 2.4%

Sundance/Keephills PPA(2) 83.6% 77.1% 8.1% 20.3%

Excluding K1 Force Majeure 83.6% 86.3% 8.1% 11.1%

Other Coal 91.5% 92.2% 2.9% 3.3%

Gas 93.6% 94.5% 3.9% 3.2%

Wind 95.6% 93.8% 3.4% 5.1%

Geothermal 94.2% 91.2% 2.8% 3.9%

Fleet(1) 90.0% 87.8% 4.8% 9.0%

Key priority for 2014 is to reduce unplanned outages at Sundance and Keephills

1 Availability adjusted for economic dispatching at the Centralia Plant 2 Sundance/Keephills PPA unplanned outage rate in 2013 includes the impact of the force majeure at Keephills 1

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2014 Priorities and Outlook

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Operations

Restore performance of Canadian Coal

Commercial

Pursue long-term contracts for Centralia and growth in Alberta

Start processes to secure long-term contract extensions in Ontario and Australia

Protect TransAlta’s rights under Alberta legislated PPAs

Growth

Grow EBITDA by $40 - $60 mm per year

Invest in cogeneration to support oilsands and LNG development in Western Canada

Advance Sundance 7 and TAMA Transmission

Construct Western Australia pipeline with COD targeted for early 2015

Achieve goal of 600 MW in Western Australia through acquisition or greenfield

development

Pursue acquisition of wind projects in Canada, US and Australia

Key Priorities for 2014

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Western U.S.

Markets where TransAlta is Positioned for Growth

Alberta

Western Australia Ontario / BC

Alberta expected to remain the strongest economy in

Canada

3.7% GDP growth rate over the last 20 years and similar growth expected through 2015

Strong load growth and coal generation retirements will drive demand for new generation

AESO estimates 6,000 MW of new generation will be required by 2022

Key opportunities include cogeneration and combined cycle natural gas plants

Load growth of ~1.4% / year over next ten years in both PacNW and California

State level RPS targets are a key driver

33% target in California will require in the range of 15,000 MW of renewables by 2020

Total renewables investment expected to be 25,000 to 30,000 MW in WECC by 2020

Need for dispatchable capacity will result in opportunities for natural gas generation as well

Real GDP growth in Western Australia is expected to be 3.3% for the 2013-14 fiscal year. The following 3 years are expected to average 3.4% annual growth. This exceeds growth in Australia as a whole

Mining, which made the largest industry contribution to GDP growth in 2012-2013, will continue to be the driver of new opportunities in Western Australia

No load growth expected in Ontario for the next few years with conservation measures expected to increase

In Ontario, nuclear retirements/refurbishments expected to drive need for new capacity longer term

Gross BC annual load growth is expected to be around 3% to the end of the decade. Load growth at 1.7% net of demand response and conservation

Opportunities in BC around generation for LNG

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Successfully qualified to compete in the next phase

of the Fort McMurray West 500 KV Transmission

Project

Continue development of Sundance 7, a combined

cycle gas project through TAMA Power partnership

to replace future retirements of Sundance 1 & 2 and

support long-term economic growth in Alberta

Constructing a natural gas pipeline with joint venture

partner in Western Australia to serve customers in

the region; pursuing additional opportunities

Growth Projects Under Active Development & Construction

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Secured in 2014

Full year of 68 MW New Richmond

wind farm

144 MW Wyoming Wind Farm

Escalation on Solomon contract

Secured 2015 +

Australian gas pipeline (COD 2015)

Escalation on Solomon contract

Full year of Puget contract, with

prices and volumes increasing

Post PPA value on Sundance 1&2

Potentially generating $100 mm

EBITDA more in 2018/2019

Post PPA value on other Alberta PPA

units

Potentially generating $300 -

$400 mm EBITDA more per

year post 2020

Actively Pursuing

Renewables

Acquisitions in Canada, U.S. and

Australia

Gas

Sundance 7 combined cylce in

Alberta

Cogeneration in Alberta and B.C.

Combined and simple cycle across

Canada, U.S. and Australia

Other

Transmission opportunities in

Alberta

Investments in solar technologies

Pipeline expansions in Australia

Future EBITDA Growth

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Cash Flow

Metrics

Operational

Metrics

Credit Rating

Metrics

Growth Metrics

Comparable

EBITDA

Funds from

Operations (FFO)

Free Cash Flow¹

per share

Sustaining Capital

Availability

Unplanned outage

rates

Safety IFR

FFO²/Debt²

Debt/EBITDA

EBITDA/Interest

FFO/share accretion

FCF/share accretion

EBITDA additions

from growth

Growth Capital

Key Financial, Operational and Growth Metrics

¹ Defined as FFO less sustaining capital, preferred share dividends and non-controlling interest distributions 2 For credit metrics, FFO and Debt is adjusted to reflect 50% debt treatment of preferred shares by S&P and Moodys

TransAlta is focused on the following key metrics

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2014 Outlook – Key Assumptions

Power Prices

Alberta Spot ($/MWh) $50 - $55

Alberta Contracted ($/MWh) - $55 -

Mid-C Spot (US$/MWh) $35 - $40

Mid-C Contracted (US$/MWh) - $40 -

Open Position (% of Capacity Adjusted Merchant MW)

Alberta - 35% -

Centralia - 20% -

Coal Major Outages

Alberta - 4 -

Centralia - 1 -

Other

Fleet Availability 88% - 90%

Hydro / Wind Resource - P50 -

Range of Key Assumptions

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2014 Outlook

Financial Outlook

Comparable EBITDA 1,015$ 1,065$

Cash Interest (235)$ (235)$

Cash taxes (30)$ (30)$

Others (7)$ (7)$

Funds from Operations (FFO) 743$ 793$

Sustaining Capital (350)$ (350)$

Pfd Share/Other Distributions (100)$ (100)$

Free Cash Flow (FCF) 293$ 343$

FCF/Share 1.07$ 1.26$

Dividend 0.72$ 0.72$

Dividend Coverage 1.49x 1.75x

Dividend Payout 67% 57%

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2014 Capital

1 Includes insurance recoveries at hydro 2 Includes land purchases and payments related to mining equipment under finance leases

$ Millions Cdn Coal U.S.

Coal

Gas

Wind Hydro Corp 2014 Total

Routine(1) $55 - $60 ~$4 ~$20 ~$4 ~$10 ~$20 $110 – $115

Major Maintenance $105 – $115 ~$10 $45 - $50 ~$10 ~$2 - $175 – $190

Mine Capital(2) $50 – $60 - - - - - $50 – $60

Total $210 – $235 ~$14 $65 - $70 ~$14 ~$12 ~$20 $335 – $365

In addition to the sustaining capital above, growth and life extension capital is

estimated to be $111 - $116 million in 2014. The majority (~$86 million) relates to the

Western Australia pipeline projects which is expected to be commercial in 2014. The

remainder relates to hydro life extension and transmission.

Sustaining

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Canadian Coal

2014 Operational Objectives

Improve unplanned outages

Deliver four major planned outages

Position facilities for post PPA upside

Protect TransAlta’s rights under the Alberta legislated PPAs

Comparable EBITDA $M

($M) 2011A 2012A 2013A

EBITDA 273 373 309

Sustaining Capital

Routine 33 59 69

Major Maintenance 68 219 91

Mine Capital 20 38 62

Financial History

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US Coal


Deliver one major planned outage

Optimize value through economic dispatching and high

availability

Continue to pursue additional long-term contracts

Financial History

($M) 2011A 2012A 2013A

EBITDA 211 148 66

Sustaining Capital

Routine 18 10 6



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Gas


Operationalize new Ottawa contract

Capture market price upside at Poplar Creek and Sarnia

Begin assessing re-contracting of Windsor and Mississauga

Enter into a bulk LM6000 for a fleet wide maintenance

contract

Financial History

($M) 2011A 2012A 2013A

EBITDA 275 312 327

Sustaining Capital

Routine 12 13 17



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Wind


Develop refurbishment plan for Le Nordais

Implement fleet wide blade inspection and maintenance

program

Financial History

($M) 2011A 2012A 2013A

EBITDA 163 151 180

Sustaining Capital

Routine 8 2 3

Major Maintenance (1) 2 6


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Hydro


Complete recovery projects related to 2013 Alberta

flooding

Complete life extension at Spray, and conduct life

extension studies for projects to be done in 2015 and

2016

Financial History

($M) 2011A 2012A 2013A

EBITDA 105 127 147

Sustaining Capital

Routine 17 7 9


Life Extension Capital 3 19 9


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Marketing, Trading and C&I Energy Services


Target VAR of $2 – 4M, $8M limit

Expand asset-centric trading which extracts optimization value

of TransAlta’s assets

Execute long-term contracts for growth in Alberta and pursue

additional contracts for Centralia

($M) 2011A 2012A 2013A

EBITDA 101 (13) 61

Financial History

Comparable EBITDA

$M

36

Corporate

Support growth and business units in achieving

targets

Corporate costs reduced by 20% due to

restructuring efforts in 2012

Financial History

($M) 2011A 2012A 2013A

OM&A 84 82 66

Sustaining Capital 27 24 22

$M OM&A

$84 $83

$67

$0

$25

$50

$75

$100

2011 2012 2013

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Strategy Unchanged, Ability to Execute Enhanced

Integrated approach to driving long-term shareholder value

Diversified and highly contracted portfolio

Attractive and sustainable dividend

Strong balance sheet and free cash flow

Well positioned for growth in markets with strong fundamentals

Significant upside post-PPA

positioned for growth - transalta · 2017-07-28 · strategic initiatives since 2012 – realigned...

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