CALGARY, Aug. 9, 2017 /PRNewswire/ - TransAlta Corporation
("TransAlta" or the "Company") (TSX: TA; NYSE: TAC) today reported
second quarter 2017 comparable EBITDA(1) of $268 million, funds from operations
("FFO")(1) of $187
million, and free cash flow ("FCF")(1) of
$30 million. Comparable EBITDA and
FFO for the second quarter are the highest second quarter results
in over five years, and increased by $20
million and $12 million,
respectively, over the same period last year.
The second quarter results reflect strong performance across our
portfolio. US Coal benefited from favourable mark-to-market impacts
on financial contracts, higher contracted revenue, and lower costs
for purchased power; Wind and Solar profited from stronger wind
resources in eastern Canada and
lower operating expenses; Hydro benefitted from higher water
resources; and the gross margin from Energy Marketing returned to
historic levels. Canadian Coal, as expected, was negatively
impacted by lower realized price on uncontracted volumes and higher
coal costs compared to last year.
Free cash flow was down by $26
million and $15 million for
the three and six months ended June 30,
2017, respectively, due to the timing of capital
expenditures, higher productivity capital spending relating to our
corporate transformation, and higher distributions to our partner
in TransAlta Cogeneration L.P.
"The business operated as predicted with some upside in our
renewables portfolio," said Dawn
Farrell, President and Chief Executive Officer. "The
highlight for this reporting period is the commissioning of the
South Hedland power station which will increase our dividend from
TransAlta Renewables from $120
million to $150 million on an
annualized basis. However, expected headwinds in the back half of
the year and additional productivity capital spending have lowered
our free cash flow guidance by approximately ten per cent on an
annualized basis," commented Mrs. Farrell.
Second Quarter Highlights
- We accelerated our transition to gas and renewables generation
with the announcement of our intention to retire Sundance Unit 1,
mothball Sundance Unit 2, and convert Sundance Units 3 to 6 and
Keephills Units 1 and 2 from coal-fired to gas-fired generation
between 2021 to 2023.
- TransAlta Renewables will be investing approximately
$37 million in five new towers,
adding 17 MW of capacity to the existing Kent Hills wind farm. The
expansion is supported by a long-term contract with New Brunswick
Power Corporation, and will bring the total capacity of the Kent
Hills wind farm to approximately 167 MW. Construction of the
expansion is expected to begin in the spring of 2018 and will be
funded through project financing. We expect the Kent Hills wind
project to support between $240 and $275
million of project financing.
- We settled the contract indexation dispute with the Ontario
Electricity Financial Corporation ("OEFC"). The settlement
consisted of a $34 million payment to
TransAlta, and relates to long-term contracts at Ottawa and Windsor, which form part of TransAlta
Cogeneration L.P.
Important Subsequent Events
- TransAlta Renewables announced that the South Hedland power
station, located in the Pilbara Region of Western Australia, had begun commercial
operation. The 150 MW combined-cycle natural gas power station is
expected to contribute approximately $80
million of annual EBITDA from two 25-year power purchase
agreements ("PPA"). As a result of the commissioning, the Class B
shares in the capital of TransAlta Renewables held by TransAlta
were converted into common shares, and TransAlta Renewables
increased the dividend on its common shares by approximately
7%.
- Fortescue Metals Group ("FMG") announced that in their view the
South Hedland power station has not yet satisfied the requisite
performance criteria to declare commercial operation for their 35
MW contract. In our view, all conditions to establish that
commercial operations commenced have been satisfied in full under
the terms of the PPA with FMG. We continue to confer on the issue
with FMG.
- TransAlta cancelled the $350
million credit agreement provided to TransAlta Renewables
and reduced our $1.5 billion credit
facility to $1.0 billion. Concurrent
with this transaction, TransAlta Renewables entered into a
$500 million syndicated credit
agreement, resulting in no change to liquidity for TransAlta on a
consolidated basis. Both credit facilities expire in 2021.
- The Balancing Pool announced its intention to consult with
customer representatives and the Minister of Energy regarding its
ability to terminate certain of the power purchasing arrangements
("The Alberta PPAs") that it holds and which relate to Sundance
Units 1 to 6. The Balancing Pool is required to provide six months'
notice of any termination, and provide us with a termination
payment which we estimate to be approximately $231 million.
- TransAlta appointed the Honourable Rona Ambrose to its Board of
Directors. Ms. Ambrose is the former Leader of Canada's Official Opposition in the House of
Commons, and brings extensive public policy experience and
demonstrated ability to bring people of divergent views
together.
- We received notice that FMG intends to repurchase the Solomon
power station from TEC Pipe Pty Ltd, a wholly owned subsidiary of
TransAlta, a right that FMG has under the applicable power purchase
arrangement. TransAlta Renewables owns the economic interest in the
Solomon facility and its gross proceeds from the repurchase are
estimated to be approximately US$335
and will be utilized to repay the credit facility used to fund the
development of the South Hedland power station, for other future
growth opportunities, and for general corporate purposes.
- Productivity at the Highvale mine was impacted by emerging
labour constraints. The temporary shortfall affects our coal-fired
Sundance Units 1 to 6 and Keephills Units 1 to 3.
2017 Fiscal Outlook Update
During the first half of the year, emerging labour constraints
at our Highvale mine have impacted productivity, significantly
reducing our coal inventory and causing coal supply constraints for
our facilities in Alberta. The
shortfall affects our coal-fired Sundance generating Units 1 to 6 and Keephills
Units 1 to 3. We expect additional mining costs at our Highvale
mine operations for the remainder of 2017, and a shorter-term
reduction in the power generation at Sundance and Keephills, in order to rebuild our coal
inventory. Also, higher productivity capital and higher
distributions to non-controlling interests have negatively impacted
FCF.
The following table outlines TransAlta's updated financial
targets for 2017:
Measure
|
Revised
Outlook
|
Previous
Outlook
|
Comparable
EBITDA
|
$1,025 to $1,100
million
|
$1,025 to $1,135
million
|
FFO
|
$765 to $820
million
|
$765 to $855
million
|
FCF
|
$270 to $310
million
|
$300 to $365
million
|
Dividend
|
$0.16 per share,
15%-17% payout of FCF
|
$0.16 per share,
13%-15% payout of FCF
|
Second Quarter 2017 Review by Segment
Comparable
EBITDA
(in CAD$ millions)
|
3 Months
Ended
|
6 Months
Ended
|
June 30,
2017
|
June 30,
2016
|
June 30,
2017
|
June 30,
2016
|
Canadian
Coal
|
85
|
93
|
176
|
196
|
U.S. Coal
|
34
|
18
|
44
|
14
|
Canadian
Gas
|
57
|
56
|
145
|
121
|
Australian
Gas
|
32
|
33
|
63
|
64
|
Wind and
Solar
|
42
|
36
|
110
|
97
|
Hydro
|
28
|
25
|
42
|
43
|
Energy
Marketing
|
12
|
6
|
8
|
29
|
Corporate
|
(22)
|
(19)
|
(46)
|
(37)
|
Total Comparable
EBITDA
|
268
|
248
|
542
|
527
|
- Canadian Coal: Comparable EBITDA for the three and six months
ended June 30, 2017 decreased by
$8 million and $20 million, respectively, compared to the same
periods in 2016. Generation for the quarter and year-to-date was
slightly higher than the comparable period in 2016, which when
combined with higher payments under the Alberta PPA relating to the
pass through of environmental costs, resulted in higher revenues.
The three and six month periods ended June
30, 2017, also included $10
million and $20 million,
respectively, in income related to accruals for the Off-Coal
Agreement payment. These benefits were more than offset by lower
hedged volumes and a reduction in our mark-to-market positions,
attributable to long-term financial contracts, as well as higher
coal costs.
- US Coal: Comparable EBITDA for the second quarter and
year-to-date improved by $16 million
and $30 million, respectively,
compared to the corresponding periods in 2016. Favourable impacts
of mark-to-market positions on certain forward financial contracts
and higher revenues benefitted both the quarter and year-to-date
results. Second quarter results also benefitted from lower costs to
purchase power and favourable foreign exchange rates. Availability
for the three and six months ended June 30,
2017 was down compared to 2016 due to a forced outage at
Unit 1 in January.
- Canadian Gas: Comparable EBITDA for the six months ended
June 30, 2017 increased by
$24 million compared to 2016,
primarily due to the settlement with the OEFC, partially offset by
unfavourable changes in unrealized mark-to-market positions and
higher labour costs.
- Australian Gas: Production for the three and six months ended
June 30, 2017 increased 27 per cent
and 17 per cent respectively, over the corresponding periods in
2016, due to higher customer load. The nature of our capacity
payments, with a flow through of fuel costs, results in comparable
EBITDA remaining stable across the periods. In July, we achieved
commercial operation at our South Hedland project, which is
expected to contribute approximately $80
million in EBITDA annually.
- Wind and Solar: Comparable EBITDA for the three and six months
ended June 30, 2017 increased by
$6 million and $13 million, respectively, compared to the same
period in 2016, primarily due to increased generation at our
contracted facilities in eastern Canada and lower operating expenses after
renegotiating long term service agreements for service providers
for some Alberta wind
projects.
- Hydro: Comparable EBITDA of $28
million for the three months ended June 30, 2017 reflected an increase of
$3 million, related to higher
generation, compared to the same period in 2016.
- Energy Marketing: Comparable EBITDA of $12 million was $6
million higher than the same period in 2016 reflecting a
return to a normalized gross margin and better performance in
certain markets. On a year-to-date basis, results were lower
compared to 2016 due to weak margins in the first quarter of 2017
as traders reduced their positions to manage market
uncertainty.
- Corporate: Corporate overhead includes certain costs relating
to our corporate transformation and reclassification of 2016
incentives between our operational and corporate segments.
Consolidated Earnings Review
Reported net loss attributable to common shareholders for the
second quarter of 2017 was $18
million ($0.06 loss per share)
compared to net earnings of $6
million ($0.02 earnings per
share) during the same period in 2016. Year-to-date, reported net
earnings were down $86 million
($0.30 loss per share). For both the
quarter and year-to-date, the income related to the Off-Coal
Agreement payments were offset by the Sundance Unit 1 impairment
charge of $20 million recognized in
the quarter and higher net earnings attributable to non-controlling
interests. Additionally, the comparative net earnings for 2017 are
negatively impacted by higher depreciation on Keephills 3 and Genesee 3, which were expected
to run beyond 2030 and therefore have had their useful lives
shortened.
Operating Review
Adjusted availability for the three and six months ended
June 30, 2017 was 84.0 per cent and
86.2 per cent, respectively, compared to 86.5 per cent and 89.4 per
cent for the same periods in 2016. Higher planned outages at
Canadian and US Coal, and planned outages at our Sarnia cogeneration plant and Windsor plant, were the main causes of the
decreases.
Production for the three and six months ended June 30, 2017 was 7,707 GWh and 16,758 GWh,
respectively, compared to 7,899 GWh and 16,766 GWh for the same
periods in 2016. The cessation of operations at our Mississauga cogeneration facility effective
Jan. 1, 2017, and planned major
maintenance at US Coal, were the main drivers of the production
decrease in the second quarter of 2017. This was partially offset
by higher generation at Alberta Hydro and Wind, as well as stronger
customer demand in Australia.
Second Quarter 2017 Financial and Operational
Highlights
In $CAD millions,
unless otherwise
stated
|
3 Months
Ended
|
6 Months
Ended
|
June 30,
2017
|
June 30,
2016
|
June 30,
2017
|
June 30,
2016
|
Adjusted availability
(%)(2)
|
84.0
|
86.5
|
86.2
|
89.4
|
Production
(GWh)(2)
|
7,707
|
7,899
|
16,758
|
16,766
|
Revenue
|
503
|
492
|
1,081
|
1,060
|
Comparable
EBITDA(1)
|
268
|
248
|
542
|
527
|
Net earnings (loss)
attributable to
common
shareholder
|
(18)
|
6
|
(18)
|
68
|
FFO(1)
|
187
|
175
|
389
|
372
|
Cash Flow from
Operating Activities
|
63
|
119
|
344
|
394
|
FCF(1)
|
30
|
56
|
125
|
140
|
Net earnings (loss)
per common share
attributable to
common shareholders
|
(0.06)
|
0.02
|
(0.06)
|
0.24
|
FFO per
share(1)
|
0.65
|
0.61
|
1.35
|
1.29
|
FCF per
share(1)
|
0.10
|
0.19
|
0.43
|
0.49
|
Dividends declared
per common share
|
0.04
|
0.04
|
0.04
|
0.08
|
The complete report for the quarter, including Management
Discussion and Analysis ("MD&A") and unaudited interim
financial statements, as well as our quarterly presentation, will
be available on the Investors section of our website:
www.transalta.com.
Conference call
We will hold a conference call and
webcast at 9:00 a.m. MT (11:00 a.m. ET) on Thursday, August 10, 2017 to discuss our second
quarter 2017 results. The call will begin with a short address by
Dawn Farrell, President and CEO, and
Donald Tremblay, Chief Financial
Officer, followed by a question and answer period for
investment analysts, investors and other interested parties. A
question and answer period for the media will immediately follow.
Please contact the conference operator five minutes prior to the
call, noting "TransAlta Corporation" as the company and "Sally
Taylor" as moderator.
Dial-in numbers:
Toll-free
North American participants call: 1-888-231-8191
Outside
of Canada & USA call: 1-647-427-7451
A link to the live webcast will be available on the Investor
Centre section of TransAlta's website at
http://www.transalta.com/investors/events-and-presentations. If you
are unable to participate in the call, the instant replay is
accessible at 1-855-859-2056 (Canada and USA toll free) with TransAlta pass code
53257141 followed by the # sign. A transcript of the broadcast will
be posted on TransAlta's website once it becomes available.
Notes
(1) These items
are not defined under International Financial Reporting Standards
("IFRS"). Presenting these items from period to period provides
management and investors with the ability to evaluate earnings
trends more readily in comparison with prior periods' results.
Refer to the Reconciliation of Non-IFRS Measures sections of this
quarter's MD&A for further discussion of these items,
including, where applicable, reconciliations to measures calculated
in accordance with IFRS.
|
|
(2) Adjusted for
economic dispatching at U.S. Coal.
|
About TransAlta
TransAlta is a power generation and
wholesale marketing company focused on creating long-term
shareholder value. TransAlta maintains a low-to-moderate risk
profile by operating a highly contracted portfolio of assets in
Canada, the United States and Australia. TransAlta's focus is to efficiently
operate wind, hydro, solar, natural gas and coal facilities in
order to provide customers with a reliable, low-cost source of
power. For over 100 years, TransAlta has been a responsible
operator and a proud contributor to the communities in which it
works and lives. TransAlta has been recognized on CDP's Canadian
Climate Disclosure Leadership Index (CDLI), which includes
Canada's top 20 leading companies
reporting on climate change, and has been selected by Corporate
Knights as one of Canada's Top 50
Best Corporate Citizens and is recognized globally for its
leadership on sustainability and corporate responsibility standards
by FTSE4Good.
For more information about TransAlta, visit our web site at
www.transalta.com or follow us on Twitter
@TransAlta.
Cautionary Statement Regarding Forward Looking
Information
This news release contains forward-looking
statements and forward-looking information within the meaning of
applicable securities laws. The use of any of the words "expect",
"anticipate", "continue", "estimate", "may", "will", "project",
"should", "believe", "plans", "intends" and similar expressions are
intended to identify forward-looking information or statements.
More particularly, and without limitation, this news release
contains forward-looking statements and information relating to:
our ownership in TransAlta Renewables and receipt of additional
dividends from TransAlta Renewables; the intention to retire
Sundance Unit 1, mothball Sundance Unit 2, and convert Sundance
Units 3 to 6 and Keephills Units 1 and 2 from coal-fired to
gas-fired generation between 2021 to 2023; the revised outlook for
2017, including as it pertains to Comparable EBITDA, FFO and
FCF; the investment by TransAlta Renewables of approximately
$37 million in five new for the
Kent Hills wind farm, and the timing of construction and funding
associated therewith; the contribution to EBITDA from South
Hedland; the satisfaction of all requisite performance criteria to
declare commercial operation at South Hedland under the PPA with
FMG; the expiry of the credit facilities; the potential termination
of the Alberta PPAs and the receipt of a termination payment of
approximately $231 million; the
repurchase by FMG of the Solomon power station, the gross proceeds
to be received therefrom and the use of proceeds received from the
repurchase of such facility; the return to normalized gross
margin for Energy Marketing; and the impact of labour constraints
at our Highvale mine on coal supply, mining costs and power
generation at Sundance and
Keephills. By their nature, forward-looking
information requires us to make assumptions and are subject to
inherent risks and uncertainties. There is significant risk that
predictions and other forward-looking information will not prove to
be accurate and readers are cautioned not to place undue reliance
on our forward-looking information as a number of factors could
cause actual future results, conditions, actions or events to
differ materially from the targets, expectations, estimates or
intentions expressed in the forward-looking information. Some of
the factors that could cause such differences include: operational
risks involving our facilities; changes in market prices where we
operate; equipment failure and our ability to carry out repairs in
a cost effective and timely manner, including unplanned outages at
generating facilities and associated capital investments; the
effects of weather; disruptions in the source of fuels, including
coal, gas, water or wind required to operate our facilities and our
ability to resolve the impact of labour constraints at our Highvale
mine; energy trading risks; failure to obtain necessary regulatory
approvals in a timely fashion; legislative or regulatory
developments and their impacts, including development of
regulations facilitating coal-to-gas conversions; increasingly
stringent environmental requirements and their impacts; increased
competition; global capital markets activity (including our ability
to access financing at a reasonable cost); disputes with
counterparties; changes in prevailing interest rates; currency
exchange rates; inflation levels and commodity prices; general
economic conditions in the geographic areas where we operate;
deterioration of credit markets; impediments to the construction
and commissioning of the Kent Hills expansion; disputes with
counterparties including the potential for, and outcome of, any
contractual disputes, including as it pertains to South Hedland;
and the outcome of any and other risks and uncertainties discussed
in the Company's materials filed with the Canadian securities
regulatory authorities from time to time and as also set forth in
the Company's MD&A for the year ended December 31, 2016 and 2017 Annual Information
Form. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect TransAlta's
expectations only as of the date of this news release. TransAlta
disclaims any intention or obligation to update or revise these
forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
SOURCE TransAlta Corporation