Forward Looking Statements

Transcription

1 July 31,

2 Forward Looking Statements This presentation may contain forward looking statements, including statements regarding the business and anticipated financial performance of TransAlta Corporation. All forward looking statements are based on our beliefs and assumptions based on information available at the time the assumption was made. 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. Some of the factors that could cause such differences include pricing in the market place, our inability to contract Centralia as expected, a reduction in our Dividend Reinvestment Plan participation, our inability to achieve funds from operations as expected, an increase in the cost of fuels to produce electricity, our inability to enter into long-term contracts due to prevailing market conditions, our inability to complete growth projects as planned, legislative or regulatory developments, changes in prevailing interest rates, inflation levels, unanticipated accounting or audit issues with respect to our financial statements or our internal control over financial reporting, plant availability, and general economic conditions in geographic areas where TransAlta Corporation operates. Given these uncertainties, the reader should not place undue reliance on this forward looking information, which is given as of this date. The material assumptions in making these forward looking statements are addressed in our second quarter report and in our 2011 Annual Report to shareholders along with other disclosure documents filed with securities regulators. 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 the Company s Annual Information form which has been filed on SEDAR and can be accessed at 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 second quarter 2012 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. 2

3 Outline Key Messages & Highlights Financial Review Outlook Questions & Answers 3

4 Summary of Results. Dawn Farrell 4

5 Key messages Sundance units 1 & 2: Cash flow generation from the units expected to cover investment Long-term Centralia contract reduces Company s overall merchant risk Understand the quarter: Generation segment performed well in the quarter Energy trading had a loss but has a strong history of positive cash generation Investments in our fleet providing us with strong availability Adequate cash flow to cover dividend under a range of scenarios Significant growth opportunities in TransAlta s core markets 5

6 Sundance units 1 & 2 arbitration decision Arbitration panel s decision validates TransAlta s operating practices The Sundance 1 & 2 arbitration validated TransAlta s claim of force majeure; the right decision was made to protect the safety of our employees Panel disagreed with Economic Destruction and we will immediately start the work to return the units to service Cash flow generation from the units expected to cover investment Units are estimated to be operational fall

7 Long-term contract signed at Centralia Centralia re-contracting and realigning cost structure Agreement with Puget Sound Energy secures cash flows needed for the plant to run to the end of its life The contract significantly reduces merchant exposure in the PacNW 45% contracted in 2013, 35% from , and 65% from Restructured plant operations lower the facility s operating costs and better position the plant in the current low gas price environment. 7

8 Solid operating performance from Generation Fleet Availability Q Q % 81.6% Plant Availability Q Q Sundance 92.1% 93.8% Keephills 1 & % 72.7% Keephills 3 0% 99.8% Genesee % 93.6% Sheerness % 76.2% Centralia 2 0% 43.5% Gas 92.3% 90.9% Renewables 97.3% 96.5% Four planned outages completed, two of which were in Q2. Two more remaining 1 Keephills 1 and Sheerness had planned outages in Q There were no planned outages at Alberta coal in Q Lower planned outages at Centralia Q vs Q

9 Strong history of positive Energy Trading margins $M Energy Trading Gross Margin Consistently positive quarters; average of $16 million per quarter Trading losses primarily attributable to the east based on one-time events Revised guidance of $50-$70 million for

10 Macro economic outlook Real GDP Growth Alberta continues to outperform other western economies Gas prices showing signs of upward momentum Australia moving in correlation with China Source: RBC; CERA and KPMG Power Demand Growth Commodity Price Trend Source: AESO; BPA; Regie de l enregie; Newfoundland Labrador Hydro; Manitoba Hydro; NBSO ERNB; Sask Power; PIRA Source: Multiple Sources 10

11 Alberta and PacNW market update Alberta Price Outlook Forward outlook is neutral for AB power prices Upside to 2013 AB power prices include: Potential delay in upcoming supply projects Strong demand from a cold winter or hot summer Downside to 2013 AB power prices include: Softer than expected demand growth Supply projects come on earlier than expected Slow recovery in gas prices Source: TransAlta Pac NW Price Outlook Forward outlook is for strength in PacNW power prices Upside to 2013 Pac NW power prices include: Lower than normal hydro year Strong gas recovery Weather leading to increased demand Downside to 2013 Pac NW power prices include: Strong hydro year Slow recovery in gas prices Source: TransAlta 11

12 2012 Q2 Results 3 months ended June 30 6 months ended June 30 ($M, except per share amounts) Comparable EBITDA Funds from Operations 1 Comparable Earnings Per Share Funds from Operations Per Share 0.29 (0.10) Excludes one time amounts recorded in Q associated with the Sundance Arbitration 12

13 Financial Review. Brett Gellner 13

14 Solid financial performance from Generation Comparable Generation Gross Margin $M 3 months ended June months ended June Generation gross margins are in line with last year despite two planned outages vs. none last year and lower prices. 14

15 Q2 Comparable EBITDA $M Comparable EBITDA Comparable EBITDA decline primarily due to: Loss in energy trading Lower electricity prices $101 $85 $100 Higher planned major maintenance $88 $208 $179 15

16 Q2 Funds from Operations Funds from Operations 1 $M FFO also lower primarily due to a loss in Energy Trading, higher planned major maintenance this year and lower electricity prices $189 M Continue to target the low end of $ M for the full year 1 Excludes one time $204 million recorded in Q associated with the Sundance Arbitration 16

17 2012 Capital expenditures ($M) Q1 Original Current estimate Spent to date Remaining for 2012 Sustaining $ $ $222 $ Routine Capital $ $ $53 $47 62 Major Maintenance $ $ $152 $ Mine Capital $40-50 $40-50 $17 $23 33 Other 1 $50-70 $50-70 $26 $24 44 Growth $ $200 - $245 $80 $ Includes repowering/life extension and productivity 17

18 Estimated 2012 balance of year (Jul-Dec) cash flows Excluding Sundance payments, current estimate of balance of year cash flows support remaining dividends at current levels and capital in 2012 Balance of 2012 Excluding Sundance arbitration decision Funds from Operations 1 $460 Common share dividends ($132) Dividend Reinvestment Plan proceeds 2 $92 Pfd Shares/Other distributions 3 ($40) Sustaining Capex ($205) Available for Growth/Productivity $175 Committed Growth Capex remaining $ Productivity Capex remaining $24 44 ¹ Based on an estimated $800 million for full year 2 Based on 70 % participation 3 Non controlling interest 18

19 Estimated cash flows - Sundance units 1 & 2 Cash Flows from the two units estimated to be sufficient to cover net payments and repair costs ($M) Net Payments 1 ($50) Initial Repair Costs ($190) Operating Cash Flow Range 2 $225 - $275 Total Cash Flow ($15) - $35 Repair costs expected to be approximately 15-20% in 2012 and the remainder in 2013 ¹ Penalties net of capacity payments ² Undiscounted operating cash flow (EBITDA less sustaining capex) from fall 2013 to Dec 2017 for Unit 1 and Dec 2018 for Unit 2 19

20 Adequate dividend coverage Adequate dividend coverage under the following range of FFO scenarios Steady State Cash Flow/Dividend Coverage Sensitivity Analysis FFO Scenario $ 750 $ 800 $ 850 $ 900 $ 950 Sustaining Capex $ (355) $ (355) $ (355) $ (355) $ (355) Pfd share dividends and other distributions $ (80) $ (80) $ (80) $ (80) $ (80) Free cash flow before common dividends $ 315 $ 365 $ 415 $ 465 $ 515 Common share dividends $ (265) $ (265) $ (265) $ (265) $ (265) Net Cash Flow before Dividend Reinvestment Plan (DRP) $ 50 $ 100 $ 150 $ 200 $ 250 DRP at approximately 70% participation $ 185 $ 185 $ 185 $ 185 $ 185 Net Cash Flow after DRP for Debt Repayment/Growth $ 235 $ 285 $ 335 $ 385 $ 435 Common Share Dividend Payout Without DRP 84% 73% 64% 57% 51% With DRP at a 70% participation rate 25% 22% 19% 17% 16% ¹ Non controlling interest 20

21 Centralia gross margin sensitivity Centralia Average Annual Gross Margin ($M) $170 - $175 $110 - $115 $140 - $145 $80 - $85 Price ($/MWh) Market for Price remaining $/MW open positions 21

22 Financial strength & flexibility Committed to investment grade ratings and strong balance sheet Actions to strengthen credit ratios and balance sheet $2.4 B Committed Credit Facilities Premium dividend expected to add ~$185 million of equity on an annualized basis Utilized $1.1 B Available Strong liquidity 1 Access to capital markets June ¹ $800 million of available liquidity as of July 2012 due to bond maturity 22

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24 Looking forward Lower sustaining capital and higher production Sustaining Capex 1 GWh Increased Production in $M $405 - $450 New Richmond Uprate Production $ Fewer coal outages 1 Does not include repair cost of $190M for Sun A 2 Expected increase in production relative to 2012; excludes return of Sundance units 1 & 2 24

25 Looking Ahead TransAlta is strategically positioned for growth Alberta is fastest growing market in North America progressing with Sun 7 Opportunities in western Australia are accelerating British Columbia Kitimat region showing promising opportunities Western U.S. remains slow but continue to look for opportunities that fit our strategy 25

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