CIBC 11th Annual Whistler Institutional Investor Conference

Transcription

1 CIBC 11th Annual Whistler Institutional Investor Conference Strong business model. Diversified generating assets. Technical and commercial expertise. Environmental leadership. Financial discipline. February 21, 2008

2 2 Forward looking statements This presentation may contain forward-looking statements, including statements regarding the business and anticipated financial performance of TransAlta Corporation. All forwardlooking 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 cost of fuels to produce electricity, legislative or regulatory developments, competition, global capital markets activity, changes in prevailing interest rates, currency exchange 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 disclosed in our 2006 Annual Report to shareholders and other disclosure documents filed with securities regulators. Unless otherwise specified, all dollar amounts are expressed in Canadian dollars.

3 3 Investment highlights Long track record of delivering consistent shareholder returns Well-positioned to capture market upside and value-enhancing growth opportunities in core markets Balance sheet strength and investment grade credit profile support business model, provide capital allocation flexibility and enable company to take advantage of growth opportunities Disciplined and geographically focused in evaluating growth opportunities and pursuing only those that exceed our return thresholds Committed to efficient capital allocation through strong dividend, share buybacks and investment value-enhancing growth opportunities

4 Sustainable shareholder returns in a long-cycle, capital intensive, commodity power industry 4 VALUE PROPOSITION Consistent Returns Exposure to Growing Power Markets Low to Moderate Risk Business Model Diversified fleet Mix of contracts Operational excellence Environmental leadership Yield & Growth Dividend + earnings growth Generation Facilities Owned Coal-fired plants 4,942 MW Coal-fired plants 225 MW (IN DEVELOPMENT) Hydro plants 807 MW Gas-fired plants 2,470 MW Wind-powered plants 152 MW Financial Strength Strong balance sheet Good liquidity Disciplined capital allocation Wind-powered plants (IN DEVELOPMENT) Geothermal plants Corporate offices Energy Marketing offices 162 MW 163 MW

5 Unique in the power industry TransAlta Low to moderate risk, investment grade, wholesale power generator and marketer Risk Regulated Utility Low Risk/Low Return No Volatility BBB - A ratings TA Merchant IPP Med-High Risk/Med Return Volatile B - BB ratings Full Commodity Player High Risk/High Return Volatile BBB - A ratings Regulated Security through Government Mandated Power Purchase Agreements 45% of asset base Return Contract Diversity in Balance of Portfolio 25-30% Long Term 10-20% Medium Term 5-10% Short Term 5-15% Spot Market Intelligence & Commodity Exposure through Trading Operations Commodity Trading Risk Management Proprietary Trading Price Discovery Sustainable dividend growth and capital appreciation 5

6 6 Competitive advantages Unique Model Resource Combination Proven Strengths Commodity Market Intelligence via Trading Merchant Asset Contract Diversity Regulated Security Brownfield sites Wind options Coal reserves Water storage Solid fuel storage Access to natural gas Transmission access Operational excellence Technical expertise Market intelligence Trading and hedging Environmental leadership Regulatory experience

7 Stable, long-term returns 300% Cummulative Comparative 10 Year TSR 250% 200% 150% 152% 140% 100% 50% 0% 26% -17% -50% -100% Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 TA (C$) CA Index (CU, EMA, FTS, TRP (C$) US Index (PPL, DYN, EXC, ETR, CEG, MIR, NRG, RRI) (US$) US Merchant IPP (DYN, MIR, NRG, RRI) *Source: FactSet 7

8 Increasing economic value 11% Return on Capital Employed >10% 9% 7% 5% 3% 1% -1% For comparability, data excludes the impact of Centralia charges in

9 Base assets expected to deliver sustainable EPS and dividend growth $2.25 Current market fundamentals and prices support annual EPS growth and a strong dividend $2.00 $1.75 $1.50 $1.25 $ $2.00 $ $1.75 $ $1.50 $1.00 $0.75 $0.50 $0.25 $0.00 Dividend e 2009 e 2010e Actual EPS Dividend Low Medium High Low Case: AB Prices= $55 - $70/MWh; PNW Prices = $45 - $50/MWh Medium Case: AB Prices = $70 - $85/MWh; PNW Prices = $50 - $55/MWh High Case: AB Prices= $85 - $100/MWh; PNW Prices = $55 - $60/MWh 9

10 EPS and cash flow growth Expect low double digit EPS growth and strong cash flow from operations $2.20 $2.00 Comparable EPS $2.00 MM Cash Flow from Operations $1.80 $1.60 $1,000 $900 $950 $1.40 $1.20 $1.00 $1.16 $1.31 $1.44 $800 $700 $600 $591 $620 $675 $777 $850 $0.80 $0.60 $0.82 $ e 1 $500 $ e 1. Range based on low double digit growth estimate 2. Cash flow adjusted for timing of PPA and contracted revenue payments 10

11 Capital allocation plan creates consistent value over time 11 Increasing capital efficiency is the focus of management and the Board Alternatives Direction Action Portfolio Optimization Dividend Share Buyback Asset Investment Divest or fix under-performing assets Divest non-core assets Provide shareholders sustainable dividend growth Provide shareholders incremental return of capital Projects must deliver unlevered, free cash, after tax IRR >10%: Greenfield Acquisitions Mexico PSA signed Sarnia - pursuing improved long-term contract Centralia Gas - assessing contracting options Australia - no action at this time Grow dividends along with EPS; 2008 annual dividend increased 8% to $1.08 NCIB expanded to full 10%; in 2007 purchased 2.4M shares = $75 million 2008, intent is to renew and utilize significant portion of NCIB Announced ~$1.1 billion to date 225 MW Keephills 3 $815 MM 96 MW Kent Hills $170 MM 66 MW Blue Trail $115 MM Targeting W. U.S. and W. Canada

12 Western market fundamentals support financial expectations Reserve Margin 1&2 Average Forward Trading Prices 1&3 MW Western Market Exposure 30% $80 7,000 25% 20% 15% 10 % 5% $70 $60 $50 $40 $30 6,000 5,000 4,000 3,000 2,000 1,000 0% Alberta $ PacNW 0 AB PPA & LTC Centralia AB Merchant CE Gen California Desert South West BC 1. Based on data from PIRA and CERA 2. Assumes normal hydro 3. Average forward trading prices as of Jan. 2008, AB $C, US $US 12

13 Leveraging resources and strengths to create a super regional western wholesale power company FOCUS Short-term: Plant uprates Greenfield priorities Renewable Wind Geothermal Small hydro Co-generation Clean Coal (AB) Portfolio optimization Long- term EPS growth driven by western portfolio expansion Medium-term: AB Thermal investments Clean coal investment CO 2 offsets Longer-term: Transmission options Geographic focus, contract and asset mix, and fuel selection dominate strategic choices 13

14 14 5-yr development plan leverages expertise WIND CO-GEN HYDRO GEOTHL THERMAL Wind Cogen Hydro Geother mal Thermal 02/ 08 Alberta 184 MW 200 MW Storage 53 MW 437 MW (Uprate) rights optimization Hydro Uprates WECC 100 MW 100 MW 150 MW 350 MW Total MW: Total Est: 284 MW 200 MW 100 MW 150 MW 53 MW 787 MW ~$2 B

15 Our development track record Project Genesee III Alberta Sun 4 Uprate Alberta Kent Hills NB Blue Trail Alberta Keephills III Alberta Type Supercritical Coal Efficiency Uprate Wind Wind Supercritical Coal Size Total Project Cost Expected Annual Revenues (2) Commercial Operations Date Contract Status Unlevered after tax IRR 225 MW (1) $357 MM $125 - $180 MM+ Q Merchant 15%+ 53 MW $58 MM $30 - $40 MM+ Q Merchant 20%+ 96 MW $170 MM $20 - $30 MM Q % Contracted 10%+ 66 MW $115 MM $14 - $20 MM+ Q Merchant 10%+ 225 MW (1) $815 MM $125 - $180 MM+ Q Merchant 10%+ On time / On budget Tracking Tracking Tracking (1) 450 MW gross size (2) Expected range based on $70-$100+/MWh 15

16 Financial strategy supports consistent shareowner value creation Financial strength provides shareowners an advantage in a long-cycle, capital intensive, cyclical industry Maintain capital discipline Focus on operating and free cash flow growth Allocate capital to strategies delivering consistent returns Recycle capital from under-performing assets Maintain financial flexibility Hold stable investment-grade credit ratings Drive efficient capital structure; maintain appropriate financial ratios Use multiple sources of capital to finance capital allocation plans effectively Maintain sufficient liquidity to support contracting activities Maintain focus on ROCE, IRR and TSR objectives Goal is to achieve ROCE and TSR greater than 10 per cent New investments must exceed 10 per cent IRR if not, return cash to shareholders Monitor, measure and manage exposure to known risks 16

17 Investment grade provides most competitive weighted average cost of capital Increasing Debt Spreads (1) for Non-Investment Grade Credits Lower Weighted Average Cost of Capital (2) For Investment Grade Companies Corporate Spreads to Treasuries (bps) Spread to BBB (bps) Date BBB BB B BB B Fortis Emera Canadian Utilities 5.8% 6.1% 6.6% 2004 YE YE YE YE Current TransCanada TransAlta Enbridge AES NRG Dynegy Mirant 7.0% 7.4% 7.4% 7.7% 8.3% 8.9% 8.9% Increase Since Reliant 9.7% 0% 2% 4% 6% 8% 10% 12% Non-Investment Grade Investment Grade 1. Based on all sectors 2. Sourced from Bloomberg (market risk premiums, adjusted beta, risk-free rates, cost of debt and preferred, and market value of equity as of January 28, 2008) and Company filings (latest disclosed capital structure, statutory tax rate) 17

18 Maintaining access to Canadian debt capital markets adds flexibility There is no high yield debt market in Canada In 2007, approx. 93% of debt issuances in Canada were from A or better credits Canadian companies below investment grade would have little to no access to Canadian debt markets and would have to rely on U.S. and international sources There are no power and utility companies with a non-investment grade credit in Canada Access to Canadian debt markets is an important element of the long-term financing strategy of TransAlta, a capital-intensive company with significant assets in Canada Canadian New Debt Issuances Dominated By Highly Rated Credits (1) A 14% BBB 7% AAA 20% All Power & Utility Companies Have Investment Grade Ratings (2) Financial 6% Retail 9% Other 9% Resource 49% AA 59% Telecom / Media / Tech 12% Industrial 15% 1. Data for 2007 through December 2. TSX-listed companies with at least $1Bn in market cap and a non-investment grade credit rating (as of December 2007) 18

19 TransAlta highlights Our unique strategy, resource combination, and proven strengths create shareholder value through commodity and credit cycles Base business expected to deliver low double digit EPS and strong cash flow growth Maintaining financial strength and flexibility important to creation of consistent shareowner value Super regional western wholesale power company Capital allocation balances investment in cash generating assets with return of capital to shareholders through dividends and share buyback Growth projects executed in , estimated to add incremental EPS starting in 2011 Portfolio optimization could support further share buybacks Focused on delivering 10%+ ROCE and TSR consistently 19

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