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December 15th 2022
TransAlta Corporation (“TransAlta” or the “Company”) (TSX: TA) (NYSE: TAC) announced today its financial outlook for 2023.
“We are pleased to announce that our annual outlook highlights continuing strong cash flow expectations for 2023. Our fleet remains well positioned to capture the ongoing strength that we see in the Alberta merchant market. We are focused on redeploying these cash flows toward growing our contracted renewables asset base, which will create further value for our shareholders as we work to deliver our 2 GW renewables growth target by 2025,” said John Kousinioris, President and Chief Executive Officer of TransAlta.
“As we further advance our Clean Electricity Growth Plan and decarbonization efforts, TransAlta is well positioned to fully execute our growth plan. As we move forward, we expect to prioritize new growth investments within the TransAlta parent company. TransAlta Renewables will continue to retain growth opportunities where it has a right of first offer on organic expansions or where there is a mutual benefit to manage its tax horizon in order to sustain its current dividend, which is highly valued by its income-focused shareholders including TransAlta,” added Mr. Kousinioris.
2023 Strategic Priorities
In addition to meeting the financial targets set out in the outlook, the Company is focused on the following key priorities for 2023:
Update to Clean Electricity Growth Plan
To date, the Company has announced 800 MW of projects for a total cost of $1.5 billion toward our 2 GW Clean Electricity Growth Plan. These projects are expected to deliver $147 million of annualized adjusted EBITDA. With the current inflationary environment, we expect costs on future projects to be higher based on increases to expected pricing of equipment and construction labour. Although we estimate that the remaining projects will cost more, we see continuing demand for renewable energy and we expect PPA prices to respond to absorb these higher costs across the industry. As a result, we forecast that expected returns on projects will remain intact. Accordingly, we have reset our capital investment target to $3.6 billion with an increased incremental EBITDA target of $315 million.
|Clean Electricity Growth Plan TargetsRevised TargetOriginal Target||Achieved to Date||% of Revised Target Achieved|
|Renewable Energy Capacity||2 GW||2 GW||800 MW||40%|
|Capital Investment||$3.6 billion||$3 billion||$1.5 billion||41%|
|Incremental EBITDA||$315 million||$250 million||$147 million||47%|
Appointment of New Board Member
The Company is pleased to announce the appointment of Ms. Manjit Sharma to the Board of Directors effective January 1, 2023. Ms. Sharma brings over 30 years of experience that spans a variety of industries, most recently serving as Chief Financial Officer of WSP Canada Inc. In this role, she was responsible for leading the finance, real estate, procurement, tax and shared services functions across Canada. Prior to WSP Canada Inc., she was on the National Executive Team of General Electric Canada (GE Canada), serving as Chief Financial Officer from 2016 to 2019. From 1999 to 2016, she held various senior positions with GE Canada, with responsibilities that spanned strategic planning and analysis, mergers and acquisitions, tax oversight, risk, governance, and diversity and inclusion. Ms. Sharma currently serves as a board member of each of Vermilion Energy Inc., Finning International Inc. and Export Development Canada. She is also a member of the GE Canada Pension Trust Committee.
Ms. Sharma holds a Bachelor of Commerce degree (with Honours) from the University of Toronto, is a Fellow Chartered Accountant and holds the ICD.D Directors designation and the GCB.D Global Competent Boards designation. In 2019, Ms. Sharma was recognized as one of Canada’s Top 100 Most Powerful Women by the Women’s Executive Network.
The Company has a comprehensive and ambitious set of environment, social, and governance (“ESG”) targets that support the long-term success of our business and highlight our ESG value proposition. These targets include:
The Company continues to report on progress in alignment with major frameworks and was recently upgraded to an A- score from CDP (formerly Climate Disclosure Project).
2023 Financial Outlook
Comparable EBITDA is estimated to be between $1.20 billion to $1.32 billion. The midpoint of the range represents continued strong performance compared to historical levels. The Company expects comparable EBITDA for 2023 to be impacted by a number of factors, including:
The Company expects sustaining capital to be in the range of $140 million to $170 million consistent with current levels.
FCF is expected to be between $560 million and $660 million excluding the impact of rehabilitation capital expenditures required at Kent Hills. The midpoint of the range represents a 9 per cent increase over 2021 levels and a 19 per cent decrease from the midpoint of the 2022 outlook. This is largely driven by lower expected Alberta power pricing in 2023 and a return to normal performance from the Energy Marketing segment, both of which will be partially offset by the contribution from new assets.
The following table summarizes and provides additional details pertaining to our 2023 outlook:
|Measure (millions)||2023 Target||2022 Target||2021 Actual|
|Adjusted EBITDA(1)||$1,200 and $1,320||$1,380 to $1,460||$1,263|
|FCF (1)||$560 and $660||$725 to $775||$562|
Range of key power price assumptions:
|Market||2023 Prices||2022 Prices|
|Alberta Spot ($/MWh)||$105 and $135||$125 to $150|
|Mid-C Spot ($/MWh)||US$75 to US$85||US$55 to US$65|
|AECO Gas Price ($/GJ)||$4.60||$5.00 to $6.00|
Alberta spot price sensitivity: a +/- $1 per MWh change in spot price is expected to have a +/- $3.5 million annualized impact on Comparable EBITDA.
Other assumptions relevant to 2023 financial outlook (millions):
|Sustaining capital(3)||$140 to $170|
|Energy marketing gross margin||$90 to $110|
Alberta Hedging – assumptions full year 2023:
|Hedged production (GWh)||5,200|
|Hedge price ($/MWh)||$74.00|
|Hedged gas volumes (GJ)||58.4 million|
|Hedge gas price ($/GJ)||$2.24|
(1) These items are not defined and have no standardized meaning under IFRS. Presenting these items from period to period provides management and investors with the ability to evaluate earnings (loss) trends more readily in comparison with prior periods’ results. Please refer to the Segmented Financial Performance and Operating Results section of the MD&A for further discussion of these items, including, where applicable, reconciliations to measures calculated in accordance with IFRS. See also the Additional IFRS Measures and Non-IFRS Measures section of this release.
(2) Free cash flow per share is calculated using the weighted average number of common shares outstanding. The weighted average number of common shares outstanding for the three and nine months ended Sept. 30, 2022 was 271 million shares. Please refer to the Non-IFRS financial measures section in this release for the purpose of this non-IFRS ratio.
(3) Excludes payments associated with finance leases and Kent Hills rehabilitation capital.
Non-IFRS financial measures and other specified financial measures
We use a number of financial measures to evaluate our performance and the performance of our business segments, including measures and ratios that are presented on a non-IFRS basis, as described below. Unless otherwise indicated, all amounts are in Canadian dollars and have been derived from our audited annual 2021 consolidated financial statements and the unaudited interim condensed consolidated statements of earnings (loss) for the three and nine months ended Sept. 30, 2022, prepared in accordance with IFRS. We believe that these non-IFRS amounts, measures and ratios, read together with our IFRS amounts, provide readers with a better understanding of how management assesses results.
Non-IFRS amounts, measures and ratios do not have standardized meanings under IFRS. They are unlikely to be comparable to similar measures presented by other companies and should not be viewed in isolation from, or as an alternative for, or more meaningful than our IFRS results.
In the fourth quarter of 2021, comparable EBITDA was relabeled as adjusted EBITDA to align with industry standard terminology. Each business segment assumes responsibility for its operating results measured by adjusted EBITDA. Adjusted EBITDA is an important metric for management that represents our core business profitability. In the second quarter of 2022, our adjusted EBITDA composition was adjusted to include the impact of closed positions that are effectively settled by offsetting positions with the same counterparty to reflect the performance of the assets and Energy Marketing segment in the period in which the transactions occur. Accordingly, the Company has applied this composition to all previously reported periods. Interest, taxes, depreciation and amortization are not included, as differences in accounting treatments may distort our core business results. In addition, certain reclassifications and adjustments are made to better assess results excluding those items that may not be reflective of ongoing business performance. This presentation may facilitate the readers’ analysis of trends. Adjusted EBITDA is a non-IFRS measure. Please refer to M39-M40 of the MD&A for a description of adjustments made.
Average Annual EBITDA
Average annual EBITDA is a non-IFRS financial measure that is forward-looking and is used to show the average annual EBITDA that the project currently under construction is expected to generate upon completion.
Funds From Operations
FFO is an important metric as it provides a proxy for cash generated from operating activities before changes in working capital and provides the ability to evaluate cash flow trends in comparison with results from prior periods. FFO is a non-IFRS measure.
Free Cash Flow
FCF is an important metric as it represents the amount of cash that is available to invest in growth initiatives, make scheduled principal repayments on debt, repay maturing debt, pay common share dividends or repurchase common shares. Changes in working capital are excluded so FFO and FCF are not distorted by changes that we consider temporary in nature, reflecting, among other things, the impact of seasonal factors and the timing of receipts and payments. FCF is a non-IFRS measure.
FFO per share, FCF per share and adjusted net debt to adjusted EBITDA are non-IFRS ratios that are presented in the MD&A. Refer to the Reconciliation of Cash Flow from Operations to FFO and FCF and Key Financial Non-IFRS Ratios sections of the MD&A for additional information.
FFO per share and FCF per share
FFO per share and FCF per share are calculated using the weighted average number of common shares outstanding during the period. FFO per share and FCF per share are a non-IFRS ratios.
Reconciliation of these non-IFRS financial measures to the most comparable IFRS measure are provided below.
About TransAlta Corporation:
TransAlta owns, operates and develops a diverse fleet of electrical power generation assets in Canada, the United States and Australia with a focus on long-term shareholder value. TransAlta provides municipalities, medium and large industries, businesses and utility customers with clean, affordable, energy efficient and reliable power. Today, TransAlta is one of Canada’s largest producers of wind power and Alberta’s largest producer of hydro-electric power. For over 111 years, TransAlta has been a responsible operator and a proud member of the communities where we operate and where our employees work and live. TransAlta aligns its corporate goals with the UN Sustainable Development Goals and its climate change strategy with CDP (formerly Climate Disclosure Project) and the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. TransAlta has been recognized by CDP with an ‘A-‘ rating. TransAlta has achieved a 61 per cent reduction in GHG emissions since 2015.
For more information about TransAlta, visit our web site at transalta.com.
Phone: 1-800-387-3598 in Canada and U.S.
Email: [email protected]
Email: [email protected]
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