TransAlta Reports Fourth Quarter and Full Year 2019 Results
Fourth Quarter 2019 Highlights
-- Generated $121 million or $0.43 per share of free cash flow ("FCF") in
the quarter compared to $98 million or $0.34 per share of FCF for the
same period in 2018, a 26 per cent increase;
-- Advanced our Clean Energy Investment Plan by commissioning 119 MW of new
wind generation and acquiring two gas turbines for the Sundance 5
repowered combined cycle unit project;
-- Entered into an agreement to construct and own a new 40 MW cogeneration
facility; and
-- Returned $41 million of capital to shareholders in the fourth quarter
through the repurchase and cancellation of 4,583,100 common shares at
an average price of $8.95 per share through our normal course issuer bid
("NCIB") program.
Full Year 2019 Highlights
-- Achieved exceptional financial results with FCF of $379 million or $1.34
per share for the full year which was five per cent above 2018 on a per
share basis, adjusting for one-time PPA Termination Payments in both
years;
-- Received $56 million, plus GST and interest on our successful
arbitration related to the Sundance B and C PPA terminations;
-- Generated total FCF of $435 million or $1.54 per share for full year
2019;
-- Achieved adjusted availability of 90.0 per cent in the year;
-- Announced transformative strategic investment by Brookfield Renewable
Partners with receipt of the first $350 million tranche of the $750
million investment advancing our coal-to-gas conversion strategy and
accelerating our return of capital to shareholders through our NCIB;
-- Announced our Clean Energy Investment Plan and timing for our
conversions and repowerings;
-- Entered into an agreement to purchase a 49 per cent interest in the
Skookumchuck wind project;
-- Transported first gas through the Pioneer pipeline four months ahead of
schedule and commenced firm throughput in November;
-- Returned $68 million of capital to shareholders with the repurchase and
cancellation of 7,716,300 common shares at an average price of $8.80 per
share through our NCIB program;
-- Reduced our carbon emissions by approximately 200,000 tonnes compared to
2018, representing a one per cent reduction;
-- Safety results with a Total Incident Frequency ("TIF") rate of 1.12,
representing over a 40 per cent reduction to 2018; and
-- In January of 2020, increased the common share dividend by 6.25 per
cent.
Other Highlights
-- Announced 2020 Outlook in January
-- Comparable EBITDA range of $925 million to $1,000 million, up four
per cent from 2019 at the mid-point;
-- FCF range of $325 million to $375 million; and
-- Sustaining capital range of $170 to $200 million.
CALGARY, March 4, 2020 /PRNewswire/ - TransAlta Corporation ("TransAlta" or the "Company") (TSX: TA) (NYSE: TAC) today reported its fourth quarter and full year 2019 financial results, with comparable EBITDA((1,2) )of $928 million for the full year. Funds from operations ("FFO")((1,2)) decreased nine per cent to $701 million for the full year compared to $770 million in 2018. FCF((1,2)) for the full year was $379 million, representing a three per cent increase over 2018. These financial results exclude the one-time payments in both periods for the early termination of the Sundance B and C Power Purchase Arrangements (the "PPA Termination Payments"). The strong financial results for the year highlight the exceptional performance of the business when considering the expected free cash flow decline as a result of the expiry of the Mississauga contract and lower scheduled payments on the Poplar Creek contract. With the inclusion of the PPA Termination Payments, we earned $435 million of FCF or $1.54 per share.
Comparable EBITDA decreased by $177 million compared to 2018. After adjusting for the PPA Termination Payments in 2019 and 2018, comparable EBITDA decreased by $76 million for the year ended December 31, 2019, compared to 2018. This decrease was expected as a result of the expiry of the Mississauga contract and lower scheduled payments on the Poplar Creek contract. Strong performance at the Canadian Coal and Energy Marketing segments as well as lower Corporate costs have significantly offset this expected decrease. Comparable EBITDA for the year ended December 31, 2019 was negatively impacted by the unplanned outage at US Coal during the first quarter of 2019.
OM&A expense for the year ended December 31, 2019 decreased by $40 million compared to 2018. This decline in OM&A is largely due to lower costs in our Canadian Coal and Corporate segments and ongoing streamlining of our workforce. Lower salary, contractor and materials expenses were partially offset by higher legal fees.
FCF increased by $12 million in 2019 compared to 2018, primarily as a result of stronger year-over-year cash flow from operating activities and lower sustaining and productivity capital expenditures after adjusting for the PPA Termination Payments.
"Our performance for the year was very strong from a financial, operational and strategic perspective," said Dawn Farrell, President and Chief Executive Officer. "We successfully navigated key milestones throughout the year and entered into a transformational transaction that benefited all shareholders as we were able to accelerate our strategy and return capital to shareholders. All of the hard work by the TransAlta employees throughout the year has allowed us to progress on our main goal which is to be 100 per cent clean electricity by 2025."
2020 Objectives
In addition to meeting the financial targets defined in the outlook, everything we do in 2020 will move us closer to 100 per cent clean power by 2025. Our teams are focused on the following:
-- Delivering a full year of cash flow from Big Level and Antrim, which
reached commercial operation in December 2019;
-- Significantly progressing the construction of the SemCAMS cogeneration
project and Windrise wind facilities for commercial operation in 2021;
-- Completing the Sundance Unit 6 gas conversion in 2020;
-- Advancing the Sundance Unit 5 repowering project for commercial
operation in 2023;
-- Preparing Keephills Units 2 and 3 for gas conversions in 2021;
-- Repaying the $400 million bond maturing in November 2020;
-- Continuing the share buyback program in an additional amount up to $80
million in 2020;
-- Achieving commercial operation for the WindCharger 10 MW battery project
in 2020; and
-- Progressing on our Environment, Social and Governance ("ESG") targets
which are outlined below.
ESG Targets
-- A continued focus on safe operations and environmentally sustainable
practices, including by minimizing environmental incidents and
undertaking significant reclamation work;
-- By 2030, achieving a 95% reduction of SO(2 )emissions and a 50%
reduction of NOx emissions over 2005 levels from TransAlta's coal
facilities, and a Company-wide reduction of greenhouse gases emissions
of 60% below 2015 levels;
-- Undertaking initiatives that will enhance the environmental performance
of the Company, including converting coal facilities to gas and
developing new renewable projects that support customer sustainability
goals to achieve both long-term power price affordability and carbon
reductions;
-- Supporting equal access to all levels of education for youth and
Indigenous peoples through financial assistance and employment
opportunities;
-- Enhancing our commitment to workplace diversity and adopting a target of
50 per cent female membership on the Board by 2030 and achieving gender
diversity of at least 40 per cent of female employment for all employees
by 2030; and
-- Maintaining our commitment to leading ESG disclosure.
Fourth Quarter Highlights
-- Entered into an agreement with Kineticor Holdings Limited #2 to
indirectly acquire two 230 MW Siemens F class gas turbines and related
equipment for $84 million, which will be redeployed to our Sundance site
as part of the strategy to repower Sundance Unit 5 to a highly efficient
combined cycle unit. The Company is assuming long-term power purchase
agreements for capacity plus energy, including the pass-through of GHG
costs, starting in late 2023 with Shell Energy North America (Canada).
-- TransAlta and SemCAMS announced that they entered into definitive
agreements to develop, construct and operate a cogeneration facility at
the Kaybob South No. 3 sour gas processing plant. The Kaybob facility is
strategically located in the Western Canadian Sedimentary Basin and
accepts natural gas production out of the Montney and Duvernay
formations. TransAlta will construct the cogeneration plant which is
expected to be jointly owned, operated and maintained with SemCAMS. The
capital cost of the new cogeneration facility is expected to be
approximately $105 million to $115 million and the project is expected
to deliver approximately $18 million in annual EBITDA.
Important Subsequent Events
-- On January 16, 2020, we announced our financial outlook and ESG targets
for 2020, highlighted by the addition of recently commissioned projects
and productivity improvements, which are expected to drive strong
comparable EBITDA and FCF performance in 2020. The Company also
announced that the Board of Directors determined that following the
retirement of Ambassador Gordon D. Giffin at the upcoming annual
shareholder meeting, John P. Dielwart will be appointed Chair of the
Board, pending his re-election to the Board. Lastly, TransAlta declared
an increase in the annualized dividend to $0.17 per common share,
representing a 6.25 per cent increase.
Fourth Quarter and Full Year Segmented 3 Months Ended Year Ended
Review Comparable EBITDA (in CAD$ millions) Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2019 Dec. 31, 2018
Canadian Coal 55 48 263 232
U.S. Coal 29 24 73 91
Canadian Gas 29 74 120 259
Australian Gas 28 32 118 124
Wind and Solar 80 82 231 233
Hydro 18 17 110 109
Energy Marketing 26 16 89 43
Corporate (22) (28) (76) (87)
Total Comparable EBITDA(2) 243 265 928 1,004
---
-- Canadian Coal: Excluding the PPA Termination Payments, comparable EBITDA
for the year ended Dec. 31, 2019, increased $31 million compared to
2018. This largely reflects lower fuel, carbon compliance, and
purchased power costs, as well as lower OM&A costs.
-- U.S. Coal: Comparable EBITDA decreased by $18 million compared to 2018,
primarily due to an isolated and extreme pricing event in March.
Centralia was unable to commit one of its units to physical production
for day-ahead supply due to an unplanned forced outage repair.
-- Canadian Gas: Comparable EBITDA for 2019 decreased by $139 million
compared to 2018, mainly due to the Mississauga contract ending Dec. 31,
2018 and lower scheduled payments from the Poplar Creek finance lease.
Comparable EBITDA for the year ended December 31, 2019, includes nil
(2018 - $105 million) and $20 million (2018 - $57 million) from the
Mississauga and Poplar Creek contracts, respectively. Additionally,
comparable EBITDA benefited from lower OM&A compared to the prior year
as a result of reduced overhead and operating costs.
-- Australian Gas: Comparable EBITDA for the year ended Dec. 31, 2019,
decreased by $6 million compared to 2018, due to the weakening of the
Australian dollar and ongoing legal costs associated with our disputes
with FMG .
-- Wind and Solar: Comparable EBITDA for 2019 was consistent with 2018.
Higher insurance proceeds from tower fires at Wyoming Wind and
Summerview were partially offset by a reduction in revenues due to the
scheduled expiration of production-based incentives for three wind
facilities.
-- Hydro: Comparable EBITDA for 2019 increased by $1 million compared to
2018, as we were able to reduce OM&A due to cost- saving initiatives,
while absorbing the $1.5 million Brookfield Hydro Fee.
-- Energy Marketing: Comparable EBITDA for 2019 increased by $46 million
compared to 2018 results, due to strong results from all Marketing
segments, with particularly strong performance from US Western and
Eastern markets due to continued high levels of volatility. OM&A
increased due to higher incentives related to stronger performance. The
Energy Marketing team was able to capitalize on short-term arbitrage
opportunities in the markets in which we trade without materially
changing the risk profile of the business unit.
-- Corporate: Our Corporate overhead costs in 2019 were $76 million, a
decrease of $11 million compared to $87 million in 2018, primarily due
to cost-efficiency initiatives and payments on lease obligations. In
addition, we realized a net gain of $13 million from the total return
swap on our share-based payment plans, which was mostly offset by higher
legal fees. A portion of the settlement cost of our share-based payment
plans is fixed by entering into total return swaps, which are cash
settled every quarter. Corporate cash flow also benefited from lower
sustaining and productivity capital spend due to higher spend in 2018 on
automation and new information technology solutions implemented in prior
years, which helped contribute to the cost efficiencies realized in
2019.
Consolidated Financial Highlights
Net earnings attributable to common shareholders for the year ended December 31, 2019, were $52 million, compared to a loss of $248 million in the prior year. Increased earnings were partially driven by the Keephills 3 and Genesee 3 swap with Capital Power Corporation that closed in the fourth quarter of 2019, where we recognized a gain on termination of the coal rights contract of $88 million and a gain on the sale of Genesee 3 of $77 million, in addition to the $56 million PPA Termination Payments received during the third quarter of 2019. Excluding the PPA Termination Payments and impairment charges in both years, as well as the gains related to Keephills 3 and Genesee 3 in 2019, we have a net loss of $20 million in 2019 compared to a net loss of $174 million in 2018. Stronger earnings are attributable to stronger performance at Canadian Coal and Energy Marketing, strong Alberta pricing, the Alberta tax rate reduction, lower OM&A costs and lower interest expense, partially offset by other losses on sale of property, plant and equipment.
Total sustaining capital expenditures of $141 million were $9 million lower compared to 2018 primarily due to lower planned major maintenance in our coal segments. Total capital expenditures of $150 million, which includes productivity capital expenditures, was in line with our expectations for the year.
Fourth Quarter and Year Ended 2019 Highlights
In $CAD millions, unless otherwise stated
3 Months Ended
Year Ended
Dec. 31, 2019 Dec. 31, 2018 Dec. 31, 2019 Dec. 31, 2018
Adjusted availability (%)(4,5) 91.6% 91.5% 90.0% 91.3%
Production (GWh) (5) 8,153 8,276 29,071 28,409
Revenues 609 622 2,347 2,249
Fuel, carbon compliance and purchased power 286 336 1,086 1,100
Operations, maintenance and administration 127 139 475 515
Net earnings (loss) attributable to common 66 (122) 52 (248)
shareholders
Cash flow from operating activities 181 132 849 820
Comparable EBITDA(1,2,3) 243 265 984 1,161
FFO(1,3) 189 217 757 927
FCF(1,3) 121 98 435 524
Net earnings (loss) per share attributable to common $
0.24 $
(0.43) $
0.18 $
(0.86)
shareholders, basic and diluted
FFO per share(1,3) $
0.67 $
0.76 $
2.67 $
3.23
FCF per share(1,3) $
0.43 $
0.34 $
1.54 $
1.83
Dividends declared per common share $
0.04 $
0.08 $
0.12 $
0.20
Dividends declared per preferred share(6) $
0.26 $
0.52 $
0.78 $
1.29
TransAlta is in the process of filing its Annual Information Form, Audited Consolidated Financial Statements and accompanying notes, as well as the associated Management's Discussion & Analysis ("MD&A"). These documents will be available today on the Investors section of TransAlta's website at www.transalta.com or through SEDAR at www.sedar.com.
TransAlta will also be filing its Form 40-F with the U.S. Securities and Exchange Commission. The form will be available through their website at www.sec.gov. Paper copies of all documents are available to shareholders free of charge upon request.
Notes
(1)
These items are not defined under
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
Comparable EBITDA, Funds from
Operations and Free Cash Flow and
Earnings and Other Measures on a
Comparable Basis sections of the
Company's MD&A for further
discussion of these items,
including, where applicable,
reconciliations to measures
calculated in accordance with IFRS.
(2)
During the first quarter of 2019,
we revised our approach to reporting
adjustments to arrive at Comparable
EBITDA, mainly to be more comparable
with other companies in the
industry. Comparable EBITDA is now
adjusted to exclude the impact of
unrealized mark-to-market gains or
losses. The current and prior period
amounts have been adjusted to
reflect this change.
(3)
Includes the PPA Termination
Payment of $157 million received
from the Balancing Pool for the
early termination of Sundance B and
C PPAs in the first quarter of 2018
and $56 million received following
the successful outcome of the
dispute with the Balancing Pool in
the third quarter of 2019.
(4)
Availability and production
includes all generating assets under
generation operations that we
operate and finance leases and
excludes hydro assets and equity
investments. Production includes all
generating assets, irrespective of
investment vehicle and fuel type.
(5)
Adjusted for economic dispatching
at U.S. Coal.
(6)
Weighted average of the Series A,
B, C, E, and G preferred share
dividends declared. Dividends
declared vary year over year due to
timing of dividend declarations.
Conference call
TransAlta will hold a conference call and webcast at 8:00 a.m. MST (10:00 a.m. EST) today, March 4, 2020, to discuss our fourth quarter and full year 2019 results. The call will begin with a short address by Dawn Farrell, President and CEO, and Todd Stack, Chief Financial Officer, followed by a question and answer period for investment analysts and investors. A question and answer period for the media will immediately follow.
Dial-in numbers - Fourth Quarter and Full Year 2019 Results:
Toll-free North American participants call: 1-888-231-8191
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 6481289 followed by the # sign. A transcript of the broadcast will be posted on TransAlta's website once it becomes available.
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 100 years, TransAlta has been a responsible operator and a proud community-member where its employees work and live. TransAlta aligns its corporate goals with the UN Sustainable Development Goals and has been recognized by CDP (formerly Climate Disclosure Project) as an industry leader on Climate Change Management. TransAlta is proud to have achieved the Silver level PAR (Progressive Aboriginal Relations) designation by the Canadian Council for Aboriginal Business.
For more information about TransAlta, visit our web site at transalta.com.
Cautionary Statement Regarding Forward Looking Information
This news release contains forward looking statements, including statements regarding the business and anticipated financial performance of the Company that are based on the Company's current expectations, estimates, projections and assumptions in light of its experience and its perception of historical trends. In some cases, forward-looking statements can be identified by terminology such as "plans", "expects", "proposed", "will", "anticipates", "develop", "continue", and similar expressions suggesting future events or future performance. In particular, this news release contains, without limitation, statements pertaining to: our 2020 outlook, including EBITDA, FCF and sustaining capital; our 2020 objectives, including significantly progressing the construction of the Kaybob cogeneration project and Windrise wind facilities to achieve commercial operation in 2021, completing the Sundance Unit 6 gas conversion in 2020, advancing the Sundance Unit 5 repowering project and achieving commercial operation in 2023, converting Keephills Units 2 and 3 to gas in 2021, repaying the $400 million bond maturity, continuing the share buyback program in an additional amount of up to $80 million, achieving commercial operation for the WindCharger battery project; achieving a 95% reduction of SO(2) emissions and a 50% reduction of NOx emissions over 2005 levels from TransAlta's coal facilities, and a Company-wide reduction of greenhouse gases emissions of 60% below 2015 levels; enhancing the environmental performance of the Company; achieving 50 per cent female membership on the Board by 2030 and achieving gender diversity of at least 40 per cent of female employment for all employees by 2030; the construction and expected capital cost of the new Kaybob cogeneration facility and this project's expected annual EBITDA; and the appointment of John P. Dielwart as Chair of the Board. The forward-looking statements contained in this news release are based on current expectations, estimates, projections and assumptions, having regard to the Corporation's experience and its perception of historical trends, and includes, but is not limited to, expectations, estimates, projections and assumptions relating to: foreign exchange rates; global economic growth; electricity load growth; electricity prices and carbon tax; interest rates; sufficiency of our budgeted capital expenditures in carrying out our business plan; applicable laws, regulations and government policies; the availability and cost of labour, services and infrastructure; and the satisfaction by third parties of their obligations, including under power purchase agreements. These forward-looking statements are not historical facts but are based on TransAlta's belief and assumptions based on information available at the time the assumptions were made, including, but not limited to, the current political and regulatory environment, the price of power in Alberta and the condition of the financial markets. These statements 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: operational risks involving our facilities; changes in market prices where we operate; unplanned outages at generating facilities and the capital investments required; equipment failure and our ability to carry out repairs in a cost effective and timely manner; the effects of weather, catastrophes and public health crises; disruptions in the source of thermal fuels, water, solar or wind required to operate our facilities, including the necessary natural gas supply to support the conversion of the coal units; energy trading risks; failure to obtain necessary regulatory approvals in a timely fashion, or at all; negative impact to our credit ratings; legislative or regulatory developments and their impacts; increasingly stringent environmental requirements and their impacts; increased competition; global capital markets activity (including our ability to access financing at a reasonable cost); changes in prevailing interest rates; currency exchange rates; inflation levels and commodity prices; general economic conditions in the geographic areas where TransAlta operates; disputes or claims involving TransAlta or TransAlta Renewables, including those pertaining to the Brookfield investment and the commissioning of South Hedland; and other risks and uncertainties discussed in the Company's materials filed with the securities regulatory authorities from time to time and as also set forth in the Company's MD&A and Annual Information Form for the year ended December 31, 2019. 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. The purpose of the financial outlooks contained in this news release are to give the reader information about management's current expectations and plans and readers are cautioned that such information may not be appropriate for other purposes and is given 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.
Note: All financial figures are in Canadian dollars unless otherwise indicated.
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SOURCE TransAlta Corporation
