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TransAlta Reports Second Quarter 2017 Results and Revised 2017 Outlook
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PR Newswire
CALGARY, Aug. 9, 2017
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 | 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 Werbung Mehr Nachrichten zur Transalta Aktie kostenlos abonnieren
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