Transalta Corporation · TSX:TA
Transalta — Investor Day (October 2008)
61 slides from Transalta's investor day presentation, October 2008
Slide 1: 2008 Investor Day
2008 Investor Day Steve Snyder President and CEO ▀1
Slide 2: Forward looking statements
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 t
Slide 3: TransAlta value proposition
TransAlta value proposition VALUE PROPOSITION Consistent Returns Financial Strength CANADA Strong balance sheet Investment grade ratios Contracted cash flows Low to Moderate Risk Business Model UNITED STATES GENERATION CAPACITY Diversified fleet FACILITIES OWNED Mix of contracts Coal-fired plants 4,
Slide 4: Strategic position: Delivering shareowner value by energizing the west
Strategic position: Delivering shareowner value by energizing the west FOCUS Drive top decile operations Long- term EPS growth Achieve 92% fleet availability driven by western portfolio expansion Short-term: 2008 - 2012 CANADA Renewable growth in the west Wind Geothermal Co-generation in A
Slide 5: Solid track record of results
Solid track record of results EARNINGS PER SHARE CASH FLOW FROM OPERATIONS 22 - 25% $1,050 40 - 60% CF $950M $1.75 CAGR Growth $1.60 $900 $850M $1.50 $1.31 $1.45 $750 $1.25 $1.16 $600 $1.00 $450 $0.82 $0.75 $0.66 $300 $0.50 $150 $0.25 $0 2004 2005 2006 2007 2008e 2004 2005 2006 2007 2008e COMPARABLE
Slide 6: Strong EPS growth 2008 - 2012 fueled by higher electricity prices and recontracting
Strong EPS growth 2008 - 2012 fueled by higher electricity prices and recontracting Higher commodity prices in Alberta and the PacNW drive EPS growth; scenarios assume no change in availability or contracting strategies EPS AB Prices PNW Prices Estimates $/MWh $/MWh 2008 2012 Low Case $60 - $70 $50
Slide 7: Well positioned to take advantage of opportunities and deal with challenges
Well positioned to take advantage of opportunities and deal with challenges Diversified, low-cost business model + operating excellence + financial strength = short and long-term success CHALLENGES POSITIVES Environmental uncertainties Environmental leadership Rising prices Inflation Recon
Slide 8: 2008 Investor Day - Dawn Farrell
2008 Investor Day Dawn Farrell Executive Vice President Commercial Operations and Development ▀8
Slide 9: Commercial Operations and Development mandate
Commercial Operations and Development mandate M an ts ul ag s e re co ng m di m tra Trading er ci se al ba Hedging elr er at liv io Contracting De ns hi ps Business development Grow assets ▀9
Slide 10: Executing on our strategy
Executing on our strategy In 2007 we said we would: In 2008 we delivered: Expand the current portfolio of assets Announced 3 growth projects in Alberta for an additional 185 MW ; Developed comprehensive organic growth plan Add value to our base business Improved base operations Implement
Slide 11: Alberta power prices expected to be strong
Alberta power prices expected to be strong Low reserve margins will persist Steady price growth in various gas scenarios Alberta Power Market - Forward Market Prices CAD/MWh Strong load growth dependent on oil sands $130 expansion $120 $110 New wind supply will create volatility and raise $100
Slide 12: PacNW prices expected to strengthen as load growth outpaces hydro supply
PacNW prices expected to strengthen as load growth outpaces hydro supply Steady price growth in various gas scenarios Load growth expected to exceed traditional hydro Mid-C Power Market - Forward Market Prices USD/MWh supply $90 $85 Market will see increased reliance on natural gas $80 $75 $70
Slide 13: Alberta PPAs and long-term contracts provide the base of our contracted position
Alberta PPAs and long-term contracts provide the base of our contracted position Hedge strategy targets an average of 90% contracted capacity Total MWs 9,000 8,000 7,000 Merchant 6,000 5,000 4,000 3,000 Alberta PPAs & LTC 2,000 1,000 0 2009 2010 2011 2012 2013 Contracted Open ▀ 13
Slide 14: Alberta & PACNW open merchant positions provide opportunity to capture upside
Alberta & PACNW open merchant positions provide opportunity to capture upside of higher prices Disciplined hedging strategy provides for more secure earnings and cash profile in a volatile and cyclical commodity market Merchant MWs 3,000 2,500 2,000 1,500 2009 2010 2011 2012 Contracts Contracts Cont
Slide 15: Trading provides market knowledge needed to optimize hedging strategy
Trading provides market knowledge needed to optimize hedging strategy while also adding consistent revenue Consistent gross margin returns year-over-year, quarter-over-quarter Trading principles: $Millions $M $50 Gross Margin Majority of trades settle in $45 less than 5 months $40 $35 Focus on l
Slide 16: Western-focused growth plans fuel earnings expansion beyond 2012
Western-focused growth plans fuel earnings expansion beyond 2012 FOCUS Long- term EPS growth Short-term: 2008 - 2012 driven by western Renewable growth in the west portfolio expansion Wind CANADA Geothermal Co-generation in Alberta Thermal uprates CCS Pilot CO2 offsets UNITED STATES Me
Slide 17: Development pipeline leverages expertise and focuses on renewables and cogeneration
Development pipeline leverages expertise and focuses on renewables and cogeneration WIND CO-GEN HYDRO GEOTHL THERMAL Wind Cogen Hydro Geother mal TOTAL Oct, 2008 AB 844 MW 665 MW Storage rights 99 MW 1,608 MW optimization NB 83 MW 83 MW SASK 99 MW 99 MW CA 87 MW 87 MW Total 1,026 MW 665 MW 87 MW 99
Slide 18: 2008 - 2013 Development plan
2008 - 2013 Development plan Projects Announced ENVIRONMENTAL TARGET LOCATION PROJECT CAPACITY FUEL TYPE RESOURCE & PERMITS TURBINE TOTAL PROJECT PPA / COMMERCIAL MW SITE CONTROL Applied Secured SECURED COST LTC OPERATION DATE New Brunswick Kent Hills 96 Wind 9 9 9 $170 PPA/LTC 2008 Alberta Blue Tra
Slide 19: Execution of current plans would result in renewables, natural gas and cogen being nearly half of capacity
Execution of current plans would result in renewables, natural gas and cogen being nearly half of our capacity Based on projects under construction and in advanced development; almost 50% of growth to come from renewables MW 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2007 2008 20
Slide 20: Competitive advantages
Competitive advantages Unique Model + Resource Combination + Proven Strengths Commodity market Brownfield sites Operational excellence intelligence via trading Wind options Technical expertise + Merchant asset Coal reserves Market intelligence contract diversity Water storage Trading
Slide 21: Commercial Operations outlook
Commercial Operations outlook Deliver on growth opportunities: 800 MW of wind in construction in the 2008 - 2013 timeframe 87 MW of geothermal in construction by 2012 Positioned for over 500 MW of cogeneration in Alberta by 2012 Sustain $50 to $70 million of trading gross margin Repositi
Slide 22: 2008 Investor Day - Will Bridge
2008 Investor Day Will Bridge Executive Vice President Generation Technology ▀ 22
Slide 23: Generation Technology mandate
Generation Technology mandate Optimize major maintenance investment and plant availability to deliver 92% fleet availability Direct new build construction to deliver our schedule and cost targets Create significant shareowner value through supplier relationships Evaluate emerging technologie
Slide 24: Executing on our mandate
Executing on our mandate Projects under construction on time and on budget ; Secured delivery of all equipment for growth, Centralia ; modifications and maintenance Disappointed with the reliability challenges in 2008; : corrective plans in place and being acted upon CCS pilot project progre
Slide 25: Delivering on growth: Tracking progress and staying on schedule
Delivering on growth: Tracking progress and staying on schedule All of the growth projects in execution are on track for both cost and schedule ▀ 25
Slide 26: Delivering on growth: Managing ongoing capital costs
Delivering on growth: Managing ongoing capital costs Projects continue to be on budget and are being managed diligently to deal with construction pressures in the Alberta market 90% complete 85% of costs fixed 75% of costs fixed 75% of costs fixed; scheduled during 2009 planned outage Managing press
Slide 27: Market supply trends increase pressures on generators
Market supply trends increase pressures on generators Constrained capacity has built over three years affecting lead times Weeks Lead Time 140% Fabrication Shop Capacity 120 120% Backlog 100 100% Capacity Lim its 80 80% 60 60% 40 40% 20% 20 0% 0 2005 2006 2007 2008 Boiler Components Turbines Generat
Slide 28: Strategic relationships ease pressures on base business and growth
Strategic relationships ease pressures on base business and growth Advanced forecasting and planning is reducing costs and mitigating equipment availability risks Base Business Growth Program Planning Approach: Planning Approach: Five year maintenance planning Continuous life cycle development ;
Slide 29: Major maintenance scorecard
Major maintenance scorecard We are on track to deliver top decile performance from our fleet by 2010 TransAlta fleet availability Availability mix 93% 100% Top Decile 92% 98% 91% 96% 90% 94% 89% 92% 88% 90% 87% 88% 86% 86% 2005 2006 2007 2008e 2009e 2010e 84% Coal Gas & Hydro & Wind Adjusted for Cen
Slide 30: Inflationary pressure is increasing
Inflationary pressure is increasing Commodity and labour inflation affect our target major maintenance spend Oil = $115 180% Steel = $1,050/tonne 170% 160% 150% 140% 130% Oil = $70 Steel = $800/tonne 120% 110% 100% 2007 2008 2009 2010 Alberta Loaded Labour HRP Steel US $/Tonne Energy (Oil) ▀ 30
Slide 31: Major maintenance outlook
Major maintenance outlook We will continue to fight inflation while delivering on our production targets Total Major Maintenance Spend Availability $M 92% $300 91% $250 90% + $30 - $40 M + $10 - $15 M Inflation $200 - $230 M 89% $200 $190 - $200 M Revised $175 - $200 M Scope 88% Investor Day 07 2008
Slide 32: CCS Pilot: Project Pioneer
CCS Pilot: Project Pioneer We are advancing Canada’s first large-scale project to retrofit a power plant to capture and store 1M tonnes of CO2 by 2012 Project Pioneer Largest commercial scale pilot in North America First project in the world to have an integrated underground storage system Pot
Slide 33: Carbon capture and storage: The benefits of chilled ammonia technology
Carbon capture and storage: The benefits of chilled ammonia technology The winning technology will likely be the one with the lowest operating costs Chilled Ammonia – CO2 Amine – CO2 Energy required to break bond Energy required to break bond 262 BTU/LB 703 BTU/LB Source: U.S. Dept. of Energy Nation
Slide 34: Life cycle development
Life cycle development Development of the life cycle plans for the Alberta coal fleet have advanced over the last year • Boilers Return on investment is still • Plant • High energy infrastructure expected to be >20% Risk piping • Electrical • Headers components • Electrical • Rotors Retained ext
Slide 35: Generation Technology outlook
Generation Technology outlook Drive to top decile fleet availability Successfully construct, commission and integrate our Kent Hills, Blue Trail, Sundance 5 Uprate, and Keephills 3 projects Secure new strategic supply relationships to support growth plan Finalize engineering, funding and par
Slide 36: 2008 Investor Day - Richard Langhammer
2008 Investor Day Richard Langhammer Executive Vice President Generation Operations ▀ 36
Slide 37: Generation Operations mandate
Generation Operations mandate Gen Ops safely operates and maintains the plants and Alberta coal mines, providing shareowner value by sustaining and improving availability at optimal cost Safety Lowest Sustainable Cost Plants Alberta Coal Mines Heat Rate Production Availability (of Service) Delivery
Slide 38: Executing on our mandate
Executing on our mandate Improve safety: Annual 10% reduction in our injury frequency rate ; 2008 target: 1.58, forecast: 1.25 Availability YTD: Alberta Thermal: 84.7% : Balance of fleet: (adjusted for 88 day Centralia planned outage) 90.0% ; Improved performance monitoring: Operations D
Slide 39: Cost-benefit analysis indicates delivering 92% fleet availability has significant value
Cost-benefit analysis indicates delivering 92% fleet availability has significant value Addressing 2008 Alberta Thermal challenges; remain on track to achieve 92% fleet availability by 2010 94% 1% improvement = ~500 GWh 92% AB Thermal 90% 88% 86% 84% 82% 2005 2006 2007 2008e 2009e 2010e 2011e 2012e
Slide 40: Investing in productivity will pay for itself
Investing in productivity will pay for itself Productivity investments are key to fighting inflation Investment Initiation of Payback 2007 2008 2009 2010+ 2008 Q1-09 Q2-09 Q3-09 Q4-09 Australia Spare Generator $3M 9 Operations Diagnostic Center $10M $5M 9 AB Thermal Pulverizers $2M $4M 9 Other Proje
Slide 41: Managing our OM&A to maintain the lowest sustainable cost
Managing our OM&A to maintain the lowest sustainable cost Focus on offsetting inflation $/Installed MWh $8 $7 $6 $5 $4 $3 $2 $1 $0 2005 2006 2007 2008e 2009e 2010e 2011e 2012e 1 OM&A Inflation Optimizing costs and keeping our gains requires: Effective planning and disciplined execution Deliverin
Slide 42: Alberta mines provide long-term strategic advantage
Alberta mines provide long-term strategic advantage Low cost, mine mouth prairies operation; predictable movements in strip ratio Strip Ratio 8 7 6 5 4 3 2 1 0 2008e 2009e 2010e 2011e 2012e Long-term, relatively low cost resource; rights to 80 years of coal supply Managing mine cost pressures an
Slide 43: Centralia: On track to deliver improved predictability and long-term flexibility
Centralia: On track to deliver improved predictability and long-term flexibility Return to historic production levels 2010+ 2006 – 2007 Return to Stopped mining 10,500 GWhr Long-term rail and coal resources GWh secured 11,000 Safety & production modifications 10,000 Expanded rail & coal unlo
Slide 44: Generation Operations outlook
Generation Operations outlook Safely deliver 92% fleet availability at the lowest sustainable cost Invest in planned maintenance and improved performance monitoring to reduce unplanned losses Use productivity investments to offset inflationary pressures and improve performance Deliver through
Slide 45: 2008 Investor Day - Brian Burden
2008 Investor Day Brian Burden Executive Vice President & Chief Financial Officer ▀ 45
Slide 46: Investment highlights
Investment highlights Financial strength and solid investment grade ratios ; Low double digit EPS growth ; Strong cash flow ; Efficient and disciplined capital allocation ; Driving near and long-term shareowner value ; ▀ 46
Slide 47: Financial strategy creates near and long-term shareowner value
Financial strategy creates near and long-term shareowner value Maintain financial strength and flexibility Balance sheet remains strong ; $2.2B in credit facilities provides ample liquidity; $900M available $300M U.S. EDC committed facility and $500M U.S. bond issue added in 2008 Stable BB
Slide 48: Strong balance sheet + stable credit ratios + solid liquidity
Strong balance sheet + stable credit ratios + solid liquidity = long-term financial stability CASH FLOW TO TOTAL DEBT CASH FLOW TO INTEREST 35% 7 30% 6 25% 5 20% 4 15% 3 10% 2 5% 1 0% 0 2005 2006 2007 2008e Min. 25% 2005 2006 2007 2008e Min. 4X LIQUIDITY DEBT TO TOTAL CAPITAL $M 60% 50% 40% 30% 20%
Slide 49: Base business expected to deliver low double digit earnings growth
Base business expected to deliver low double digit earnings growth Earnings per share $3.50 $3.00 2004 - 2008 CAGR $2.50 22 - 25% $2.00 $1.60 $1.50 $1.31 $1.16 $1.45 $1.00 $0.82 $0.66 $0.50 2004 2005 2006 2007 2008e 2009 - 2012e 10% 15% 20% ▀ 49
Slide 50: Cash flow growth amplified with recontracting and COD of new projects starting 2011
Cash flow growth amplified with recontracting and COD of new projects starting 2011 Cash flow from operations $M $1,300 2004 - 2008 $1,050 40 - 60% Growth $950 $900 $777 $750 $675 $850 $620 $600 $591 $450 $300 $150 2004 2005 2006 2007 2008e 2009 - 2012e 2009 - 2010e 2011 - 2012e ▀ 50
Slide 51: Balanced capital allocation expected to create consistent growth in shareowner value
Balanced capital allocation expected to create consistent growth in shareowner value Increasing capital efficiency is the focus of management and the Board PRIORITY DIRECTION ACTION Portfolio Divest or improve non-core and Mexico - PSA signed for USD $303.5M under-performing assets Sarnia - pursuing
Slide 52: Sustaining capex supports operational objectives
Sustaining capex supports operational objectives Sustaining capital supports achievement of 92% fleet availability; includes inflation on equipment and higher labour costs $M 2008e 2009e 2010e Sustaining $440 - 480 $300 - 350 $270 - 315 Major Maintenance $110 - 120 $140 - 160 $130 - 150 Mine $100 -
Slide 53: Growth capex spend increased with new projects
Growth capex spend increased with new projects Projects continue to track to schedule and budget $M 2007 2008e 2009e 2010e 2011e Growth $193 $510 - 550 $415 - 450 $95 - 115 $5 - 15 Keephills 3 $160 $320 - 330 $205 - 215 $90 - 100 $5 - 15 Kent Hills $29 $135 - 145 Blue Trail $20 - 25 $85 - 90 Sun 5 U
Slide 54: Cash flow from operations exceeds sustaining capex and announced growth projects
Cash flow from operations exceeds sustaining capex and announced growth projects SOURCES OF CASH FLOW USES OF CASH FLOW 2008 - 2012 2008 - 2012 $5.3 Billion $5.3 Billion $6,000 $6,000 $5,000 $300 Divestiture $5,000 Free Cash Flow $950 Available $4,000 $4,000 Announced Growth $1,100 Capex $3,000 $3,0
Slide 55: Financial plan supports capital allocation priorities
Financial plan supports capital allocation priorities Free Cash $950M Dividend Share Growth GROWTH PROJECTS Buyback $2.5 - $3.0B 1. Asset divestitures 3. Project financing 2. Partnerships 4. Equity post 2010 (If required) Balance Sheet Capacity $1.5 - $2.0B ▀ 55
Slide 56: We can execute on our plan while maintaining investment grade ratios
We can execute on our plan while maintaining investment grade ratios Given current balance sheet strength and market outlook, we have ample room to fund capital priorities and maintain key ratios CASH FLOW TO CASH FLOW TO DEBT TO DEBT (%) INTEREST (X) CAPITAL (%) 7 60% 35% 30% 6 50% 25% 5 40% 20% 4
Slide 57: Financial outlook remains strong
Financial outlook remains strong Shareowners benefit from a financial strategy that provides strength and flexibility through commodity and credit cycles Strong earnings and cash flow growth 2008 - 2012 Financial strength maintained throughout commodity and credit cycles Investment grade ratin
Slide 58: Appendix
Appendix ▀ 58
Slide 59: Minimal debt refinancing
Minimal debt refinancing $M 2008 2009 2010 2011 2012 Thereafter Total TAU Secured Debentures 215 50 265 TAC CDN MTN’s 205 225 251 68 USD MTN’s 315 840 1,155 Other 40 33 25 26 26 214 363 Total 255 238 25 251 341 1,355 2,464 ▀ 59
Slide 60: 2008 Investor Day
2008 Investor Day Steve Snyder President and CEO ▀ 60
Slide 61: Investment highlights
Investment highlights Strong balance sheet, solid financial outlook and low-moderate risk business model Exposure to growing power markets and increasing prices with earnings upside from recontracting in the near- and long-term A strong pipeline of growth opportunities in renewables and natura