Slide 1: Investor Presentation March 2011
Investor Presentation March 2011
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: Outline
Outline ] Value proposition and strategy ] Near and longer-term upside potential ] Financial strength and capital allocation 3
Slide 4: Value proposition and strategy
Value proposition and strategy Canada’s largest publically traded wholesale power generator & marketer Yield, upside potential, and steady disciplined growth CANADA Low-to-moderate risk profile UNITED STATES Financial strength Generation Facilities: Coal-fired plants 4,092 MW Gas-fired plants 1,843
Slide 5: Strategy: The last 10 years
Strategy: The last 10 years Diversified growth & optimization have driven a 55% increase in gross margins Acquired Acquired Acquired Acquired Constructed Transitioned Divested Renegotiated Canadian Retired Constructed Centralia Vision Quest CE Gen Genesee 3 to PRB coal Mexico Sarnia Hydro Wabamun Ke
Slide 6: Significantly increased renewable portfolio
Strategy: The last 10 years Significantly increased renewable portfolio Renewable Portfolio Capacity MW 2,500 2,000 1,500 1,000 500 0 2000 2005 2010 2011e Hydro Wind Geothermal Biomass 6
Slide 7: Diversification and contracting drives growth
Diversification and contracting drives growth Funds from operations have grown despite lower market prices Funds From Operations vs. Weighted Average Price / Merchant MWh Produced $MM $/MWh 7
Slide 8: Next 10 years
Next 10 years Near Term Long Term 2011 - 2014 2014 - 2020 ] Continue to drive productivity and ] Information technology & strategic lower costs suppliers drive productivity Drive Drive the the Base Base ] Sustain improved operational ] Prepare transition from PPAs performance ] Deliver on 304 MW of
Slide 9: Centralia Update
Centralia Update On March 5th, 2011, Washington State Senate passed a bill regarding Centralia Key Terms Benefits to TransAlta ] Closure of one unit by 2020 and the other by 2025 ] Ability to enter into long-term contracts ] TransAlta agrees to install SNCRs by 2013 (~$30 • Utilities incented to ent
Slide 10: Alberta market
Alberta market Forward prices remain soft due to low natural gas prices and capacity additions, long-term fundamentals remain strong, driven by oil sands recovery $/MWh Positives Alberta Power Prices1 $100 $90 Actuals Current Market ] Alberta Economics: GDP growth to range from $80 ] +$1 / GJ = ~$8
Slide 11: PacNW market
PacNW market Improvements in demand; forward price recovery driven by natural gas Positives US$/MWh PacNW Power Prices1 $70 Actuals Current Market $60 ] Demand destruction slowing down; -1.8% for ] +$1 / MMBtu = ~$7 - $9 / MWh $50 2010 versus -3.2% last year $40 ] 1.9% demand growth per year for the
Slide 12: Significant upside to price plus growth in the medium-term
Significant upside to price plus growth in the medium-term Hedging strategy provides leverage to power price recovery Merchant Portfolio Contractedness Avg. Incremental EBITDA From $MM Higher Prices (2011 – 2014)2 Merchant MWs $250 3,500 At a 10% ROCE, 200 MW 2013 2014 2012 growth can add another 3,
Slide 13: Significant upside potential
Significant upside potential End of PPAs will provide significant EBITDA upside as production reverts back to TransAlta Est. Estimated Incremental EBITDA in 2021 EBIT $MM $750 - $1,250 M 2 $1,750 $1,500 $1,250 $1,250 $1,000 $1,000 $750 $500 $250 $- 1 $60 $70 $80 $90 $100 $110 $120 Alberta Power Pric
Slide 14: Excellent long-term potential from PPA facilities
Excellent long-term potential from PPA facilities $MM Potential EBITDA Cumulative Potential Upside $2,500 from PPA Expiry (2018 – 2029)1,2 Price Upside Post PPA Value ($/MWh) $60 $2.1 B TA Base1 $120 $8.5 B Value $- 2010 2010 2021 2021 1 Excludes upside from incremental growth, replacement opportuni
Slide 15: Opportunity
Opportunity Canada’s 45 year plan provides significant future investment opportunities in Alberta alone Investment Opportunities MW (TransAlta Fleet Only) 7,000 6,000 5,000 TransAlta AB Portfolio Growth 5,400 MW at 4,000 Market Prices 3,000 Replacement Opportunity* 2,000 $10 - $15 B Investment Oppor
Slide 16: Cash flow / funds from operations
Cash flow / funds from operations Cash flow accounts for tax pool benefits, adds back non-cash accounting charges, and captures future value of PPA expiry ] Captures the benefit of our significant tax pools and attractive tax treatment of renewables ] Adds back non-cash accounting charges (e.g. dep`
Slide 17: Strong near-term cash flows
Strong near-term cash flows Expecting $800 - $900 M in funds from operations for 2011 Funds from Operations Dividend Coverage $MM 2.0 – 2.5x $900 3.0 $800 2.5 $700 $600 2.0 $500 1.5 $400 $300 1.0 $200 0.5 $100 $0 0.0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Sustaining capex Free cash flow D
Slide 18: Capital allocation plan
Capital allocation plan We remain disciplined in how we manage our balance sheet and allocate capital 2011 - 2013 ($B) Funds from operations $ 2.8 Sustaining capex $ (1.3) Dividends $ (0.8) DRASP $ 0.2 NCI $ (0.2) Total $ 0.7 Balance sheet enhancement Growth 18
Slide 19: Appendix
Tra nsAl ta \ Appendix Multiple Fuel Sources wy, Singular Value 1s
Slide 20: Performance metrics
Performance goals Performance metrics Performance Goals Measures 2010 2009 Review Availability fell just short of the target as a result of the Availability & Production: Sundance force majeure events. Improved availability was Availability 88.9% 85.1% Achieve 89 – 90% fleet availability driven by l
Slide 21: 2010: Q4 and annual highlights
2010: Q4 and annual highlights Results ($M) Q4 Q4 FY FY 2010 2009 2010 2009 Revenues $811 $763 $2,819 $2,770 Gross margin $480 $435 $1,617 $1,542 Operating income $210 $159 $497 $378 Comparable earnings $88 $84 $214 $181 Net earnings applicable to common shares $62 $79 $218 $181 Comparable earnings
Slide 22: 2010: Q4 and annual results
2010: Q4 and annual results Comparable earnings Q4 Q4 FY FY 2010 2009 2010 2009 Results ($M) Net earnings applicable to common shares $62 $79 $218 $181 Asset impairment charge, net of tax 54 10 54 10 Unrealized gains related to ineffectiveness in certain (28) - (28) - hedging relationships, net of t
Slide 23: 2010: Q4 and annual results – Net earnings
2010: Q4 and annual results Net earnings Q4 2010 FY 2010 Net earnings applicable to common shares, 2009 $79 $181 (Decrease) increase in Generation gross margins (15) 36 Mark-to-market movements – Generation 46 45 Increase (decrease) in Energy Trading gross margins 14 (6) (Increase) decrease in OM&A
Slide 24: Free cash flow
Free cash flow Q4 Q4 FY FY ($M) 2010 2009 2010 2009 Cash flow from operating activities $309 $246 $811 $580 Add (Deduct): Sustaining capital expenditures (106) (87) (308) (380) Dividends paid on common shares (47) (57) (216) (226) Distribution to subsidiaries’ non-controlling interests (18) (18) (62
Slide 25: Debt profile
Debt profile Minimal debt refinancing over the short-term provides ample financial flexibility (CDN $M) $1,000 $800 $600 $400 $200 $0 2010 2011 2012 2013 2014 2015 2016 2017 2018 Thereafter 1 CDN MTN's US MTN's 1 Based on Sept. 30, 2010 FX rate of $1.03 CAD/US 25
Slide 26: Maintaining investment grade ratios
Maintaining investment grade ratios Execute our plan while maintaining long-term financial strength and stability Cash flow to debt Cash flow to interest 35% 8 30% 7 25% 6 Range: 5 Range: 20% 20 - 25% 4 4 - 5x 15% 3 10% 2 5% 1 0% 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 $B Debt to capital
Slide 27: Sustaining capital
Sustaining capital 2011 - 2013 Sustaining capital plan1 ($M) 2011e 2012e 2013e Sustaining $325 – 375 $435 - 480 $340 - 385 Routine Capital $120 - 135 $115 - 130 $115 - 130 Major Maintenance $180 - 210 $280 - 300 $190 - 210 Mine Capital $25 - 30 $40 - 50 $35 -45 Other Repowering / Life Extension $55
Slide 28: Major maintenance
Major maintenance 2011 Major maintenance plan1 Natural Gas and ($M) Coal Renewables Total Capitalized $105 – 130 $75 - 80 $180 – 210 Expensed - $0 - 5 $0 - 5 GWh lost 1,480 – 1,490 630 - 640 2,110 – 2,130 1 Based on IFRS 28
Slide 29: Executing on our growth strategy
Executing on our growth strategy TransAlta’s growth investments deliver long-term sustainable cash flow and earnings growth Projects Bone Creek Keephills 3 Keephills 1 and 2 Sundance 3 Uprate Uprates Location British Columbia Alberta Alberta Alberta Type Hydro Supercritical Coal Efficiency Uprates E
Slide 30: Advanced development pipeline
Advanced development pipeline Projects in Advanced Development ENVIRONMENTAL TARGET LOCATION PROJECT CAPACITY FUEL TYPE RESOURCE & AND PERMITS TURBINE CAPEX RANGE PPA / COMMERCIAL MW SITE CONTROL Applied Secured SECURED $ MM LTC OPERATION DATE Quebec New Richmond** 66 Wind 9 9 9 $180 - $210 PPA/LTC
Slide 31: Growth capital outlook
Growth capital outlook 2011 - 2012 All projects tracking on time and on budget Completed MW 2010 Total Summerview 2 66 $12 $1181 Kent Hills 2 54 $82 $1002 Ardenville 69 $108 $1353 189 $202 $353 In Progress MW 2010 2011e 2012e Total Bone Creek 19 $50 $484 Keephills 3 225 $221 $20 - 30 $9885 KI & K2 u