Transalta Corporation · TSX:TA
Transalta — Non-Deal Roadshow (September 2006)
34 slides from Transalta's roadshow presentation, September 2006
Slide 1: Corporate Overview
2006 Corporate Overview Steve Snyder, President and CEO Jennifer Pierce, Director, Investor Relations September 2006 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: Three year highlights – 2003 to 2005
Three year highlights – 2003 to 2005 • Dividend – Held at $1.00 • Earnings – Improved comparable earnings by 28% • Cash Flow – Increased by 30% • Free Cash Flow – Maintained above $130MM after dividend • Balance Sheet – Achieved BBB+ credit ratios • Availability – Delivered average fleet availabilit
Slide 4: Business mandate
Business mandate Deliver consistent earnings in excess of the dividend and generate increased free cash flow to invest in strategies that exceed the cost of capital. Down cycle Up cycle EPS potential (per share) $ 0.75 – 1.00 $ 1.25 – 1.75 Cash flow potential (MM) $ 500 – 600 $ 700 – 800 Credit rati
Slide 5: Outline
Outline • Competitive business model • Financial discipline • Value growth opportunities • Why invest in TransAlta 5
Slide 6: Competitive business model
Competitive business model Operational Organizational pillars focus Processes Deliverables Improvements through Reduced labour Daily production Traditional strength benchmarking, SMART Signal, (1 year) Fuel efficiency fuel Improvements through Reduced forced outages Required Major focus equipment as
Slide 7: Diversified portfolio
Diversified portfolio Diversified, highly contracted portfolio enhances stability 2 Fuel type Geographic Fleet age Contract 1 1 diversification diversification cover 3 Coal Canada 0-5 6 -15 AB PPA Gas U.S. 16-30 31-40 Contracted Hydro & renewables Mexico & Australia > 40 yrs Spot Sales 1) Calculatio
Slide 8: Alberta – Very strong market position
Alberta – Very strong market position Market Profile • Small deregulated market, limited transmission access • Peak load = 10,000 MW • Reserve margin = 16.6% incl. imports & hydro • Annual demand growth = 3.5% • Growth drivers: oilsands, regional economic expansion Profitability Drivers Net capacity
Slide 9: Ontario – Opportunistic participant
Ontario – Opportunistic participant Market Profile • Large, managed market • Peak load = 27,000 MW • Reserve margin = 15% • Annual demand growth = 1% • Growth drivers: replacement of coal generation, demand for energy, capacity and ancillary services Net capacity = 697 MW1 Fuel type Contract diversi
Slide 10: U.S. Pacific NW – Solid market presence
U.S. Pacific NW – Solid market presence Market Profile • Large, hybrid market, linked to Cdn and WECC markets • Peak load = 28,000 MW • Reserve margin = 25% @ normal hydro • Annual demand growth = 1.0% • Growth drivers: economic expansion, Net capacity = 1,653 MW1 renewable mandates Fuel type Contra
Slide 11: U.S. – Mid-American Energy partnership
U.S. – Mid-American Energy partnership Profile • CE Generation and Wailuku River Hydro. • Geo-thermal, natural gas and hydro resources • CA, AZ, TX, NY, Hawaii Profitability Drivers Net capacity = 478 MW1 • Long-term performance based contracts Fuel type Contract (2009-2035) diversification cover •
Slide 12: International – Established provider
International – Established provider Net capacity = 811MW Mexico = 6% of portfolio capacity • Net capacity = 511 MW, 100% nat. gas • Large, fully regulated market • Peak load = 36,000 MW • Reserve margin = 47% @ normal hydro • Annual demand growth = 5% Australia = 3% of portfolio capacity • Growth d
Slide 13: Operational excellence
Operational excellence Focus on operational excellence continues to drive increased availability, reduce variable cost and lower maintenance capex $MM Total Major Maintenance Cost Availability 250 100% Estimate Estimate 95% 200 $150-170 $150-175 90% 150 85% 100 80% 50 75% 0 70% 2003 2004 2005 2006e
Slide 14: Life-cycle planning advantage
Life-cycle planning advantage Long-range Short-range Execution Engineering planning planning real-time 2 - 20 years plus 0 – 2 years • Condition • Optimization • Leverage suppliers • Reduce durations assessment scenarios • Productivity • Real time productivity • Technical plans • Balance technical/
Slide 15: Life-cycle planning advantage
Life-cycle planning advantage Traditional plant cost curve Competitive opportunity $ X X X X 0 – 5 yrs 25 yrs Life extension Gas / G3 AB Thermal / Centralia Age X = strategic investment opportunities 15
Slide 16: Financial discipline – Achieved BBB+ ratios
Financial discipline – Achieved BBB+ ratios Grow Portfolio Value Buy, Build, Hold, Sell to improve returns. Maintain moderate risk profile Stable Ratios Strengthen Integrate Financial Position Reduce cost through Pay down debt and/or improved availability and buy back shares productivity, achieve op
Slide 17: Financial highlights
Financial highlights EPS (2003-2005) Cash Flow to Cash Flow to Cash Flow to Interest $ Interest (x's) Total Debt Reported EPS 6 Cash Flow to Total Debt 30% 1.4 1.2 Comparable EPS 5 25% 1 4 20% 0.8 3 15% 0.6 2 10% 0.4 0.2 1 5% 0 0 0% 2003 2004 2005 2006 YTD 2003 2004 2005 2006 YTD Cash Flow from Oper
Slide 18: Free cash flow focus
Free cash flow focus Lower interest expense and reduced sustaining capex should positively impact Free Cash Flow Canadian$ (MM) YTD ‘06 05 04 03 Cash flow from operating activities 267 619 591 474 Less: sustaining capex 91 284 204 135 Less: scheduled debt repayments 26 40 28 2 Less: distribution to
Slide 19: Portfolio management required for value growth 2007 – 2010
Portfolio management required for value growth 2007 – 2010 Potential LT Contracts Fuel Advantage > EPS > Cash > ROCE Alberta Australia PacNW Mexico Ontario ? ? ? ? 19
Slide 20: Value growth opportunities
Value growth opportunities Increasing free cash flow will be invested into strategies the exceed our imbedded cost of capital Blue Sky Options Greenfield Asset Acquisitions Brownfield Coal Uprates Probability of Our Lower Transaction Higher Existing Lower Risks Higher Portfolio Productivity 20
Slide 21: Why invest in TransAlta
Why invest in TransAlta • Operational excellence Maintain dividend Solid Cash Flow • Life-cycle management Reduce payout & Earnings • Financial discipline FCF generation • Cash flow to interest Financial Maintain stable • Cash flow to debt Discipline • Debt to capital credit rating Value Growth ROCE
Slide 22: Appendix
Appendix A P R I L 2 7, 2 0 0 6 22
Slide 23: Delivered solid results
Delivered solid results Stable dividend and increasing comparable earnings per share Canadian$ YTD ‘06 YTD ‘05 05 04 03 Net Earnings (MM) 156 75 199 170 234 Per Share Net earnings 0.78 0.38 1.01 0.88 1.26 Comparable earnings 0.53 0.38 0.88 0.66 0.69 Dividends 0.50 0.50 1.00 1.00 1.00 Cash flow (MM)
Slide 24: Mexico – Variable interest entity
Mexico – Variable interest entity FY FY FY YTD’06 YTD’05 2005 2004 2003 Availability (%) 88.1 94.4 93.4 88.2 93.8 Production (GWh) 1,488 1,430 2,750 3,164 1615 Revenues (C$MM) 116 122 270 252 107 Equity income (C$MM) 1.0 6.0 (1) (9) (6) Debt (C$MM) 117 123 141 157 204 Effective Jan. 1, 2005, TransAl
Slide 25: Strengthened financial position
Strengthened financial position S&P upgraded debt to BBB, goal is to achieve BBB+ ratios YTD’06 05 04 03 Target Cash flow to interest1 (times) 6.3 4.8 4.3 3.4 4.2 Cash flow to total debt2 (%) 28 23.5 19.1 17.1 28 Debt to total capital3 (%) 41.5 43.6 46.4 46.2 45 1. Cash flow from operations before c
Slide 26: Capital structure
Capital structure Canadian$ (MM) 05 04 Debt, net cash and interest-earning investments $2,539 $2,534 Preferred securities 175 475 Other non-controlling interests 559 616 Common shareholder equity 2,543 2,470 5,815 6,096 26
Slide 27: Liquidity
Liquidity Canadian$ (MM) Dec.31, 2005 Dec.31, 2004 Dec.31, 2003 Cash 86 110 134 Committed credit facility 1,500 1,500 1,500 Non-committed credit facility 333 333 343 Available 1,919 1,943 1,977 Short-term debt 13 34 120 LC’s Issued 695 447 570 Total Available 1,211 1,462 1,287 27
Slide 28: Debt maturity schedule
Debt maturity schedule $MM 400 350 300 250 200 350 150 300 300 255 215 225 100 200 U.S. U.S. 175 141 50 110 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2029 2030 2050 *Excludes non-recourse debt balances of US$332.5M and CAD$192.1 with various maturity dates 28
Slide 29: International footprint
International footprint Total capacity owned and operated = 9,000 MW 29
Slide 30: Current markets view
Current markets view Canada USA International Criteria Western Alberta Ontario PacNW CAL Mexico Australia Peak Demand (MW) 10,000 27,000 28,000 51,600 36,000 3,600 Reserve Margins1 16.6% 15% 25%2 12% 47%1 15% Projected Electricity Demand Growth 3.5% 1.0% 1.0% 2.3% 5.0% 3.8% 75% Dominant 50% 33% hydr
Slide 31: Mitigating impact of mine maturity
Mitigating impact of mine maturity • Mine maturity increasing costs TransAlta Centralia Mine o Increasing levels of overburden and longer haul distances o 2006 costs estimated to be ~$80 million higher vs. 2005 • Multi-pronged approach to margin protection o Upgrade Centralia Coal plant contracts
Slide 32: Pro-active emissions management
Pro-active emissions management • Policy engagement with government to encourage rational regulations. SO2 EMISSION INTENSITY (kg / MWh) Total SO2 Emissions per Unit of Generation • Capital planning for the use of technology to meet Forecast Total SO2 Emissions per Unit of Generation emission requir
Slide 33: Impact of emission regulations
Impact of emission regulations Aggregate Capital and O&M Estimate 2006 2008 2010 2006 - 2010 ($MM) $35 AB GHG Can GHG $2 AB Mercury Req’mts Req’mts Req’mts $30 Alberta Offset G3 < 10 – 15% < 70% $25 NOx and SO2 Can GHG $20 Caps Req’mts $25 Ontario < 10 – 15% - Maintain level $15 $10 Possible PacNW M
Slide 34: Contracts enhance cash flow stability
Contracts enhance cash flow stability Supports Moderate Risk Profile Contracting Levels 100% • Objective: 75 – 80% contracted 80% • Current contracting levels: 60% ~ 90% in 2006 - 2007 40% ~ 79% in 2008 - 2010 20% • Recontracting plans have specific regional and asset targets to 0% 2006 2007 2008 20