Transalta Corporation · TSX:TA
Transalta — Investor Presentation (March 2009)
36 slides from Transalta's investor presentation, March 2009
Slide 1: Investor Presentation March 2009
Investor Presentation March 2009 ▀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: Agenda
Agenda Value Proposition Strategy Operational Excellence Environmental Leadership Markets & Outlook ▀3
Slide 4: TransAlta's value proposition
TransAlta’s value proposition Yield plus steady and disciplined growth Providing a strong dividend payout ratio: target of 60 - 70% Low double digit comparable earnings per share growth Disciplined capital allocation Committed to paying a dividend Growth balanced against dividends and sh
Slide 5: TransAlta's strategy
TransAlta’s strategy Wholesale generator & marketer in Western Canada and U.S. Strong long-term market fundamentals Knowledge base provides competitive advantage CANADA Disciplined Growth Short Term: 2009 - 2012 Thermal uprates Renewables: wind & geothermal Medium-term: 2013 - 2015 UNITE
Slide 6: Solid track record of results
Solid track record of results COMPARABLE EARNINGS PER SHARE CASH FLOW FROM OPERATIONS $MM $922 $1.90 22 % $950 56% CF $1.70 CAGR Growth $778 $800 $1.50 $1.46 $675 $1.31 $620 $1.30 $650 $591 $1.16 $1.10 $500 $0.90 $0.82 $350 $0.70 $0.66 $0.50 $200 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 COM
Slide 7: Base operations expected to provide low double digit EPS growth and strong cash flow
Base operations expected to provide low double digit EPS growth and strong cash flow in 2009 & 2010 2004 - 2008 2004 - 2008 CAGR: 22% 56% $ MM Growth $1,050 $2.50 $9221 $900 $900 1 $778 $2.00 1 $750 $675 $800 $620 $600 $591 $1.50 $1.46 $1.31 $450 $1.16 $1.00 $0.82 $300 $0.66 $150 $0.50 2004 2005 200
Slide 8: 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 is to contract an average of 90% of adjusted capacity for TransAlta’s fleet Total MWs 9,000 8,000 7,000 Merchant contracting 6,000 strategy targets 25% / yr 5,000 4,000 3,000 Alberta PPAs & LTC 2,000 1,00
Slide 9: Balanced and disciplined capital allocation supports value creation through market cycles
Balanced and disciplined capital allocation supports value creation through market cycles PRIORITY DIRECTION ACTION Dividend Provide shareowners sustainable Board policy is to target a payout ratio of 60 - 70% of dividend growth comparable EPS 2008 annual dividend increased 8% to $1.08 2009 an
Slide 10: Strong balance sheet + stable credit ratios + solid liquidity = long-term financial stability
Strong balance sheet + stable credit ratios + solid liquidity = long-term financial stability CASH FLOW TO TOTAL DEBT CASH FLOW TO INTEREST 35% 8 30% 7 Min 25% 6 25% 20% 5 4 Min 15% 4X 3 10% 2 5% 1 0% 0 2005 2006 2007 2008 2005 2006 2007 2008 COMMITTED LIQUIDITY DEBT TO TOTAL CAPITAL 60% $M $2,500 M
Slide 11: Operational excellence = optimal performance
Operational excellence = optimal performance AB Thermal historical availability within optimum range of 87 - 90% Availability mix 100% 98% 96% 94% 92% 90% Target fleet availability 88% 86% 84% Coal Gas & Hydro & Wind Cogen Geothermal Alberta Thermal Availability TransAlta Fleet Availability 88% 89%
Slide 12: Alberta Thermal boiler challenges
Alberta Thermal boiler challenges AB Thermal historical boiler leaks average 40 per year; 2008 an anomaly 70 60 50 40 30 20 10 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Number of Boiler Leaks Linear (Number of Boiler Leaks) Average number of boiler leaks in a year (1999 - 2007) = 40 In
Slide 13: Achieving the right balance between spend and availability
Achieving the right balance between spend and availability Typical Coal Asset Availability Matrix Sources of Outages “Sweet Spot” 5% Planned Without Major Capital 5% Unplanned / Derate < Years Lost production days are costly Easy to over capitalize Very costly over time Unplanned outage days
Slide 14: Alberta Thermal: Plans expected to deliver higher availability by mid-2009
Alberta Thermal: Plans expected to deliver higher availability by mid-2009 Majority of Alberta Thermal maintenance work is planned for the first half of 2009; remain focused on optimizing capital spend 2008 Availability Maintenance in 2nd half 2008 improved 89% performance of four units 88% Oper
Slide 15: Environmental leadership
Environmental leadership TransAlta is competitively positioned to mitigate emissions costs through early engagement, a portfolio of initiatives and pass through contracts Cost pass through under change-in-law provisions Continuous improvement at existing facilities Emissions Management Active acquis
Slide 16: 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 17: 2009 outlook
2009 outlook 2009 objectives are to deliver low double digit EPS growth, cash flow of $800 - $900M and maintain balance sheet strength POSITIVES CHALLENGES Over 90% contracted for 2009; 85% for Current market conditions put 2010; PPAs provide cash flow stability downward pressure on price and de
Slide 18: Alberta reserve margin tightness underpins pricing
Alberta reserve margin tightness underpins pricing Load growth dependent on economic recovery and oil Steady price growth in various natural gas scenarios sands expansion; supply growth also somewhat dependent Reserve margin will likely remain lower than other regions as new supply is delayed al
Slide 19: PacNW forward prices tracking natural gas movements
PacNW forward prices tracking natural gas movements Steady price growth in various natural gas scenarios Demand weak in short-term due to recession Market continues to see increased reliance on natural gas New supply is mostly wind Intermittent nature may create volatility and higher average
Slide 20: Alberta & PACNW open merchant positions are managed to provide for greater earnings certainty
Alberta & PACNW open merchant positions are managed to provide for greater earnings certainty 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 Contr
Slide 21: Investment highlights - 2010+
Investment highlights - 2010+ Long-term value proposition remains the same Strong balance sheet, solid financial outlook and low to moderate risk business model; contracting strategy provides high degree of earnings protection Long-term market fundamentals for Western Canada and Western U.S. rem
Slide 22: Investment highlights - 2010+
Investment highlights - 2010+ Long-term industry opportunities outweigh short-term market risks Projects under construction tracking well: Sundance 5 uprate (53 MW) Blue Trail wind farm (66 MW) Summerview II (66 MW) Keephills 3 (225 MW) Keephills 1 and 2 uprates (46 MW) Timing on addit
Slide 23: Appendix
Appendix ▀ 23
Slide 24: Performance goals
Performance goals Objectives Measures 2008 Goals 2008 Review Decreased due to higher Achieve top decile Availability 90 -92% 85.8% unplanned outages at AB operations Thermal and Genesee 3 Reduced injury frequency rate Improve Safety1 Injury Frequency Rate 10%/yr 27% to 1.28 from 1.76 10% YOY increas
Slide 25: Strong comparable earnings achieved year to date
Strong comparable earnings achieved year to date Results Q4’08 Q4’07 2008 2007 Revenue (MM) $ 808 $ 783 $ 3,110 $ 2,775 Gross margin (MM) $ 410 $ 435 $ 1,617 $ 1,544 Operating Income (MM) $ 127 $ 184 $ 533 $ 541 Net Earnings (MM) $ 94 $ 130 $ 235 $ 309 Basic and diluted earnings per share $ 0.47 $ 0
Slide 26: Gross margin increases driven by both Generation and Energy Trading segments
Gross margin increases driven by both Generation and Energy Trading segments Net Earnings Q4 2008 2008 Net Earnings, 2007 $ 130 $ 309 (Decrease) increase in Generation gross (31) 7 margins Mark-to-market movements - generation (5) 16 Increase in COD gross margins 11 50 Increase in OM&A costs (23) (6
Slide 27: Free cash flow
Free cash flow Q4 ’08 Q4 ’07 2008 2007 Cash flow from operating activities $ 428 $ 192 $ 1,038 $ 847 Add/(Deduct): Sustaining capital expenditures (171) (178) (465) (417) Dividends on common shares (49) (51) (212) (205) Distribution to subsidiaries’ non-controlling interest (29) (24) (98) (87) Non-r
Slide 28: Minimal debt refinancing
Minimal debt refinancing $M 2008 2009 2010 2011 2012 Thereafter Total TAU Secured Debentures 2651,2,3 265 TAC CDN MTN’s 205 225 251 681 USD MTN’s 315 840 1,155 Other 40 33 25 26 26 214 363 Total 305 238 25 251 341 1,305 2,464 1) On June 2, 2008, $115 million of debentures issued at a rate of 5.75 pe
Slide 29: Sustaining capex supports operational objectives
Sustaining capex supports operational objectives Focus of 2009 capital: improving AB Thermal availability, increasing productivity and completing the Centralia transition $M 2008 2009e 2010e Sustaining $465 $340 - 390 $270 - 315 Major Maintenance $125 $130 -140 $130 - 150 Mine $100 $35 - 45 $40 - 50
Slide 30: Growth capex spend focused on renewables and Western Canada
Growth capex spend focused on renewables and Western Canada Increase in Keephills 3 budget primarily due to higher labour and materials costs; focused on finding offsets $M Total 2008 2009e 2010e 2011e Growth $ 1,439 $ 5412 $ 460 - 515 TBD TBD Keephills 31 $ 888 $ 336 $ 235 - 255 Kent Hills $ 170 $
Slide 31: Growth projects
Growth projects Project Sun 5 Uprate Blue Trail Summerview II Keephills 3 Keephills 1 Alberta Alberta Alberta Alberta and 2 Uprates Alberta Type Efficiency Uprate Wind Wind Supercritical Coal Efficiency Uprates Size 53 MW 66 MW 66 MW 225 MW(1) 46 MW (23 MW each) Total Project Cost $75 MM $115 MM $12
Slide 32: 2009 - 2013 Development plan
2009 - 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 $ MM LTC OPERATION DATE Alberta Blue Trail 66 Wind 9 9 9 $115 2009 Alberta Sundance 5 53 Coa
Slide 33: Alberta - First GHG compliance successfully completed
Alberta - First GHG compliance successfully completed The majority of environmental costs are flowed through to PPA holders under change of law provisions. Alberta consumers’ electricity price will reflect higher cost of compliance Alberta Climate Change Regulation Impact on TransAlta Emissions inte
Slide 34: Federal framework is tougher and requires more expensive compliance options than Alberta
Federal framework is tougher and requires more expensive compliance options than Alberta Near-term compliance through purchase and trading of offsets and credits. Investment in new technologies key for long-term Proposed Greenhouse Gas Regulation • Existing plants: 18% intensity reduction starting i
Slide 35: Fleet costs from environmental regulation
Fleet costs from environmental regulation In the next decade, over 75% of emissions compliance costs are transferred by pass through mechanisms; shareowners are protected ENVIRONMENTAL OPERATING COST FORECAST MM$'s/yr $600 Env. costs for all units before pass through $500 Costs only Price effects no
Slide 36: Alberta has significant sequestration capacity
Alberta has significant sequestration capacity TransAlta’s plants are located above geology that is capable of storing CO2 Alberta CO2 Sequestration Capacity: TransAlta’s • EOR – 1,000 Mt Thermal • Depleted reservoirs – 3,000 Mt Fleet • Coalbed methane resources – 5,000 Mt • Deep saline aquifers – 1