Slide 1: TransAlta Corporation Investor Presentation
TransAlta Corporation Investor Presentation June 2016 1
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation may include forward-looking statements or information (collectively referred to herein as “forward-looking statements”) within the meaning of applicable securities legislation. All forward-looking statements are based on our beliefs as well as assumptions
Slide 3: Outline
Outline Overview 4 Strategic Objectives 8 2016 Outlook 11 Financial Strategy 16 TransAlta Renewables Inc. 21 Growth Strategy 25 Coal Transition in Alberta 30 Appendix 36 3
Slide 4: TransAlta's Platform
TransAlta’s Platform 6 facilities in Alberta and the Pacific Coal: 4,931 MW Northwest 12 facilities in Canada and Australia; also 270km pipeline Gas: 1,323 MW RNW owns an economic interest in all Australian gas assets (425 MW) and the 506 MW gas facility in Ontario Wind & Solar: 27 facilities in Can
Slide 5: Our Highly Diversified Portfolio
Our Highly Diversified Portfolio • Highly diversified cash flows from five fuel types with facilities located in Canada, the United States and Australia • TransAlta is Canada’s largest generator of wind power and the largest generator of renewable energy in Alberta • Gas-fired and renewable assets a
Slide 6: Proven Track Record
Proven Track Record 95% Adjusted Availability 1.00 Safety (IFR) 0.90 90% 0.80 0.70 85% 0.60 80% 0.50 2012 2013 2014 2015 2012 2013 2014 2015 Comparable EBITDA(1), FFO and FCF $1,200 $4.00 $3.50 $1,000 $3.00 $800 $2.50 $600 $2.00 $1.50 $400 $1.00 $200 $0.50 $0 $0.00 2012 2013 2014 2015 Comparable EBI
Slide 7: Energy Marketing Capability – A Competitive Advantage
Energy Marketing Capability – A Competitive Advantage • Transacting in multiple markets provides us with a competitive Proprietary Trading advantage (20%) • Targeting $40 to $60 million in gross margin annually from Proprietary Trading Energy Marketing • Preparing for roll off of Alberta PPAs and •
Slide 8: Strategic Objectives
Strategic Objectives 8
Slide 9: A Prudent and Proactive Plan
Strategic Objectives A Prudent and Proactive Plan 1 Deliver Operational Excellence 2 Increase Financial Flexibility 3 Strategically Grow our Portfolio of Contracted Gas-Fired and Renewable Generation 9
Slide 10: Executing Our Strategic Objectives
Executing Our Strategic Objectives 2015 2016 • Reduced costs by ~$50 million • Continued focus on delivering Operational with cost saving initiatives at strong operational, safety and Canadian Coal and Corporate Excellence financial performance • Best ever safety (IFR of 0.75) • Reposition our capit
Slide 11: 2016 Outlook
2016 Outlook 11
Slide 12: 2016 Goals and Priorities
2016 Goals and Priorities 1 Secure a mutually beneficial coal transition arrangement with the Alberta Government 2 Continue to reposition our capital structure 3 Continue to grow TransAlta Renewables Inc. 4 Continued focus on delivering strong operational, safety and financial performance 12
Slide 13: 2016 Outlook
2016 Outlook 2016 Outlook Ranges ($M) Comparable EBITDA $990 $1,100 Comparable Funds from Operations $755 $835 Sustaining Capital (330) (350) Pfd Share/Other Distributions (175) (185) Comparable Free Cash Flow $250 $300 Comparable Free Cash Flow Per Share $0.86 $1.03 Annual Dividend $0.16 $0.16 Divi
Slide 14: Managing Low Merchant Prices in Alberta
Managing Low Merchant Prices in Alberta $/MW Alberta Forward Curve $60 Oversupply in the Alberta power market and low natural $55 gas prices are driving historic lows for Alberta power prices $50 $45 $40 $35 $33 $30 $25 $20 2015 2016 2017 2018 2019 2020 • Power prices in Alberta are not expected to
Slide 15: Contracted Portfolio Supports Stable EBITDA
Contracted Portfolio Supports Stable EBITDA Total portfolio contractedness1 Merchant exposure in Alberta and the MW Pacific NW 88% 84% 72% 70% 2016 Hedge prices 6,000 AB ~$45 - $50/MWh PacNW ~$40/MWh 5,000 2017 Hedge prices 4,000 AB ~$45 - $50/MWh PacNW ~$45 - $50/MWh 3,000 Alberta • Well hedged thr
Slide 16: Financial Strategy
Financial Strategy 16
Slide 17: Increasing Our Financial Flexibility
Increasing Our Financial Flexibility As of March 31, 2016: • $2.1 billion of committed credit facilities • ~$600 million of letters of credit outstanding • $1.5 billion available liquidity $1.8 $1.6 Cash Available Liquidity $1.4 $1.2 C$ Billion $1.0 $0.8 $1.6 $1.5 $0.6 $1.3 $1.0 $1.0 $0.9 $0.4 $0.2
Slide 18: Strengthening our Financial Position
Strengthening our Financial Position • Focused on strengthening our financial position and flexibility and maintaining investment grade credit ratings with three rating agencies • Targeting an FFO/Debt ratio of over 20% and a Net Debt/EBITDA ratio of ~3.5x by 2018 when South Hedland is fully operati
Slide 19: Repositioning our Capital Structure (2016 to 2018)
Repositioning our Capital Structure (2016 to 2018) • Over the next three years, we plan to repay ~$1.2B of debt maturing in 2017 and 2018 and fund ~$300M of capital to complete construction of South Hedland with project-level debt and cash generated by the business Sources (C$M) 2016 to 2018 Project
Slide 20: Repositioning our Capital Structure (2016 to 2018)
Repositioning our Capital Structure (2016 to 2018) • Financing plan is expected to result in the appropriate allocation of debt between TransAlta and TransAlta Renewables TOTAL Non- C$B Recourse Non-Recourse Recourse Recourse Current (March 31, 2016) $3.2 $0.1 $0.0 $0.7 $4.0 Project Financing $0.4 $
Slide 21: TransAlta Renewables
/ renewables 21
Slide 22: Leveraging TransAlta Renewables Inc.
Leveraging TransAlta Renewables Inc. • TransAlta is the largest TransAlta Public shareholder of TransAlta Renewables Inc. and will maintain ~60-80% ownership • Unlocks the value of long-life contracted assets on attractive ~60-80% ~20-40% terms • Provides access to lower cost funding TransAlta Renew
Slide 23: TransAlta Renewables
TransAlta Renewables (TSX:RNW) • Provides stable, consistent returns through the ownership of highly contracted power generation and other infrastructure assets Enterprise Value¹ $4.0 Billion Market Cap.2 $3.2 Billion 2016E EBITDA $365 - $390 Million 2016E CAFD $210 - $235 Million Dividend Yield 6.9
Slide 24: Significant Drop-Down Inventory
Significant Drop-Down Inventory Potential Drop-Down Candidates from TransAlta Corporation • ~400 MW in Alberta & Ontario including: Gas Fired • 244 MW Poplar Creek facility in AB Generation • ~150 MW from 4 facilities through TA Cogen • ~$140M EBITDA • ~800 MW from 13 units in Alberta, representing
Slide 25: Growth Strategy
Growth Strategy 25
Slide 26: South Hedland Power Station
South Hedland Power Station 150 MW Combined Cycle Gas Power Station in Western Australia • Commissioning expected on schedule and on budget in mid-2017 • Expected to generate ~$80 million of EBITDA on an annualized basis • Project has been funded without increasing our debt levels (total investment
Slide 27: Recent Growth Accomplishments
Recent Growth Accomplishments • Advanced construction of our 150 MW South Hedland gas-fired facility in Australia with expected commissioning in mid-2017 • Re-structured contracts at our Poplar Creek facility, extending the contract duration by 7 years and reducing our merchant exposure in Alberta •
Slide 28: Long-Term Investment Opportunities
Long-Term Investment Opportunities Gas-Fired and Renewables • Alberta’s Climate Leadership Plan – requirement for gas-fired and renewable generation (~6,000 MW of coal will need to be replaced by 2030) • Sundance 7, low cost gas-fired option in our portfolio • Expansion & acquisition opportunities i
Slide 29: Coal Transition in Alberta
Coal Transition in Alberta 29
Slide 30: Alberta's Climate Leadership Plan
Alberta’s Climate Leadership Plan Acceleration of the retirement Implementation Incentives for of coal-fired of a carbon renewable power plants price generation Starting in 2018, coal By 2030, renewable Coal-fired generation fired generators will sources like wind and phased out by 2030 pay $30 per
Slide 31: Coal Transition in Alberta – The Facts
Coal Transition in Alberta – The Facts • There is currently 6,277 MW of coal-fired installed capacity in Alberta, representing ~39% of overall supply • Federal regulations amended in 2012 designate a 50 year useful life for coal plants • Eight of TransAlta’s coal units (2,931 MW) will be retired by
Slide 32: Secure a Coal Transition Arrangement in Alberta
Secure a Coal Transition Arrangement in Alberta It is critical that the transition arrangement achieve these three key outcomes: 1 Maintain system reliability 2 Provide stable prices for consumers 3 Minimize stranded capital 32
Slide 33: Secure a Coal Transition Arrangement in Alberta
Secure a Coal Transition Arrangement in Alberta To successfully achieve these outcomes, we need: 1 Market mechanisms and a market structure that sustain promises to current investors & attract new private capital 2 Meaningful incentives to drive the build out of renewable and gas-fired generation 3
Slide 34: TransAlta's Coal Transition Positioning
TransAlta’s Coal Transition Positioning TransAlta is well-positioned to transition from coal to renewables and gas-fired generation by 2030 • The expansion of hydro assets • The development of greenfield wind and solar opportunities • The development of our permitted Sundance 7 combined cycle gas pl
Slide 35: Appendix
Appendix 35
Slide 36: Map of TransAlta's Operations
Map of TransAlta’s Operations 36
Slide 37: Financial Performance by Business Segment
Financial Performance by Business Segment (1) Business Segment 2011 2012 2013 2014 2015 EBITDA ($M) Canadian Coal $273 $373 $311 $389 $393 U.S. Coal $211 $148 $67 $65 $67 Gas $275 $312 $332 $312 $330 Wind $163 $151 $181 $179 $176 Hydro $105 $127 $148 $87 $73 Energy Marketing $101 ($13) $58 $75 $37 C
Slide 38: Upcoming Debt Maturities
Upcoming Debt Maturities $800 $600 CAD USD $520 $400 $200 $400 $400 $400 $204 $27 $0 2016 2017 2018 2019 2020 38