Transalta Corporation · TSX:TA
Transalta — Proxy Contest (April 2019)
39 slides from Transalta's proxy contest presentation, Apr 2, 2019
Slide 1: Forward Looking Statements
Forward Looking Statements Commission on www.sec.gov. This presentation includes 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 belief
Slide 2: TransAlta's Strategy Positions the Company for the Future
TransAlta’s Strategy Positions the Company for the Future TransAlta has successfully designed and executed a strategy that adapts to a low carbon environment and creates long-term value The renewed Board and management team have the experience and skills to deliver significant value for all stakehol
Slide 3: TransAlta's Strategic Pillars for Creating Shareholder Value
TransAlta’s Strategic Pillars for Creating Shareholder Value Cash Flows from the Value of the Hydro •Grow RNW by Investing in HighlyCarbon Economy 4 Significantly Extends •Convert Alberta Coal to Gasand Increases the •Unlock the Future Value of HydroAlberta Coal units •Continuously Enhance ourRecogn
Slide 4: TransAlta's Strategic Pillars for Creating Shareholder Value
TransAlta’s Strategic Pillars for Creating Shareholder Value the life of the units out to 2034 – 2039 2026 – 2029 if not converted Significantly lower carbon, Coal to Gas gas in 2nd half 2019 Maximized co-firing of natural gas ahead of full and SOx compliance costs not being recognized by operating
Slide 5: TransAlta's Strategic Pillars for Creating Shareholder Value
TransAlta’s Strategic Pillars for Creating Shareholder Value through all market conditions billion since 2015 Balance Sheet for companies that have over fixed amortizing schedule Sold assets to RNW, the proceeds from which financial distress and inability to Continue to Grow growing cash flows Exten
Slide 6: The Strategy is Delivering Results
The Strategy is Delivering Results COSTS PER MWH¹ MWH¹ 7 represents their generation segment only and excludes their retail business. 2018 Low Cost OperatorOPERATING/SG&A Higher Cash Flows withNUMBER OF Fewer EmployeesEMPLOYEES Strong EBITDA Margins2018 EBITDA PER ¹The other companies shown are U.S.
Slide 7: The Strategy is Delivering Results
The Strategy is Delivering Results $1.65 billion Decrease in Recourse Debt Significant Debt ReductionTRANSALTA DEBT EXCLUDING RNW 49% Increase in Free Cash Flow Record Cash FlowsFREE CASH FLOW¹ ¹Free Cash Flow adjusted to exclude one-time OEFC payment in 2017 and PPA termination payment in 2018 8
Slide 8: Strategy Delivering Superior Returns
Strategy Delivering Superior Returns AVERAGE ANNUAL RETURNS LAST 12 MONTHS TransAlta has significantly outperformed the TSX Utilities Index during the last 3 years and last 12 monthsAVERAGE ANNUAL RETURNS LAST THREE YEARS 9
Slide 9: Fundamental Regulatory Changes Necessitated a Shift in Strategy in 2015
Fundamental Regulatory Changes Necessitated a Shift in Strategy in 2015 In 2015, the new Alberta Government introduced legislation that fundamentally impacted the business and value of TransAlta Closure of coal by 2030, stranding 40% of the Company’s assets with no guarantee of compensation Impositi
Slide 10: TransAlta Responded Promptly
TransAlta Responded Promptly TransAlta responded proactively to restore the business and value of the Company Negotiated an off-coal agreement with the Alberta Government that resulted in TransAlta receiving $39 million per year for 14 years Successfully negotiated with the Federal Government a regu
Slide 11: Shareholder Expectations
Shareholder Expectations RESPONSIVE TO SHAREHOLDER ENGAGEMENT TransAlta formally solicits feedback from shareholders and actively addresses shareholder concerns Since January 1, 2018 and during the first quarter of 2019, directors met in person or by telephone with shareholders representing 45.2% of
Slide 12: Brookfield Investment: Catalyst for Creating Value
Brookfield Investment: Catalyst for Creating Value 13 $750 million investment from Brookfield • Establishes a long-term cornerstone shareholder and strategic partner • Advances our 100% clean energy strategy • Recognizes the future value of our hydro assets • Enhances our financial flexibility • Add
Slide 13: Brookfield Investment: Catalyst for Unlocking TransAlta's Value
Brookfield Investment: Catalyst for Unlocking TransAlta’s Value opportunities at Sundance/Keephills value in the hydro by leveraging overall strategy hydro TransAlta’s ability to extract maximum value from its strategy was being limited by a lack of access to capital at competitive cost The Brookfie
Slide 14: Long-term Relationship with Brookfield
Long-term Relationship with Brookfield Long standing relationship with TransAlta Since 2009, the two companies have jointly owned a hydro facility in British Columbia Brookfield has been a shareholder in TransAlta since 2014 TransAlta and Brookfield have discussed several different ways to work toge
Slide 15: Brookfield Renewable Partners
Brookfield Renewable Partners • One of the largest public pure-play renewable businesses globally • 120 years of experience in power generation • Full operating, development and power marketing capabilities with over 2,500 operating employees • Flagship listed renewable power company of Brookfield A
Slide 16: Brookfield Transaction Universally Applauded by Analysts
Brookfield Transaction Universally Applauded by Analysts Average research analyst target prices increased 24% and every research analyst increased its target price, with individual target prices rising to between $10 and $12 per share RESEARCH COMMUNITIES’ TARGET PRICE FOR TRANSALTA PRE AND POST BRO
Slide 17: Recent Share Price Performance Reflects TransAlta's Strategy
Recent Share Price Performance Reflects TransAlta’s Strategy Investors have been recognizing the value of TransAlta’s strategy as TransAlta continues to deliver results TransAlta’s share price has nearly doubled since the beginning of 2019 RECENT SHARE PRICE PERFORMANCE One year increase of 43% and
Slide 18: Brookfield Transaction Creates Significant Value
Brookfield Transaction Creates Significant Value Redeploying $750 million from the partial sale of the AB Hydro assets into up to $250 million share repurchases and investment in a repowering at Sundance creates significant value POTENTIAL FREE CASH FLOW PER SHARE & FREE CASH FLOW ($ MILLIONS)HYPOTH
Slide 19: Transaction Provides Attractive Financing & Value for Hydro
Transaction Provides Attractive Financing & Value for Hydro In addition to bringing in a highly experienced operator and cornerstone shareholder, the investment provides very attractive financing $750 million Exchangeable Securities •TransAlta cannot access the capital markets today for capital of t
Slide 20: Highly Competitive Financing
Highly Competitive Financing ²Stacked bars reflect potential range in values The investment by Brookfield represents attractive financing for TransAlta compared to other alternatives In addition, Brookfield brings its expertise in hydro, providing the opportunity to create even more value for TransA
Slide 21: Attractive Value for the Hydro Assets
Attractive Value for the Hydro Assets When evaluating a potential sale of MERCHANT HYDRO ASSET TEV/EBITDA – EN BLOC an interest in the merchant hydro assets, TransAlta and its advisorsAverage: 13x considered: The future cash flows of the hydro business, including future capital expenditure requireme
Slide 22: Independent Views of Merchant Hydro Multiples
Independent Views of Merchant Hydro Multiples In July 2018, Scotia Capital published a research report on TransAlta using a 13x EBITDA multiple for the hydro assets 23
Slide 23: Competitive Financing
Competitive Financing The 7% coupon on the Exchangeable Securities is very competitive relative to other transactions, especially when credit rating is factored in 2018 & 2019 Comparable Hybrid/Preferred Securities Apr-19Nov-18Feb-18Apr-18Mar-19Nov-18Jun-18Jan-18Jan-18 $750mm$200mm$1,105mm(1) $750mm
Slide 24: Research Analyst Commentary
Research Analyst Commentary “We view the 13.0x multiple for Brookfield's hydro investment to be reasonable. We view Brookfield's planned investments in both the Alberta hydro assets and TransAlta common shares as a vote of confidence in these assets and in the overall company. TransAlta should furth
Slide 25: Research Analyst Commentary
Research Analyst Commentary “… we commend TA management for seeking creative solutions to surface value in the face of persistent lack of market confidence in the stock. As such, our target price goes to $10 from $9, and we reiterate our Market Perform rating on relative risk-adjusted return.” “On a
Slide 26: Board Governance and Accountability
Board Governance and Accountability ADHERING TO GOVERNANCE BEST PRACTICES TransAlta is committed to being on the leading edge of developments within corporate governance best practices, with a track record of robust shareholder engagement and responsiveness to shareholder concerns 100% independent k
Slide 27: Board Governance and Accountability
Board Governance and Accountability BOARD RENEWAL PROCESSES TransAlta has embraced rigorous corporate governance and board renewal processes, with a clear and deliberate effort to periodically refresh the board, with three new director nominees slated for election at the 2019 AGM TransAlta has endea
Slide 28: Unproven Dissident Board Nominees
Unproven Dissident Board Nominees The limited public company Board and executive experience of the Dissident Board Nominees adds no value to the TransAlta Board Ronald Hulme (Bluescape) •CEO of Bluescape Energy Partners and Parallel Resource Partners •Worked at McKinsey & Co. for over 26 years Paul
Slide 29: Proven New TransAlta Board Nominees
Proven New TransAlta Board Nominees 30 NEW MANAGEMENT NOMINEES TO THE BOARD OF DIRECTORS Robert Flexon (Independent) IPP, power generation and utility experience Thermal experience will provide insight into TransAlta’s coal to gas strategy Financial and operational experience following CFO and CEO p
Slide 30: Proven TransAlta Board Nominees
Proven TransAlta Board Nominees STRENGTH OF MANAGEMENT NOMINEES TransAlta’s incumbent slate possesses a wide variety of complementary skills and experience essential for the effective management of the Company, of particular significance during this critical transitional phase Rona Ambrose Significa
Slide 31: Proven TransAlta Board Nominees, Cont'd
Proven TransAlta Board Nominees STRENGTH OF MANAGEMENT NOMINEES, CONT’D TransAlta’s incumbent slate possesses a wide variety of complementary skills and experience essential for the effective management of the Company, of particular significance during this critical transitional phase Alan Fohrer De
Slide 32: Proven TransAlta Board Nominees, Cont'd
Proven TransAlta Board Nominees STRENGTH OF MANAGEMENT NOMINEES, CONT’D TransAlta’s incumbent slate possesses a wide variety of complementary skills and experience essential for the effective management of the Company, of particular significance during this critical transitional phase Georgia Nelson
Slide 33: TransAlta Actively Engaged with Bluescape and Mangrove
TransAlta Actively Engaged with Bluescape and Mangrove •Board endeavored to work constructively with Bluescape and Mangrove •Senior leadership has had numerous in-person meetings and phone calls with Bluescape and Mangrove to discuss their views •Senior leadership engaged in a constructive dialogue,
Slide 34: TransAlta Actively Engaged with Bluescape and Mangrove: Timeline
TransAlta Actively Engaged with Bluescape and Mangrove TIMELINE OF MANGROVE AND BLUESCAPE ENGAGEMENT TransAlta’s approach with Mangrove and Bluescape has been reasonable and proactive MG/BS initially demanded four seats, a new COO and the implementation of a business review committee MG/BS later nom
Slide 35: A Return to Coal Would be the Wrong Strategy for TransAlta
A Return to Coal Would be the Wrong Strategy for TransAlta •Bluescape’s and Mangrove’s history suggest they want to sell renewables and refocus on legacy coal assets • Mangrove has holdings in several companies that focus on coal • Bluescape has pressured companies into selling clean energy business
Slide 36: Bluescape's and Mangrove's Claims Are Not Fact-Based
Bluescape’s and Mangrove’s Claims Are Not Fact-Based 37 Bluescape and Mangrove Claims Facts TransAlta can’t be sure Brookfield transaction represents most attractive option Brookfield deal is the culmination of four years of engagement and negotiations On value per MW basis, transaction is one of th
Slide 37: Mangrove's/Bluescape's Proposal
Mangrove’s/Bluescape’s Proposal opportunities to create value by engaging a leading consulting firm strategy and cost its strategy and deliver value to shareholders, and would result in incurring existing shareholders Equity at a 6% join the Board, but they turned that down Instead, the five nominee
Slide 38: TransAlta's Clean Energy Vision is Superior to Risky Activist Demands
TransAlta’s Clean Energy Vision is Superior to Risky Activist Demands Bluescape Mangrove 39 TransAlta took bold steps to adapt Haven’t articulated a plan to the future Shareholders, regulators and other Refocus on coal would be stakeholders support renewablesinconsistent with the future strategy Bro
Slide 39: TransAlta's Clean Energy Vision is Superior to Risky Activist Demands
TransAlta’s Clean Energy Vision is Superior to Risky Activist Demands TransAlta Bluescape Brookfield Mangrove v TransAlta took bold steps to adapt ™X Haven't articulated a plan to the future v Shareholders, regulators and other X Refocus on coal would be stakeholders support renewables inconsistent