TransAlta Reports Solid Second Quarter 2020 Results
CALGARY, AB, July 31, 2020 /PRNewswire/ -
Second Quarter 2020 Highlights
Year-to-date 2020 Financial and Operating Highlights
TransAlta Corporation ("TransAlta" or the "Company") (TSX: TA) (NYSE: TAC) today reported its second quarter 2020 financial results, with comparable EBITDA(1) of $217 million compared to $215 million in the same period of 2019. EBITDA for the six months ended June, 30, 2020, was $437 million, in line with the same period last year. Funds from operations ("FFO")(1,2) for the three and six months ended June 30, 2020, increased approximately 3% and 2% to $159 million for the quarter compared to $155 million in 2019 and $331 million year-to-date as compared to $324 million in 2019.
FCF(1), one of the Company's key financial metrics, totaled $91 million and $200 million for the three and six months ended June 30, 2020, an increase of $42 million and $56 million respectively. Year-to-date, the Company has generated FCF of $0.72 per share, a 41% increase compared to 2019.
"Second quarter results are in line with our expectations and continue to show strong EBITDA and free cash flow generation from our diversified fleet. With the support of our back-to-office protocols, we continue to deliver the essential power to meet the demands of our communities and our customers," said Dawn Farrell, President and Chief Executive Officer. "These results demonstrate the strength of our operations, hedging and energy marketing capabilities, as well as our people."
"We also expanded our cogeneration fleet with the acquisition of our Ada cogeneration facility into our portfolio and welcomed Consumers Energy and Amway as new customers. We are excited to mark our first cogeneration facility in the United States and we look forward to building on this U.S. toehold as we further progress our on-site generation strategy into the region."
"I'd like to thank all of our front-line employees, contractors and their families whose exceptional efforts keep up the strong operational performance of the Company in the face of these challenging times," added Mrs. Farrell.
Comparable EBITDA for the three and six months ended June 30, 2020, were consistent with the same periods in 2019. This was driven by full period operations of the Big Level and Antrim facilities in the Company's Wind and Solar segment, superior performance from the Energy Marketing segment, favourable gross margins from the U.S. Coal segment, and favourable gains resulting from equity hedge settlements and lower expenses in the Corporate segment. This favourable performance was offset by anticipated weaker margins in the Canadian Coal, Hydro and North American Gas segments resulting from weaker prices in both the Alberta market and the Ontario power markets due to lower market demand and the impact of COVID-19. The Canadian Coal comparable EBITDA in the quarter and year-to-date also declined due to recognition of a $7 million provision adjustment for out-of-period line losses relating to the Alberta Electric System Operator ("AESO") Line Loss Rule proceeding.
Operations, maintenance and administration ("OM&A") expense for the three and six months ended June 30, 2020, decreased by $18 million and increased by $6 million, respectively, compared to the same periods in 2019. Variability caused by the total return swap resulted in a decrease of $7 million and an increase of $17 million for the three month and six months ended June 30, 2020, respectively. Excluding the impact of the total return swap, OM&A decreased by $11 million in both periods, due to tighter cost controls, lower labour costs across multiple segments and lower legal fees.
FCF totaled $91 million and $200 million for the three and six months ended June 30, 2020, respectively. FCF for the three and six months ended June 30, 2020 increased by $42 million and $56 million, respectively, compared to the same periods in 2019. The increase was driven primarily by strong segmented cash flows, realized foreign exchange gains, lower sustaining capital expenditures and lower distributions paid to subsidiaries' non-controlling interests. Segmented cash flows generated by the business are $47 million and $48 million dollars higher for the second quarter and year-to-date periods in 2020, respectively, compared with 2019, due to higher performance in our U.S. Coal, North American Gas, Wind and Solar and Energy Marketing segments that more than offset lower results in the Canadian Coal and Hydro segments.
Clean Energy Investment Program
In furtherance of the coal-to-gas fuel supply needs, TransAlta entered into long-term natural gas delivery transportation agreements with NGTL, bringing the cumulative total of new and existing pipeline transportation service to the Company's generating facilities up to 400 terajoules ("TJ") per day by 2023. TransAlta's current commitments, including its 139 TJ/day supply arrangement with Tidewater Midstream and Infrastructure Ltd., will remain in place until the closing of the Pioneer Transaction. The Pioneer Transaction is subject to customary regulatory approvals, which are currently expected in the second half of 2021.
Windcharger Battery Storage
Board of Director Changes
COVID-19 Response Update
While the Company's results have been impacted by price and demand as a result of COVID-19, all of the Company's facilities remain fully operational and capable of meeting its customers' needs. The Company has modified its operating procedures and implemented safety protocols that are allowing all office employees to now return to sites across the fleet by end of July. The Company continues to work and serve all of its customers and counterparties under the terms of the relevant contracts. TransAlta has not experienced interruptions to service requirements. Electricity and steam supply continue to remain a critical service requirement to all of the Company's customers and have been deemed an essential service in all of the jurisdictions in which TransAlta operates.
The Company continues to maintain a strong financial position in part due to its long-term contracts and hedged positions. The Company is scheduled to receive $400 million from the second tranche of financing from the Brookfield investment in the fourth quarter of 2020 and has access to additional capital through potential project financing of existing assets that are currently unencumbered. The Company currently has access to $1.6 billion in liquidity including $257 million in cash and has sufficient liquidity to meet the upcoming debt maturity due November 2020 and growth construction requirements. The next major debt repayment is scheduled for November 2022.
In addition, the Company has approximately 75 per cent of its Alberta thermal baseload merchant generation hedged at approximately $53 per MWh for the remainder of 2020.
Consolidated Financial Highlights
Net loss attributable to common shareholders for the three months ended June 30, 2020, was $60 million compared to nil in the same period in the prior year. The decrease is largely due to lower revenues, higher depreciation, asset impairment and lower income tax recoveries partially offset by lower OM&A and foreign exchange gains. Net loss attributable to common shareholders for the six months ended June 30, 2020, was $33 million, compared to a loss of $65 million in the same period in 2019, an improvement of $32 million. Stronger earnings from our U.S. Coal and Wind and Solar segments, foreign exchange gains and a reduction in the Centralia mine decommissioning provision due to changes in discount rates resulting in an asset impairment reversal were partially offset by higher depreciation, higher interest expense and lower income tax recoveries.
Total sustaining capital expenditures (2) of $55 million were $31 million lower compared to 2019 primarily due to higher planned major maintenance in our coal segments in 2019.
Second Quarter 2020 Highlights
TransAlta is in the process of filing its unaudited interim Consolidated Financial Statements and accompanying notes, as well as the associated Management's Discussion & Analysis ("MD&A"). These documents will be available July 31, 2020, on the Investors section of TransAlta's website at www.transalta.com or through SEDAR at www.sedar.com and EDGAR at www.sec.gov/edgar.shtml.
Second Quarter 2020 Conference Call:
Webcast link: https://produceredition.webcasts.com/starthere.jsp?ei=1345059&tp_key=3994b82c94
About TransAlta Corporation:
TransAlta owns, operates and develops a diverse fleet of electrical power generation assets in Canada, the United States and Australia with a focus on long-term shareholder value. TransAlta provides municipalities, medium and large industries, businesses and utility customers with clean, affordable, energy efficient and reliable power. Today, TransAlta is one of Canada's largest producers of wind power and Alberta's largest producer of hydro-electric power. For over 100 years, TransAlta has been a responsible operator and a proud community-member where its employees work and live. TransAlta aligns its corporate goals with the UN Sustainable Development Goals and has been recognized by CDP (formerly Climate Disclosure Project) as an industry leader on Climate Change Management. TransAlta is proud to have achieved the Silver level PAR (Progressive Aboriginal Relations) designation by the Canadian Council for Aboriginal Business.
For more information about TransAlta, visit our web site at transalta.com.
Cautionary Statement Regarding Forward Looking Information
This news release contains forward looking statements, including statements regarding the business and anticipated financial performance of the Company that are based on the Company's current expectations, estimates, projections and assumptions in light of its experience and its perception of historical trends. In some cases, forward-looking statements can be identified by terminology such as "plans", "expects", "proposed", "will", "anticipates", "develop", "continue", and similar expressions suggesting future events or future performance. In particular, this news release contains forward-looking statements, pertaining to, without limitation, the following: the potential impact of COVID-19 on the Company and the actions to be undertaken by the Company in response to the COVID-19 pandemic; the sale of the Pioneer Pipeline, including the terms and timing thereof; the commercial operation date for the WindCharger Battery Project; the potential repowering of Sundance Unit 5 and Keephills Unit 1 into combined cycle units; the conversion of Sundance Unit 6 by the second half of 2020; the conversion of Keephills Unit 2 and Unit 3, and the timing thereof; the closing of the $400 million investment from Brookfield; the asset impairment to be recorded for Sundance Unit 3; losses relating to the AESO Line Loss Rule proceeding; and sufficient liquidity to meet the upcoming debt maturity due November 2020 and growth construction requirements. The forward-looking statements contained in this news release are based on many assumptions and are subject to a number of significant risks and uncertainties that could cause actual plans, performance, results or outcomes to differ materially from current expectations. Factors that may adversely impact what is expressed or implied by the forward-looking statements contained in this news release include risks relating to the impact of COVID-19 and the associated general economic downturn, the impact of which will largely depend on the overall severity and duration of COVID-19 and the general economic downturn, which cannot currently be predicted, and which present risks including, but not limited to: more restrictive directives of government and public health authorities; reduced labour availability impacting our ability to continue to staff the Company's operations and facilities; impacts on the Company's ability to realize its growth goals; decreases in short-term and/or long-term electricity demand and lower power pricing; increased costs resulting from the Company's efforts to mitigate the impact of COVID-19; deterioration of worldwide credit and financial markets that could limit the Company's ability to obtain external financing to fund its operations and growth expenditures; a higher rate of losses on accounts receivables due to credit defaults; further disruptions to the Company's supply chain; impairments and/or write-downs of assets; and adverse impacts on the Company's information technology systems and the Company's internal control systems as a result of the need to increase remote work arrangements, including increased cybersecurity threats. Other factors that may adversely impact the Company's forward-looking statements include, but are not limited to, risks relating to: operational risks involving the Company's facilities, including unplanned outages at such facilities; disruptions in the transmission and distribution of electricity; the effects of weather and other climate-related risks; disruptions in the source of water, wind, solar or gas resources required to operate our facilities; natural disasters; equipment failure and our ability to carry out repairs in a cost-effective or timely manner; and industry risks and competition. The foregoing risk factors, among others, are described in further detail in the Company's Management's Discussion and Analysis and Annual Information Form for the year ended December 31, 2019, which are available on SEDAR at www.sedar.com. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect the Company's expectations only as of the date of this news release. The Company disclaims any intention or obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Note: All financial figures are in Canadian dollars unless otherwise indicated.
SOURCE TransAlta Corporation
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