Annual and Special Meeting 2007 AGM Presentation… · Financial ratios Target 2006 2005 2004 Cash...
Transcript of Annual and Special Meeting 2007 AGM Presentation… · Financial ratios Target 2006 2005 2004 Cash...
Annual and Special Meeting2007
Board of Directors
William D. Anderson
Board of Directors
Stanley J. Bright
Board of Directors
Timothy W. Faithfull
Board of Directors
Gordon D. Giffin
Board of Directors
C. Kent Jespersen
Board of Directors
Michael M. Kanovsky
Board of Directors
Gordon S. Lackenbauer
Board of Directors
Dr. Martha C. Piper
Board of Directors
Luis Vazquez Senties
Board of Directors
Stephen G. Snyder
Board of Directors
Donna Soble Kaufman
Annual and Special Meeting2007
Chief Financial Officer’s ReportBrian Burden
Forward looking statementsThis 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 the time the assumption was made. These statements are not guarantees of our future performance and are subject to a number of risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward-looking statements. Some of the factors that could cause such differences include cost of fuels to produce electricity, legislative or regulatory developments, competition, global capital markets activity, changes in prevailing interest rates, currency exchange rates, inflation levels and general economic conditions in geographic areas where TransAlta Corporation operates. Given these uncertainties, the reader should not place undue reliance on this forward-looking information, which is given as of this date. The material assumptions in making these forward-looking statements are disclosed in our 2006 Annual Report to shareholders and other disclosure documents filed with securities regulators.
Unless otherwise specified, all dollar amounts are expressed in Canadian dollars.
Outline
•2006 Financial Results
•2007 Financial and Operating Objectives
•Financing Growth
2006 financial results
Results 2006 2005
Comparable earnings (MM) $233.8 $161.3 $127.1
Comparable earnings $1.16 $0.82 $0.66
$186.32
$0.94
$1.00
$619.8
$159.7
89.4
51,810
$44.91
$0.22
$1.00
$675.63
$217.2
89.0
48,213
2004
Net earnings (MM) $170
Per share
Net earnings $0.88
Dividends $1.00
Cash flow from Operations (MM) $591.2
Free Cash Flow $170.1
Availability (%) 89.2
Production (GWh) 51,396
Strong availability, increased gross margin, lower OM&A and income tax expense offset by Centralia one-time events
1. Includes $153.6 million after tax charge related to Centralia mine closure, $84.4 million impairment of the Centralia Gas facility, $6.2 million after tax writedown of a turbine in inventory in Q1, and $53.3 million benefit from tax rate changes in Q2
2. Includes $12 million after tax gain on discontinued operations, and $13 million from a tax settlement on a deferred receivable3. Includes $185 MM receivable received Jan. 2, 2007, due to timing of collection of November sales
Financial ratios Target 2006 2005 2004
Cash flow to interest (x) >4.2
>28
<48
4.7 4.3
Cash flow to total debt (%)
5.5
26.2 23.0 19.1
Debt to total capital (%) 40.9 43.9 46.4
Strong credit ratios indicative of commitment to maintaining investment grade
Financial objectives and measures
Objectives Measures 2007 Goals 2006
9%8.3%2
$1.16
$675 MM3
Investment grade
$7.93
Flat
48%7.1%
Increase comparable earnings per share Comparable EPS 6 - 10% $0.82
$620 MM
Investment grade
$8.13
+225 MW(G3 online)
Deliver long-term shareholder return
TSRROCE1
10%~10%
Improve productivity OM&A/installed MWh Offset inflation
Grow capacity profitably Installed capacity Increase ~5%/yr
Increase operating cash flow Operating cash flow $650 - $750 MM
Maintain strong financial ratios Credit ratios
Investment grade
2005
1. Return on capital employed (ROCE) = earnings before non-controlling interests, income taxes and net interest expense/average annual invested capital.
2. 8.3% ROCE is on a comparable basis. Q1 2007 reported ROCE is 2.4%3. Includes $185 MM receivable received Jan. 2, 2007 due to timing of collection of November sales
Operating objectives and measures
Objectives Measures 2007 Goals 200690% 89%1
81%
$1.5 B
$233 MM
Compliance in all markets
>75% 2
Increase
Make sustaining capex predictable
Sustaining capex budget $320 - $345 MM $153 MM
< emissionsintensity
Maintain targeted availability
Fleet availability 88.6%
Contract plant output Contracted
output > one year
82%
Reduce environmental footprint
Emissions reductions
Compliance in all markets
Increase gross margin Margin $1.4 B
2005
1. Includes impact of the August 6, 2006 Centralia blade failure. Excluding the blade failure, availability was 89.6%2. At December 31, 2006, 93% of plant capability is contracted for 2007, this included contracts that are less than one
year in term
Q1 2007 highlights
Results Q1’07 Q1’06 % VarianceComparable earnings (MM) $66.0 $75.4 (13)
Comparable earnings $0.33 $0.38 (13)
$69.21
$0.35
$0.25$200.7$114.4
96.9
$66.0
12,444
(5)
(6)
-64
(63)
(9) 2
$0.33
$0.25$330.82
$41.6
88.23
12,697
Net earnings (MM)Per share
Net earnings
DividendsCash flow from Operations (MM)
Free Cash Flow
Availability (%)Production (GWh)
1. Includes $6.2 million after tax write down of a turbine in inventory2. Includes $185 MM receivable received Jan. 2, 2007, due to timing of collection of November sales3. Normalizing the impact of Centralia derates, availability was 94%
Variance primarily due to normal unplanned outages and higher planned outages at Alberta Thermal, and accelerated test burns of PRB coal
Short term increase in sustaining capex
$MM 2006 2007
$214 $320 - $345
$100 - $105
$80 - $85
Centralia Fuel Blend - $55 - $60
$85 - $95
$255 - $2651
$3 - $5
$578 - $615
$100
$27
$87
$10
Mexico $10
Total $234
Sustaining
Routine capital
Mine capital
Major maintenance
Growth
Increase in sustaining capital supports Alberta mine activities and Centralia fuel blend modifications. Growth capex includes Sun 4 uprate,
Kent Hills wind project and Keephills 3.
1. Includes approximately ~$20 million for Kent Hills, ~$35 million for Sundance 4, ~$200 million for Keephills 3
Disciplined capital allocation process
1. Strategic fit• Commercial and operational criteria• Merchant vs. contracted• Brownfield, acquisition and greenfield
2. Internal rate of return • Project specific hurdle rates • Unlevered IRR must be greater than WACC • Assumes 50:50 capital structure
3. Net present value• Allocate capital to projects yielding greatest
cash flow4. Accretion
• Should be accretive to cash flow and earnings1
5. Credit quality• Supports investment grade credit rating
• Decisions benchmarked vs. 10% TSR and 10% ROCE goals
• Balance between brownfield expansion, acquisition and greenfield development manages cash resources and supports credit ratios
1. Excludes construction period for greenfield and brownfield development
2007 - What investors can expect
•Build on strong platform established over last three years•Drive strong operating cash flow from existing assets to
support investment grade financial ratios and achieve near-term financial and commercial goals
•Maximize shareholder value through accretive investments which fit business model and complement portfolio
•Disciplined execution of current portfolio and growth opportunities should result in achievement of ROCE and total shareholder return objectives
Chief Executive Officer’s ReportSteve Snyder
Return on Capital
Employed
10% plus
Our Goals
TotalShareholder
Return
10% plus
State of the Industry
Strong economic growth• Increased demand•Reserve margins
Uncertainties•Regulatory landscape•Hybrid markets•Price and availability of fuels•Replacement costs for plants•The environment
We’re ready
• Increased investment in renewables
•Emission trades and offsets
•Canadian Clean Power Coalition
•Public policy discussions•Carbon Capture and
Storage Task Force
Environmental Leadership
Market Opportunities
Coal-fired plants
Coal-fired plants(IN DEVELOPMENT)
Hydro plants
Gas-fired plants
Wind-powered plants
Wind-powered plant(IN DEVELOPMENT)
Geothermal plantsCorporate offices
Energy Marketing offices
4,887 MW
278 MW
807 MW
2,464 MW
152 MW
75 MW
163 MW
GENERATION FACILITIESCAPACITY OWNED
Alberta
Ontario
Mexico
Australia
United States
A sound and sustainable business model
Financial Strengths•Strong balance sheet, stable credit rating
Operations•Higher availability, reduced expenses
Life Cycle Planning•Careful spending, higher performance levels
Commercial Development and Marketing•Assessing portfolio and markets, growing the business
Executive Team
Annual and Special Meeting2007