TransAlta Reports First Quarter 2022 Results and Reaches 40% of Renewables Growth Target
TransAlta reported Q1 2022 financial results, highlighting an adjusted EBITDA of $266 million, down 14% from 2021. Notably, net earnings improved to $186 million or $0.69 per share, compared to a loss of $0.11 last year. Cash flow from operations reached $451 million, up $194 million year-over-year. The company secured long-term Power Purchase Agreements with Meta and Amazon, expanding its renewable portfolio. Challenges included a decrease in gross margin for the Alberta electricity portfolio and increased costs related to the Kent Hills wind facilities rehabilitation.
- Net earnings increased to $186 million from a loss of $30 million year-over-year.
- Cash flow from operating activities rose to $451 million, marking a $194 million increase.
- Secured a long-term PPA for the 200 MW Horizon Hill project with Meta.
- Completed long-term PPA for 30 MW at Garden Plain with a recognized customer.
- Adjusted EBITDA decreased by 14% to $266 million due to lower contributions from several segments.
- Gross margin for Alberta electricity portfolio decreased by $19 million compared to 2021.
- Kent Hills wind facilities rehabilitation costs increased to approximately $120 million.
- Adjusted EBITDA(1),(2) of
$266 million , a decrease of14% over the same period in 2021 - Free Cash Flow ("FCF")(1) of
$115 million , or$0.42 per share, a decrease of13% on a per-share basis from same period in 2021 - Earnings before income taxes of
$242 million , an increase of$221 million from the same period in 2021 - Net earnings attributable to common shareholders of
$186 million or$0.69 per share, compared to a loss of$0.11 per share for the same period in 2021 - Cash flow from operating activities of
$451 million , an increase of$194 million from same period in 2021
- Announced 200 MW Horizon Hill wind project supplying Meta with renewable power under a long-term Power Purchase Agreement ("PPA")
- Secured capacity commitment extensions for the three remaining large industrial customers at the Sarnia cogeneration facility to 2031
- Identified Amazon as the customer at White Rock Wind Project
- Reached agreement with BHP Nickel West to expand the Mount Keith transmission system in Western Australia
- Announced investment in Energy Impact Partners Deep Decarbonization Frontier Fund 1
- Executed long-term PPA for remaining 30 MWs of capacity at Garden Plain wind
- Executed share buybacks of
$18 million and repurchased 1.4 million common shares - Provided updated on Kent Hills wind facilities outage
CALGARY, AB, May 6, 2022 /PRNewswire/ - TransAlta Corporation ("TransAlta" or the "Company") (TSX: TA) (NYSE: TAC) today reported its financial results for the first quarter ended March 31, 2022.
"TransAlta delivered solid first quarter results for 2022 with contributions from our new contracted assets at Windrise and North Carolina Solar which diversified our portfolio. I am also pleased to confirm that we are on track to deliver our objectives under our Clean Electricity Growth Plan," said John Kousinioris, President and Chief Executive Officer.
"We delivered growth in renewable energy to new and existing customers in all three core geographies of our operations. We reached final investment decision on our 200 MW Horizon Hill project in Oklahoma by signing a long-term PPA with Meta. We fully contracted our Garden Plain facility by adding another long-term PPA for the remaining 30 MW of capacity with an investment-grade globally recognized customer. And in Western Australia, we reached final investment decision on the Mount Keith transmission expansion project which will enable the connection of additional generating capacity to our network and will support BHP's operations and increase their competitiveness as a supplier of low-carbon nickel."
Set out below are additional highlights from the quarter on TransAlta's business activities, including the Company's progress on advancing its Clean Electricity Growth Plan as well as details regarding the Company's financial performance and liquidity.
On April 5, 2022, TransAlta executed a long-term PPA with a subsidiary of Meta Platforms Inc., formerly known as Facebook, Inc. ("Meta"), for 100 per cent of the generation from its 200 MW Horizon Hill wind project to be located in Logan County, Oklahoma. Under this agreement, Meta will receive both renewable electricity and environmental attributes. The facility will consist of a total of 34 Vestas turbines with construction expected to begin in late 2022 and a target commercial operation date in the second half of 2023. TransAlta will construct, operate and own the facility. Total construction capital is estimated at approximately US
TransAlta identified Amazon Energy LLC ("Amazon") as the customer for the 300MW White Rock Wind Projects, to be located in Caddo County, Oklahoma. On Dec. 22, 2021, Amazon and TransAlta entered into two long-term PPAs for the supply of 100 per cent of the generation from the projects. Construction is expected to begin in the second half of 2022 with a target commercial operation date in the second half of 2023.
The Company entered into a commitment to invest US
The Company has entered into a long-term PPA for the remaining 30 MW of renewable electricity and environmental attributes at the Garden Plain wind farm in Alberta with a new investment-grade globally recognized customer. The 130 MW Garden Plain wind project, which was announced in May 2021 with a 100 MW PPA with Pembina Pipeline Corporation, is now fully contracted with a weighted average contract life of approximately 17 years. Construction is underway with a target commercial operation date in the second half of 2022.
On May 3, 2022, TransAlta Renewables exercised its option to acquire an economic interest in the expansion of the Mt. Keith 132kV transmission system in Western Australia, to support the Northern Goldfields-based operations of BHP Nickel West ("BHP"). Total construction capital is estimated at approximately AU
The Company recently entered into agreements with three of its large industrial customers at the Sarnia cogeneration facility. The capacity commitments for the large industrial customers have now been extended to 2031, at rates comparable to current contract rates, which, in each case, are subject to the satisfaction of certain conditions, including the Company entering into a new contract with the Ontario Independent Electricity System Operator (the "IESO"). The IESO is conducting a medium-term procurement process for capacity for 2026 and beyond for existing generation. The Company has bid into the process, and is seeking to secure a contract extension for the Sarnia cogeneration facility following the end of the current IESO contract expiring on Dec. 31, 2025. The Company expects the IESO to announce the successful bids in the third quarter of 2022.
TransAlta's MSCI ESG Rating was upgraded to 'A' from 'BBB'. The upgrade reflects the Company's strong renewable energy growth compared to peers. In 2021, the Company grew its installed renewable energy capacity by 15 per cent through acquisition and construction of solar and wind facilities, and secured 600 MW in additional renewable energy projects. In line with its goal to reduce carbon emissions by 75 per cent from 2015 emissions levels by 2026, TransAlta completed coal-to-gas conversions of its Canadian coal-fired facilities in 2021, nine years ahead of Alberta's coal phase-out plan.
During the first quarter of 2022, the extended outage at Kent Hills 1 and 2 wind facilities continued. Rehabilitation efforts for the foundations are expected to commence during the second quarter of 2022 with the aim of fully returning the wind facility to service during the second half of 2023.
The Kent Hills foundation rehabilitation capital expenditures were originally estimated to range from
The Company is actively evaluating any options that may be available to recover the rehabilitation costs from third parties and insurance.
On May 25, 2021, the Toronto Stock Exchange ("TSX") accepted the notice filed by the Company to implement a normal course issuer bid ("NCIB") for a portion of our common shares. During the three months ended March 31, 2022, the Company purchased and cancelled a total of 1.4 million common shares at an average price of
The Alberta electricity portfolio generated gross margin of
The average pool price decreased from
Hedged production for the balance of 2022 is 4,890 GWh at an average price of
The Company continues to maintain a strong financial position in part due to long-term contracts and hedged positions. At the end of the first quarter, TransAlta had access to
On Sept 28, 2021, the Company announced the strategic targets associated with its Clean Electricity Growth Plan.
As of May 5, 2022, we have made significant progress in achieving our growth goals. Refer to the Strategy and Capability to Deliver Results in the MD&A for further details.
Clean Electricity Growth Plan Targets | Target | % of Target Achieved |
Renewable Energy Capacity | 2 GW | |
Capital Investment | ||
Incremental EBITDA |
$ millions, unless otherwise stated | 3 Months Ended | |
March 31, 2022 | March 31, 2021 | |
Adjusted availability (%) | 89.1 | 88.6 |
Production (GWh) | 5,359 | 5,541 |
Revenues | 735 | 642 |
Adjusted EBITDA(1) | 266 | 310 |
Earnings before income taxes | 242 | 21 |
Net earnings (loss) attributable to common shareholders | 186 | (30) |
Cash flow from operating activities | 451 | 257 |
FFO(1) | 186 | 211 |
FCF(1) | 115 | 129 |
Net earnings (loss) per share attributable to common shareholders, basic and diluted | 0.69 | (0.11) |
FFO per share(1),(2) | 0.69 | 0.78 |
FCF per share(1),(2) | 0.42 | 0.48 |
Adjusted EBITDA(1) for the three months ended March 31, 2022 was
Earnings before income taxes for the three months ended March 31, 2022 increased by
Cash flow from operating activities for the three months ended March 31, 2022 was
FCF(1) for the three months ended March 31, 2022, was
Segmented Results For the three months ended March 31 ($ millions) | Adjusted EBITDA | |
2022 | 2021 | |
Hydro | 61 | 77 |
Wind and Solar | 89 | 76 |
Gas | 102 | 106 |
Energy Transition | 5 | 16 |
Energy Marketing | 27 | 43 |
Corporate | (18) | (8) |
Total | 266 | 310 |
Hydro:
- Adjusted EBITDA for the three months ended March 31, 2022 decreased by
$16 million compared to the same period in 2021, primarily due to lower ancillary service pricing in the Alberta market as well as higher operations, maintenance and administration costs due to increased insurance and additional costs related to asset optimization of the Alberta Hydro Assets in the merchant market.
Wind and Solar:
- Adjusted EBITDA for the three months ended March 31, 2022, increased by
$13 million compared to the same period in 2021, primarily due to incremental revenue from the North Carolina Solar facility and the Windrise wind facility, partially offset by lower production due to the extended site outage at the Kent Hills 1 and 2 wind facilities and higher transmission costs experienced in the period. The prior period recognized a reimbursement as a result of the AESO transmission line loss ruling.
Gas:
- Adjusted EBITDA for the three months ended March 31, 2022 decreased by
$4 million compared to the same period in 2021, mainly due to higher gas prices and natural gas consumption by our converted units in 2022 and increased provisions. This was partially offset by higher realized merchant pricing in the Alberta market, lower carbon costs associated with the change in fuel ratios as we increased our natural gas combustion and eliminated production with coal, and lower legal fees related to the South Hedland PPA contract settlement.
Energy Transition:
- Adjusted EBITDA for the three months ended March 31, 2022, decreased by
$11 million compared to 2021, primarily due to lower production with the retirement of Keephills Unit 1 and higher cost of coal at Centralia, partially offset by lower carbon compliance costs and lower operating costs with the retirement of the Alberta coal units.
Energy Marketing:
- Adjusted EBITDA for the three months ended March 31, 2022 decreased by
$16 million compared to the same period in 2021. Results for the quarter were in line with expectations from favourable short-term trading of both physical and financial power and gas products across all North American markets. The higher gross margin for the three months ended March 31, 2021, was due to exceptional short-term volatility in the market. The Energy Marketing team was able to capitalize on short-term volatility in the markets in which we trade without materially changing the risk profile of the business unit.
Corporate:
- Our Corporate overhead costs for the three months ended March 31, 2022 increased by
$10 million compared to the same period in 2021. These changes were primarily due to the receipt of the Canada Emergency Wage Subsidy funding in 2021 and realized gains in 2021 from the total return swap on our share-based payment plans.
TransAlta will hold a conference call and webcast at 9:00 a.m. MST (11:00 a.m. EST) today, May 6, 2022, to discuss our first quarter 2022 results. The call will begin with a short address by John Kousinioris, President and CEO, and Todd Stack, EVP Finance and Chief Financial Officer, followed by a question-and-answer period for investment analysts and investors. A question-and-answer period for the media will immediately follow.
Toll-free North American participants call: 1-888-664-6392
A link to the live webcast will be available on the Investor Centre section of TransAlta's website at http://www.transalta.com/investors/events-and-presentations. If you are unable to participate in the call, the instant replay is accessible at 1-888-390-0541 (Canada and USA toll free) with TransAlta pass code 261631 followed by the # sign. A transcript of the broadcast will be posted on TransAlta's website once it becomes available.
Notes |
We use a number of financial measures to evaluate our performance and the performance of our business segments, including measures and ratios that are presented on a non-IFRS basis, as described below. Unless otherwise indicated, all amounts are in Canadian dollars and have been derived from our audited annual consolidated financial statements prepared in accordance with IFRS. We believe that these non-IFRS amounts, measures and ratios, read together with our IFRS amounts, provide readers with a better understanding of how management assesses results.
Non-IFRS amounts, measures and ratios do not have standardized meanings under IFRS. They are unlikely to be comparable to similar measures presented by other companies and should not be viewed in isolation from, or as an alternative for, or more meaningful than our IFRS results.
Adjusted EBITDA
In the fourth quarter of 2021, comparable EBITDA was relabelled as adjusted EBITDA to align with industry standard terminology. Each business segment assumes responsibility for its operating results measured to adjusted EBITDA. Adjusted EBITDA is an important metric for management that represents our core business profitability. Interest, taxes, depreciation and amortization are not included, as differences in accounting treatments may distort our core business results. In addition, certain reclassifications and adjustments are made to better assess results excluding those items that may not be reflective of ongoing business performance. This presentation may facilitate the readers analysis of trends. Adjusted EBITDA is a non-IFRS measure.
Average Annual EBITDA
Average annual EBITDA is a non-IFRS financial measure that is forward-looking, used to show the average annual
EBITDA that the project currently under construction is expected to generate upon completion.
Funds From Operations ("FFO")
FFO is an important metric as it provides a proxy for cash generated from operating activities before changes in working capital and provides the ability to evaluate cash flow trends in comparison with results from prior periods.
FFO is a non-IFRS measure.
Free Cash Flow ("FCF")
FCF is an important metric as it represents the amount of cash that is available to invest in growth initiatives, make scheduled principal repayments on debt, repay maturing debt, pay common share dividends or repurchase common shares. Changes in working capital are excluded so FFO and FCF are not distorted by changes that we consider temporary in nature, reflecting, among other things, the impact of seasonal factors and timing of receipts and payments. FCF is a non-IFRS measure.
Non-IFRS Ratios
FFO per share, FCF per share and adjusted net debt to adjusted EBITDA are non-IFRS ratios that are presented in the MD&A. See the Reconciliation of Cash Flow from Operations to FFO and FCF and Key Financial Non-IFRS Ratios sections of the MD&A for additional information.
FFO per share and FCF per share
FFO per share and FCF per share are calculated using the weighted average number of common shares outstanding during the period. FFO per share and FCF per share is a non-IFRS ratio.
Reconciliation of these non-IFRS financial measures to the most comparable IFRS measure are provided below.
The following table reflects adjusted EBITDA and provides reconciliation to earnings (loss) before income taxes for the three months ended March 31, 2022 and March 31, 2021:
3 months ended March 31, 2022 | Attributable to common shareholders | |||||||||
$ millions | Hydro | Wind & | Gas | Energy | Energy | Corporate | Total | Equity | Reclass | IFRS |
Revenues | 77 | 95 | 434 | 106 | 26 | 1 | 739 | (4) | — | 735 |
Reclassifications and adjustments: | ||||||||||
Unrealized mark-to-market (gain) loss | — | 13 | (162) | 11 | 10 | — | (128) | — | 128 | — |
Decrease in finance lease receivable | — | — | 11 | — | — | — | 11 | — | (11) | — |
Finance lease income | — | — | 5 | — | — | — | 5 | (5) | — | |
Unrealized foreign exchange gain on commodity | — | — | — | — | (2) | — | (2) | — | 2 | — |
Adjusted Revenues | 77 | 108 | 288 | 117 | 34 | 1 | 625 | (4) | 114 | 735 |
Fuel and purchased power | 4 | 8 | 131 | 94 | — | 1 | 238 | — | — | 238 |
Reclassifications and adjustments: | ||||||||||
Australian interest income | — | — | (1) | — | — | — | (1) | — | 1 | — |
Adjusted fuel and purchased power | 4 | 8 | 130 | 94 | — | 1 | 237 | — | 1 | 238 |
Carbon compliance | — | — | 18 | 1 | — | — | 19 | — | — | 19 |
Gross margin | 73 | 100 | 140 | 22 | 34 | — | 369 | (4) | 113 | 478 |
OM&A | 11 | 16 | 44 | 16 | 7 | 18 | 112 | — | — | 112 |
Taxes, other than income taxes | 1 | 2 | 4 | 1 | — | — | 8 | — | — | 8 |
Net other operating income | — | (7) | (10) | — | — | — | (17) | — | — | (17) |
Adjusted EBITDA | 61 | 89 | 102 | 5 | 27 | (18) | 266 | |||
Equity income | 2 | |||||||||
Finance lease income | 5 | |||||||||
Depreciation and amortization | (117) | |||||||||
Asset impairment reversal | 42 | |||||||||
Net interest expense | (67) | |||||||||
Foreign exchange gain and other gains | 2 | |||||||||
Earnings before income taxes | 242 | |||||||||
(1) The Skookumchuck wind facility has been included on a proportionate basis in the Wind and Solar segment. |
3 months ended March 31, 2021 | Attributable to common shareholders | |||||||||
$ millions | Hydro | Wind & | Gas | Energy | Energy | Corporate | Total | Equity | Reclass | IFRS |
Revenues | 89 | 91 | 266 | 139 | 61 | 1 | 647 | (5) | — | 642 |
Reclassifications and adjustments: | ||||||||||
Unrealized mark-to-market (gain) loss | — | 5 | (23) | 6 | (8) | — | (20) | — | 20 | — |
Decrease in finance lease receivable | — | — | 10 | — | — | — | 10 | — | (10) | — |
Finance lease income | — | — | 7 | — | — | — | 7 | — | (7) | — |
Adjusted Revenues | 89 | 96 | 260 | 145 | 53 | 1 | 644 | (5) | 3 | 642 |
Fuel and purchased power(2) | 3 | 4 | 108 | 129 | — | 1 | 245 | — | — | 245 |
Reclassifications and adjustments: | ||||||||||
Australian interest income | — | — | (1) | — | — | — | (1) | — | 1 | — |
Mine Depreciation | — | — | (27) | (28) | — | — | (55) | — | 55 | — |
Coal Inventory write-down | — | — | — | (8) | — | — | (8) | — | 8 | — |
Adjusted fuel and purchased power | 3 | 4 | 80 | 93 | — | 1 | 181 | — | 64 | 245 |
Carbon compliance | 39 | 11 | — | — | 50 | — | — | 50 | ||
Gross margin | 86 | 92 | 141 | 41 | 53 | — | 413 | (5) | (61) | 347 |
OM&A(2) | 8 | 13 | 42 | 23 | 10 | 8 | 104 | (1) | — | 103 |
Taxes, other than income taxes | 1 | 3 | 3 | 2 | — | — | 9 | — | — | 9 |
Net other operating income | — | — | (10) | — | — | — | (10) | — | — | (10) |
Adjusted EBITDA | 77 | 76 | 106 | 16 | 43 | (8) | 310 | |||
Equity income | 2 | |||||||||
Finance lease income | 7 | |||||||||
Depreciation and amortization | (149) | |||||||||
Asset impairment charge | (29) | |||||||||
Net interest expense | (63) | |||||||||
Foreign exchange gain and other gains | 8 | |||||||||
Earnings before income taxes | 21 | |||||||||
(1) The Skookumchuck wind facility has been included on a proportionate basis in the Wind and Solar segment. |
The table below reconciles our cash flow from operating activities to our FFO and FCF:
3 Months Ended | ||
$ millions unless otherwise stated | March 31, | March 31, |
Cash flow from operating activities(1) | 451 | 257 |
Change in non-cash operating working capital balances | (284) | (72) |
Cash flow from operations before changes in working capital | 167 | 185 |
Adjustments | ||
Share of adjusted FFO from joint venture(1) | 3 | 4 |
Decrease in finance lease receivable | 11 | 10 |
Clean energy transition provisions and adjustments(2) | — | 8 |
Other(3) | 5 | 4 |
FFO(4) | 186 | 211 |
Deduct: | ||
Sustaining capital(1) | (17) | (34) |
Productivity capital | (1) | — |
Dividends paid on preferred shares | (10) | (10) |
Distributions paid to subsidiaries' non-controlling interests | (42) | (37) |
Principal payments on lease liabilities(1) | (1) | (1) |
FCF(4) | 115 | 129 |
Weighted average number of common shares outstanding in the period | 271 | 270 |
FFO per share(4) | 0.69 | 0.78 |
FCF per share(4) | 0.42 | 0.48 |
(1) Includes our share of amounts for Skookumchuck, an equity accounted joint venture. |
The table below bridges our adjusted EBITDA to our FFO and FCF for the three months ended March 31, 2022 and 2021:
3 Months Ended | ||
March 31, | March 31, | |
Adjusted EBITDA(1) | 266 | 310 |
Provisions | 10 | (5) |
Interest expense(2) | (54) | (51) |
Current income tax expense(2) | (12) | (23) |
Realized foreign exchange gain (loss) | 2 | (1) |
Decommissioning and restoration costs settled(2) | (7) | (3) |
Other non-cash items(3) | (19) | (16) |
FFO(4) | 186 | 211 |
Deduct: | ||
Sustaining capital(2) | (17) | (34) |
Productivity capital | (1) | — |
Dividends paid on preferred shares | (10) | (10) |
Distributions paid to subsidiaries' non-controlling interests | (42) | (37) |
Principal payments on lease liabilities(2) | (1) | (1) |
FCF(4) | 115 | 129 |
(1) Adjusted EBITDA is defined in the Additional IFRS Measures and Non-IFRS Measures section and reconciled to earnings (loss) before income taxes above. |
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 May 6, 2022 on the Investor Centre of TransAlta's website at www.transalta.com or through SEDAR at www.sedar.com and EDGAR at www.sec.gov/edgar.shtml.
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 hydroelectric 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.
For more information about TransAlta, visit our web site at transalta.com.
This news release contains "forward-looking information", within the meaning of applicable Canadian securities laws, and "forward-looking statements", within the meaning of applicable United States securities laws, including the United States Private Securities Litigation Reform Act of 1995 (collectively referred to herein as "forward-looking statements). 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, without limitation, statements pertaining to: the Company's growth projects, including the Horizon Hill wind project, its commercial operation date, estimated construction capital, average annual EBITDA and ability to raise tax equity financing; the White Rock wind projects, including expected commercial operation; the benefits of the EIP investment; the Garden Plain wind project currently under construction; the satisfaction of conditions to the Sarnia cogeneration facility capacity supply commitments with the large industrial customers; the Mount Keith transmission project; including that the project will qualify for a tax benefit, the timing of commercial operation and the annual expected EBITDA; the Kent Hills rehabilitation, including total costs, the timeline to return the turbines to service and ability to enter into commercial arrangements with New Brunswick Power and the terms thereof; the Clean Electricity Growth Plan, including the addition of 2 GW of new renewable capacity with
Note: All financial figures are in Canadian dollars unless otherwise indicated.
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SOURCE TransAlta Corporation
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