TransAlta Reports Strong Third Quarter 2024 Results
CALGARY, Alberta, Nov. 05, 2024 (GLOBE NEWSWIRE) --
TransAlta Corporation ("TransAlta" or the "Company") (TSX:TA) (NYSE:TAC) today reported its financial results for the three and nine months ended Sept. 30, 2024, demonstrating another quarter of strong financial performance.
"Our third quarter results illustrate the value of our proactive hedging strategy together with the active management of our Alberta merchant portfolio. Our asset optimization strategies have achieved exceptional results and we are tracking toward the upper end of our 2024 guidance given our portfolio position and performance during the first nine months of the year," said John Kousinioris, President and Chief Executive Officer of TransAlta.
"As we look forward, given the ample supply conditions for Alberta throughout 2025, we have taken the decision to temporarily mothball Sundance 6, holding it in reserve as we continue to explore future economic opportunities relating to new demand for electricity entering the province and the enhancement of grid reliability. We will maintain flexibility to returning Sundance 6 to service as market fundamentals improve or opportunities to contract are secured."
"Finally, we remain actively engaged in commercial discussions with Energy Capital Partners in respect of the acquisition of Heartland Generation and are making progress with the Competition Bureau in our effort to obtain regulatory approval. We are optimistic that we have a pathway to completing the transaction and adding Heartland's complementary assets to our portfolio. We are also pursuing multiple opportunities to support the energy transition in our core jurisdictions, while at the same time actively pursuing redevelopment and recontracting opportunities at our increasingly valuable legacy thermal fleet," added Mr. Kousinioris.
Third Quarter 2024 Financial Highlights
TransAlta's third quarter results exceeded expectations delivering strong free cash flow and exceptional operating performance. The Company delivered Free Cash Flow ("FCF") per share(1) of $0.47, due to its proactive hedging and asset management strategies given the anticipated decline in Alberta spot power prices in 2024, milder than anticipated weather, low natural gas prices and incremental generation from new supply in the market. Highlights for the quarter include:
Adjusted EBITDA(1) of $325 million, compared to $453 million for the same period in 2023
Operational adjusted availability of 94.5 per cent, compared to 91.9 per cent for the same period in 2023
FCF(1) of $140 million or $0.47 per share, compared to $228 million or $0.87 per share for the same period in 2023
The return of $114 million of capital to shareholders during the nine months ended Sept. 30, 2024, through the buyback of 11.8 million common shares constituting 76 per cent of the Company's 2024 enhanced share repurchase program of up to $150 million
Tracking towards the upper end of guidance for 2024 of
Adjusted EBITDA of $1,150 million to $1,300 million
FCF of $450 million to $600 million
Other Business Highlights and Updates
Advancing the acquisition of Heartland Generation.
Temporarily mothballing Sundance Unit 6 effective April 1, 2025 for a period of up to two years.
Key Business Developments
Advancing Acquisition of Heartland Generation
The Company continues to remain actively engaged with the federal Competition Bureau in an effort to obtain Competition Act approval for the Heartland Generation acquisition. We also remain engaged with Energy Capital Partners regarding commercial terms to advance the completion of the transaction. The Company remains optimistic that it has a pathway to completing the transaction in a timely manner and to adding Heartland Generation complementary assets to our portfolio.
Mothballing of Sundance Unit 6
On Nov. 4, 2024, the Company provided notice to the Alberta Electric System Operator that Sundance Unit 6 will be temporarily mothballed effective April 1, 2025, for a period of up to two years depending on market conditions. TransAlta maintains the flexibility to return the mothballed unit to service when market fundamentals or opportunities to contract are secured. The unit remains available and fully operational for the upcoming winter season.
Appointment of New Chief Financial Officer ("CFO")
Joel Hunter was appointed Executive Vice President, Finance and Chief Financial Officer of the Company effective July 1, 2024.
Share Repurchase Program
TransAlta is committed to enhancing shareholder returns through appropriate capital allocation such as share buybacks and its quarterly dividend. In the first quarter of 2024, the Company announced an enhanced common share repurchase program for 2024 allocating up to $150 million, and targeting up to 42 per cent of 2024 FCF guidance to be returned to shareholders in the form of share repurchases and dividends.
On May 27, 2024, the Company announced that it had received approval from the Toronto Stock Exchange to purchase up to a maximum of 14 million common shares during the 12-month period that commenced May 31, 2024, and terminates May 31, 2025. Any common shares purchased under the NCIB will be cancelled.
During the nine months ended Sept. 30, 2024, the Company purchased and cancelled a total of 11,814,700 common shares, at an average price of $9.65 per common share, for a total cost of $114 million, including taxes.
Third Quarter 2024 Highlights
$ millions, unless otherwise stated
Three months ended
Nine months ended
Sept. 30, 2024
Sept. 30, 2023
Sept. 30, 2024
Sept. 30, 2023
Operational information
Adjusted availability (%)
94.5
91.9
92.5
89.4
Production (GWh)
5,712
5,678
16,612
16,246
Select financial information
Revenues
638
1,017
2,167
2,731
Adjusted EBITDA(1)
325
453
968
1,343
Earnings before income taxes
9
453
370
915
Net earnings (loss) attributable to common shareholders
(36
)
372
242
728
Cash flows
Cash flow from operating activities
229
681
581
1,154
Funds from operations(1)
200
357
673
1,122
Free cash flow(1)
140
228
521
769
Per share
Net earnings (loss) per share attributable to common shareholders, basic and diluted
(0.12
)
1.41
0.80
2.75
Funds from operations per share(1),(2)
0.68
1.36
2.22
4.23
FCF per share(1),(2)
0.47
0.87
1.72
2.90
Weighted average number of common shares outstanding
296
263
303
265
Segmented Financial Performance
$ millions
Three months ended
Nine months ended
Sept. 30, 2024
Sept. 30, 2023
Sept. 30, 2024
Sept. 30, 2023
Hydro
89
150
259
403
Wind and Solar
44
37
221
175
Gas
139
254
419
660
Energy Transition
34
29
63
96
Energy Marketing
54
13
104
95
Corporate
(35
)
(30
)
(98
)
(86
)
Total adjusted EBITDA
325
453
968
1,343
Earnings before income taxes
9
453
370
915
Third Quarter 2024 Financial Results Summary
Production for the three months ended Sept. 30, 2024, was 5,712 GWh compared to 5,678 GWh, an increase of one per cent, compared to the same period in 2023, primarily due to:
Higher production from the Wind and Solar segment, driven primarily by new asset additions, including White Rock, Horizon Hill and Northern Goldfields, together with the return to service of the Kent Hills; partially offset by
Lower production from the Gas segment, primarily due to higher dispatch optimization and lower market prices in Alberta;
Lower production from the Energy Transition segment, which was impacted by increased economic dispatch at the Centralia facility due to lower market prices; and
Lower production from the Hydro segment due to lower water resources and increased planned outages.
Adjusted availability for the three months ended Sept. 30, 2024, was 94.5 per cent, an increase of 2.6 percentage points, compared to the same period in 2023, primarily due to:
The addition of the newly commissioned Oklahoma wind and Western Australia solar assets; and
The return to service of the Kent Hills wind facilities; partially offset by
Higher planned major maintenance outages and unplanned outages in the Hydro segment.
Adjusted EBITDA for the three months ended Sept. 30, 2024, was $325 million, a decrease of $128 million, or 28 per cent, compared to the same period in 2023. The major factors impacting adjusted EBITDA are summarized below:
Hydro adjusted EBITDA for the three months ended Sept. 30, 2024, decreased by $61 million, or 41 per cent, compared to the same period in 2023, although broadly in line with expectations, primarily due to:
Lower power prices in the Alberta market; and
Lower energy production due to lower water resources in the North Saskatchewan River region and increased planned outages across our fleet compared to the same periods in 2023; partially offset by
Higher ancillary services volumes due to increased demand by the AESO;
Realized premiums over spot prices stemming from asset optimization activities; and
Higher environmental and tax attributes revenues due to the increased sales of emission credits to third parties and intercompany sales to the Gas segment.
Wind and Solar adjusted EBITDA for the three months ended Sept. 30, 2024, increased by $7 million, or 19 per cent, compared to the same period in 2023, primarily due to:
The addition of the Oklahoma wind assets, including tax attribute revenue from the transfer of production tax credits (PTC) to taxable US counterparties; and
Higher production from the return to service of the Kent Hills wind facilities; partially offset by
Lower realized power prices at our merchant assets in the Alberta market.
Gas adjusted EBITDA for the three months ended Sept. 30, 2024, decreased by $115 million, or 45 per cent, compared to the same period in 2023, although results were broadly in line with expectations. The decrease was primarily due to:
Lower production from the Alberta gas fleet where excess supply conditions in the market drove higher dispatch optimization and lower realized prices, which were partially mitigated by our higher volume of hedges which had favourable premiums to spot merchant prices; and
Lower capacity payments at Southern Cross Energy in Australia due to the scheduled conclusion on Dec. 31, 2023, of the demand capacity charge under the customer contract, partially offset by the commencement in March 2024 of capacity payments for the Mount Keith 132kV expansion.
Energy Transition adjusted EBITDA for the three months ended Sept. 30, 2024, increased by $5 million, or 17 per cent, compared to the same period in 2023, primarily due to:
Lower purchased power costs driven by lower Mid-C prices on repurchases of power and lower production; partially offset by
Increased economic dispatch due to lower market prices driving lower production.
Energy Marketing adjusted EBITDA for the three months ended Sept. 30, 2024, increased by $41 million, or 315 per cent, compared to the same period in 2023, primarily due to favourable market volatility across North American power and natural gas markets and higher realized settled trades in the third quarter of 2024 in comparison to the prior period.
Corporate adjusted EBITDA for the three months ended Sept. 30, 2024, decreased by $5 million or 17 per cent, compared to the same period in 2023, primarily due to increased spending for the planning and design of the enterprise resource planning ("ERP") upgrade program, and to support strategic and growth initiatives.
Net loss attributable to common shareholders for the three months ended Sept. 30, 2024, totalled $36 million, compared to net earnings attributable to common shareholders of $372 million for the same period in 2023, primarily due to:
Lower adjusted EBITDA due to the items discussed above;
Lower unrealized mark-to-market gains in the Gas segment was due to the prior period having significant volume of favourable hedging positions relating to the Alberta portfolio which largely have settled;
Higher unrealized mark-to-market losses in the Wind and Solar segment was mainly due to the long-term wind energy sales related to the Oklahoma projects in the Central US. The unrealized losses were due to the strengthening forecasted wind capture prices reflected in the period;
Lower unrealized mark-to-market gains in the Energy Marketing segment is mainly driven by market volatility across North American power and natural gas markets; and
Higher asset impairment charges resulting from changes in decommissioning and restoration provisions related to discount rates and revision in estimated costs to decommission retired assets; partially offset by
Lower depreciation and amortization primarily due to revisions to useful lives on certain facilities in prior periods.
Excluding unrealized mark-to-market losses and gains, net earnings attributable to common shareholders for the three months ended Sept. 30, 2024, was $23 million, or $0.08 per share4 compared to $202 million, or $0.68 per share4, for the same period in 2023.
FCF for the three months ended Sept. 30, 2024, totalled $140 million, a decrease of $88 million, or 39 per cent, compared to the same period in 2023, primarily due to:
Lower adjusted EBITDA items as noted above;
Higher current income tax expense due to the full utilization of Canadian non-capital loss carryforwards in 2023, partially offset by lower earnings before income taxes for the period; and
Higher net interest expense3 due to lower capitalized interest driven by completion of the construction program previously underway and lower interest income resulting from lower cash balances; partially offset by
Lower distributions paid to subsidiaries' non-controlling interests relating to lower TransAlta Cogeneration, LP net earnings resulting from lower merchant pricing in the Alberta market and the cessation of distributions to TransAlta Renewables Inc. non-controlling interest. On Oct. 5, 2023, the Company acquired all of the outstanding common shares of TransAlta Renewables not already owned, directly or indirectly.
Cash from operating activities for the three months ended Sept. 30, 2024, of $229 million decreased by $452 million, or 66 per cent, compared to the same period in 2023, primarily due to:
Lower revenues net of unrealized losses from risk management activities; and
Higher trade and other receivables resulting in an unfavourable change in non-cash operating working capital balances; partially offset by
Lower fuel and purchased power.
Alberta Electricity Portfolio
The average spot power price per MWh for the three months ended Sept. 30, 2024, decreased to $55 per MWh from $152 per MWh in the same period in 2023, primarily due to:
Higher generation from the addition of new wind, solar and gas supply in the Alberta merchant market compared to the prior period;
Lower natural gas prices; and
Lower volatility due to milder weather compared to the same period in 2023.
The realized merchant power price per MWh of production for the three months ended Sept. 30, 2024, decreased to $90 MWh from $140 MWh, compared to the same period in 2023, although was significantly higher than average spot power prices during the quarter, primarily due to:
Lower average spot power prices as explained above; and
Lower hedge prices compared to the same period in 2023.
Carbon compliance cost per MWh of production for the three months ended Sept. 30, 2024, increased to $19 per MWh from $13 per MWh, compared to the same period in 2023, primarily due to an increase in carbon pricing from $65 per tonne to $80 per tonne.
Hedged volumes for the three months ended Sept. 30, 2024, were 2,365 GWh at an average price of $85 per MWh. Volumes increased over the same period in 2023 by 246 GWh, with realized gains and losses on financial hedges included in Revenues.
Liquidity and Financial Position
We expect to maintain adequate available liquidity under our committed credit facilities. As at Sept. 30, 2024, we had access to $1.8 billion in liquidity, including $401 million in cash.
2024 Financial Guidance
The following table outlines our expectations on key financial targets and related assumptions for 2024:
Measure
2024 Target
Adjusted EBITDA
$1,150 million - $1,300 million
FCF
$450 million - $600 million
FCF per share
$1.47 - $1.96
Dividend per share (annualized)
$0.24
The Company's outlook for 2024 may be impacted by a number of factors as detailed further below.
Market
Updated 2024 Assumptions
2024 Assumptions
Alberta spot ($/MWh)
$60 to $75
$75 to $95
Mid-C spot (US$/MWh)
US$60 to US$70
US$75 to US$85
AECO gas price ($/GJ)
$1.25 to $1.75
$2.50 to $3.00
Alberta spot price sensitivity: a +/- $1 per MWh change in spot price is expected to have a +/-$1 million impact on adjusted EBITDA for balance of year 2024.
Other assumptions relevant to the 2024 outlook
Updated 2024 Expectations
2024 Expectations
Energy Marketing gross margin
$150 million to $170 million
$110 million to $130 million
Sustaining capital
no change
$130 million to $150 million
Corporate cash taxes
$140 million to $160 million
$95 million to $130 million
Cash interest
no change
$240 million to $260 million
Hedging assumptions
Q4 2024
Full year 2025
Full year 2026
Hedged production (GWh)
2,415
5,541
3,640
Hedge price ($/MWh)
$82
$75
$78
Hedged gas volumes (GJ)
15 million
28 million
18 million
Hedge gas prices ($/GJ)
$2.55
$3.51
$3.67
Conference call
TransAlta will hold a conference call and webcast at 9:00 a.m. MST (11:00 a.m. EST) today, November 5, 2024, to discuss our third quarter 2024 results. The call will begin with an address by John Kousinioris, President and Chief Executive Officer, and Joel Hunter, Executive Vice President, 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.
Third Quarter 2024 Conference Call
Webcast link: https://edge.media-server.com/mmc/p/22yb3pn9
A link to the live webcast will be available on the Investor Centre section of TransAlta's website at https://transalta.com/investors/presentations-and-events/. To access the conference call via telephone, please register ahead of time using the call link here: https://register.vevent.com/register/BI863e6b314dbc4284ae19fafc47eca7ac. Once registered, participants will have the option of 1) dialing into the call from their phone (via a personalized PIN); or 2) clicking the "Call Me" option to receive an automated call directly to their phone.
Related materials will be available on the Investor Centre section of TransAlta's website at https://transalta.com/investors/presentations-and-events/. If you are unable to participate in the call, the replay will be accessible at https://edge.media-server.com/mmc/p/22yb3pn9. A transcript of the broadcast will be posted on TransAlta's website once it becomes available.
Notes
(1) These items are not defined and have no standardized meaning under IFRS. Presenting these items from period to period provides management and investors with the ability to evaluate earnings (loss) trends more readily in comparison with prior periods' results. Please refer to the Non-IFRS Measures section of this earnings release for further discussion of these items, including, where applicable, reconciliations to measures calculated in accordance with IFRS.(2) Funds from operations ("FFO") per share and free cash flow ("FCF") per share are calculated using the weighted-average number of common shares outstanding during the period. Refer to the Additional IFRS Measures and Non-IFRS Measures section of the MD&A for the purpose of these non-IFRS ratios.(3) Net interest expense includes interest expense for the period less interest income.(4) Calculated using the weighted average number of common shares outstanding for the three months ended Sept. 30, 2024.
Non-IFRS financial measures and other specified financial measures
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 unaudited interim condensed 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, as an alternative to, or more meaningful than, our IFRS results.
Adjusted EBITDA
Each business segment assumes responsibility for its operating results measured by adjusted EBITDA. Adjusted EBITDA is an important metric for management that represents our core operational results. In the second quarter of 2024, our reported EBITDA composition was adjusted to include the impact of acquisition transaction and integration costs as the Company does not have frequent business acquisitions and the acquisition transaction and integration costs are not reflective of Company's ongoing business performance. Accordingly, the Company has applied this composition to all previously reported periods. 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.
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. Refer to the Reconciliation of Cash Flow from Operations to FFO and FCF and Key Non-IFRS Financial 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 are non-IFRS ratios.
Reconciliation of these non-IFRS financial measures to the most comparable IFRS measure are provided below.
Reconciliation of Non-IFRS Measures on a Consolidated Basis
The following table reflects adjusted EBITDA by segment and provides reconciliation to earnings before income taxes for the three months ended Sept. 30, 2024:
Three months ended Sept. 30, 2024 millions
Hydro
Wind & Solar(1)
Gas
Energy Transition
EnergyMarketing
Corporate
Total
Equity- accounted investments(1)
Reclass adjustments
IFRS financials
Revenues
105
2
314
165
55
—
641
(3
)
—
638
Reclassifications and adjustments:
Unrealized mark-to-market (gain) loss
1
74
(5
)
(8
)
(3
)
—
59
—
(59
)
—
Realized gain (loss) on closed exchange positions
—
—
(3
)
—
12
—
9
—
(9
)
—
Decrease in finance lease receivable
—
—
5
—
—
—
5
—
(5
)
—
Finance lease income
—
1
2
—
—
—
3
—
(3
)
—
Unrealized foreign exchange loss on commodity
—
—
1
—
—
—
1
—
(1
)
—
Adjusted revenues
106
77
314
157
64
—
718
(3
)
(77
)
638
Fuel and purchased power
4
5
100
104
—
—
213
—
—
213
Reclassifications and adjustments:
Australian interest income
—
—
(1
)
—
—
—
(1
)
—
1
—
Adjusted fuel and purchased power
4
5
99
104
—
—
212
—
1
213
Carbon compliance
—
—
40
1
—
—
41
—
—
41
Gross margin
102
72
175
52
64
—
465
(3
)
(78
)
384
OM&A
13
26
43
17
10
35
144
(1
)
—
143
Reclassifications and adjustments:
Acquisition and integration costs
—
—
—
—
—
(1
)
(1
)
—
1
—
Adjusted OM&A
13
26
43
17
10
34
143
(1
)
1
143
