TransAlta Corporation (TAC)

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TransAlta Corporation (TAC)

Q1 2013 Earnings Conference Call

April 23, 2013 4:30 PM ET

Executives

Brent Ward - Director, Corporate Finance and IR

Dawn Farrell - President and CEO

Brett Gellner - CFO

John Kousinioris - Chief Legal and Compliance Officer

Todd Stack - VP and Treasurer

Analysts

Linda Ezergailis - TD Securities

Juan Plessis - Canaccord Genuity

Ben Pham - BMO Capital Markets

Jeremy Rosenfeld - Desjardins Capital Markets

Robert Kwan - RBC

Presentation

Operator

Hello, this is the Chorus conference operator. Welcome to the TransAlta Corporation 2013 First Quarter Results Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions)

At this time, I’d like to turn the conference over to Brent Ward, Director, Corporate Finance and Investor Relations. Please go ahead.

Brent Ward

Thank you, and good afternoon, everyone. I’m Brent Ward, Director of Corporate Finance and Investor Relations. Thank you for joining us for TransAlta’s 2013 First Quarter Conference Call.

With me today, are Dawn Farrell, President and Chief Executive Officer, Brett Gellner, Chief Financial Officer, John Kousinioris, Chief Legal and Compliance Officer, and Todd Stack, Vice President, and Treasurer.

Earlier this morning, we released our first quarter results for your review. For those not on our webcast, the results are posted on our website under the Investors section, we will refer to the presentation during this call.

All information provided during this conference call is subject to the forward-looking qualification, which is detailed in today’s news release and incorporated in full for the purposes of today’s call. The amounts referenced are in Canadian currency, unless otherwise stated. The non-IFRS terminology used, including comparable earnings, comparable EBITDA, comparable growth margin, funds from operations and free cash flow is reconciled in the MD&A. Per share figures for the first quarter 2013 are based on an average of 258 million shares outstanding compared to 225 million shares in the first quarter of 2012.

Please note, the financial information has been rounded to the nearest whole number.

On today’s call, Dawn, and Brett will provide an overview of our operational and financial performance for the first quarter, provide an update on recent events and activities, and before going to the Q&A, Dawn will provide commentary on our outlook for 2013.

With that, let me turn the call over to Dawn.

Dawn Farrell

Thanks, Brent, and welcome everyone. I am going to start with some highlights from the quarter. Overall I'm pleased with the quarter on a number of fronts. We were able to deliver comparable gross margin and EBITDA above the same period in 2012 despite the hedges rolling off at our Centralia plant. This is due to increased cash flow from new growth, lower operating MD&A costs and higher production at Alberta Coal and Centralia.

As Brett will show later, all of our business units continue to perform well and contribute to overall gross margins. Our strategy of owning and operating a diversified fleet is paying off. This is demonstrated by the increase we realized in both renewables which represents 24% of our comparable gross margin and gas which represents 27% of our comparable gross margin.

These two businesses more than offset the slight decline we found in the coal fleet. That will cover all the numbers in more detail. We also continue to deliver availability at 91.5% inline with our target and trading did deliver inline with our expectations.

In the quarter, we commissioned New Richmond increasing our total net wind capacity to 1129 megawatt. TransAlta has continued to be the largest wind producer in Canada in generating approximately 18% of Canada’s total wind capacity with our next largest competitor contributing only 8%. We also increase the amount we hedged in Alberta since the last quarter, and are now 90% hedge for this year. And I will talk more about that later.

During the quarter, we also made a strategic decision to send the operation and management control of the Highvale mine. We believe that our operational efficiency and addition synergies to begin by relying on our existing teams. Now we will take you through the accounting impact of this decision. In Australia, the Solomon power plant is in its final stage of the construction and its tracking as planned. We started receiving our full capacity payments in October of last year and the facility is expected to be commissioned during the second quarter of 2013.

I'm also pleased to report that we are beginning to realize the benefits from the corporate realignment that we executed in Q4 of 2012. OM&A costs are down, relative to the comparable period a year ago and was well positioned for the rest of the year.

There is a bit of an update on the future contracts at Centralia. On March 22, featured in the staff of the WUTC filed a settlement agreement regarding the coal transition PPA. The proposed settlement addresses the primary issued rate by Puget and its January 23 petition for reconsideration. The amended time line for a decision on a reconsideration motion is now expected to take place no later than June 28 of this year.

Let me spend just a couple of minutes on the performance of the fleet. We achieved total fleet availability as I said earlier of 91.5% for the quarter. A good performance especially considering the availability impacts of the unplanned force majeure outage at K-1. We continue to expect to meet our target of total fleet availability in the range of 89% to 90% for the year. Our planned outages for Q1 and Q2 are going well, and they are going as expected. Just a quick update on the Sundance 4 planned outage, the team is tracking to budget and plan, and we expect to return this unit to service in the next couple of days.

Read the rest of this transcript for free on seekingalpha.com