TransAlta Corporation (TAC)

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TransAlta Corporation (TAC)

Q2 2013 Earnings Conference Call

July 30, 2013 10:00 AM ET

Executives

Jacqueline O'Driscoll – Senior Analyst-Investor Relations

Dawn Farrell – President and Chief Executive Officer

Brett Gellner – Chief Financial Officer

Analysts

Juan Plessis – Canaccord Genuity Corp.

Paul Lechem – CIBC World Markets, Inc.

Mark Barnett – Morningstar Equity Research

Robert Kwan – RBC Capital Markets

Andrew M. Kuske – Credit Suisse

Matthew A. Akman – Scotia Capital Markets

Jeremy van Loon – Bloomberg News

Presentation

Operator

[Call Starts Abruptly] At this time, I would like to turn the conference over to Jacqueline O'Driscoll, Senior Analyst, Investor Relations. Please go ahead.

Jacqueline O'Driscoll

Thank you. Good morning, everyone. I am Jacqueline O'Driscoll, Senior Analyst, Investor Relations. Thank you for joining TransAlta’s 2013 Second Quarter Conference Call. With me this morning are Dawn Farrell, President and CEO; Brett Gellner, Chief Financial Officer; Maryse St.-Laurent, Vice President, Legal and Corporate Secretary, and Todd Stack, Vice President and Treasurer.

Earlier this morning, we released our second quarter results. For those not on our webcast, the presentation is posted on our website under our Investors section. We will refer to the presentation during the call.

All information provided during this conference call is subject to the forward-looking statement qualification, which is detailed in the MD&A and incorporated in full for the purpose of today’s call. The amounts are referenced in Canadian currency unless otherwise stated. The non-IFRS terminology used including comparable earnings, comparable EBITDA, comparable gross margin, funds from operations and free cash flow is reconciled in the MD&A.

Per share figures for the second quarter of 2013 are based on an average of 262 million shares outstanding compared to 227 million shares in the second quarter of 2012. Please note that 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 second quarter, provide an update on recent events and activities, and before going to Q&A, Dawn will provide commentary on business activities and outlook for the remainder of 2013.

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

Dawn Farrell

Thanks, Jacqueline, and welcome, everyone. Today, I will comment on our results for the quarter and the first half of the year. I’ll review some of the key projects and I’ll also update you on some of the announcements that we had during the quarter. Our second quarter results for 2013 improved over last year. We delivered EBITDA and FFO above what we delivered in the same quarter in 2012. Our Energy Trading team continues to deliver consistent results. Their return to normal business means they improved by $25 million at the gross margin level over the same quarter in 2012.

We also had a full quarter of cash and earnings from our new Solomon and New Richmond assets. These results plus improved margins in our existing wind, hydro and gas businesses, more than offset the decline we experienced in our coal business this quarter. The underlying coal business is strong. Operationally, the majority of our coal fleet performed well for the quarter. You’ll see from Brett the year-over-year decline in our coal fleet was due to the negative impact of a non-cash mark-to-market loss and some operating hedges, a non-cash provision for the Keephills 1 force majeure and lower contract prices at Centralia.

Overall, I am pleased with the improvements we are seeing in our core markets as well as the advances we made both on our growth and our recontracting strategy. In the quarter, we announced the creation of TransAlta Renewables, the approval of our contract for Puget Sound Energy at the Centralia Plant, the execution of a long-term contract for geothermal asset and a new partnership with MidAmerican to pursue opportunities in the transmission business here in Alberta, and I’ll talk more about this later.

Results for the first half of 2013 are better than the same period in 2012. In the table on Slide 6, you’ll see stronger second quarter and year-to-date comparable EBITDA and FFO. EBITDA is up $54 million for the quarter and $68 million year-to-date; and funds from operation are up $34 million for the quarter and $37 million for the year so far. These increases were driven by solid gross margins from the gas and renewables fleet, strong results from Energy Trading and year-to-date improvements in our OM&A from our restructuring that we did in November of 2012.

We see on the next slide that availability has more complex results for the quarter. Overall, our adjusted fleet availability is 5% below the same period last year. This is entirely as the result of the force majeure at Keephills 1, which occurred due to the need to replace the generator winding. Keephills 1 is now expected to be back in service by October of this year and we will continue to keep the capacity payments through that period from the balancing pools.

Due to the force majeure, we now expect our full year adjusted availability to be 87% to 89%. Excluding the force majeure at Keephills 1, adjusted availability in the quarter was approximately 87% and full year adjusted availability would have been within our target range of 89% to 90%.

I will now turn the call over to Brett. He will take you through a more details of the results for the quarter and year-to-date performance. When I return, I will review our business activities in the quarter and some of our outlook for the remainder of 2013.

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