TransAlta Corporation (TAC)

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TransAlta Corporation (TAC)

Q3 2012 Earnings Call

October 26, 2012 11:00 am ET


Jess Nieukerk – Director of Investor Relations

Dawn Farrell – President and Chief Executive Officer,

Brett Gellner – Chief Financial Officer


Linda Ezergailis – TD Securities

Paul Lechem – CIBC

Juan Plessis – Canaccord Capital

Robert Kwan – RBC Capital Markets

Matthew Akman – Scotia Capital

Andrew Kuske – Credit Suisse

Benjamin Pham – BMO Capital Markets

Jeremy Rosenfield – Desjardins Capital Markets

Dominique Barker – CIBC Global Asset Management

Jeremy van Loon – Bloomberg News



Hello, this is the conference operator. Welcome to the TransAlta Corporation 2012 Third 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 Jess Nieukerk, Director of Investor Relations. Please go ahead, Mr. Nieukerk.

Jess Nieukerk

Thank you, operator. Good morning, everyone. I’m Jess Nieukerk, Director of Investor Relations. Welcome to TransAlta’s third quarter 2012 conference call. With me are Dawn Farrell, President and CEO; Brett Gellner, Chief Financial Officer; Ken Stickland, Chief Legal and Business Development Officer; and Todd Stack, our Treasurer.

This morning, we released our third quarter 2012 results. We hope you’ve had a chance to review them. For those who are not on our webcast, we have also posted our Q3 presentation on our website under our Investors section, as we will be referring to the presentation during this call. Further operating information will be posted after the call.

All information provided during this call is subject to the forward-looking statement qualification, which is detailed in today’s news release and incorporated in full for purposes of today’s call. The amounts referenced in this review are in Canadian currency, unless otherwise stated. The non-IFRS terminology used in this call, including comparable earnings, comparable EBITDA, gross margin, funds from operations and free cash flow, is reconciled in the MD&A. Per-share figures for the third quarter 2012 are based on an average of 234 million shares outstanding compared to 223 million shares in third quarter of 2011. Please note 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 in the quarter, provide an update on recent events and activities, and before going to Q&A, Dawn will provide an outlook and talk about our growth initiatives.

Let me turn the call over to Dawn.

Dawn L. Farrell

Thanks, Jess, and good morning, everyone. Today, we will update you on our quarterly results, our views for the rest of the year and some of our views as we move into 2013. We will also provide an update on our new Richmond wind farm, our Solomon acquisition and our initial thoughts on the final greenhouse gas regulations and the impact of those regulations on TransAlta. Of course our most exciting news is our new partnership announced this morning with MidAmerican for the co-development of gas fire plants here in Canada. I will address this as well.

So first the quarter, the quarter met our expectations on the generation side of the business as our plants overall delivered availability of 90.9%. Relative to the third quarter last year, we had strong improvements in unplanned outages. The capital programs that we implemented over the past three years is paying off and the planned outages we’ve had this year have all gone very well.

We have one more major outage due this year on Sheerness Genesee 5 and then will be through a very large sustaining capital year that will end with approximately CAD$475 million invested in our overall fleet. The completion of the three-year capital investment program in our fleet is that we are now well positioned to return to normal levels of capital reinvestment in 2013 with planned sustaining capital expenditures in the range of CAD$300 million to CAD$350 million for the overall fleet.

Energy trading continues to struggle this year with the group delivering another negative quarter. As such, we are revising our estimate of annual trading gross margin between zero and CAD$20 million for the full year. We have taken measures to reposition our trade floor to get back on track and we expect to return to a more historical run rate starting in the fourth quarter of 2012.

The combined impact of trading and generation along with the lower corporate cost this quarter delivered comparable earnings of CAD$0.18 a share and funds from operation of CAD$232 million. We continue to expect funds from operations to be at the low end of our CAD$800 million to CAD$900 million target for the year. Brett will take you into more detail on all the financial metrics for the company in his section.

So let me turn for a minute to New Richmond. Our New Richmond wind farm will now be fully commissioned in March of 2013 instead of December. The delay is being driven primarily by contracted labor and availability of cranes in that region. This delay is not impacting the overall capital costs. The Solomon acquisition in Western Australia is now closed and capacity payments started in October. Quarters queue continues with the construction and commissioning of the power station. The first unit is expected to be commissioned by early November and full type commissioning is expected to be completed in January of 2013. As you know, our capacity payments are not based on commissioning or production.

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