TransAlta Reports Fourth Quarter and Full Year 2015 Results

Press Release

CALGARY, Alberta (Febuary 18, 2016) – TransAlta Corporation (“TransAlta” or the “Company”) (TSX: TA; NYSE: TAC) today reported its fourth quarter and full year 2015 financial results. Comparable EBITDA(1) for the fourth quarter 2015 was $268 million compared to $301 million during the same period last year. Excluding a non-cash adjustment to provisions relating mostly to prior year events, comparable EBITDA would have been $327 million in the fourth quarter. Comparable FFO(1) for the quarter was $243 million, or $0.86 per share, compared to $225 million, or $0.82 per share, during the same period last year. Comparable EBITDA for the full year ending December 31, 2015 totaled $945 million, a decrease of $91 million compared to 2014. Excluding the provision adjustment relating mostly to prior years, comparable EBITDA would have been $1,004 million and within the expected comparable EBITDA range(2) of $980 to $1,010 million for the year. Comparable FFO for the full year ending December 31, 2015 was $740 million compared to $762 million in 2014 and in-line with our target range(2) for the year of $725 to $755 million.

Continued operational improvements at Canadian Coal, reduced mining costs and the addition of wind, solar and gas pipeline assets during 2015 were offset by Energy Marketing losses during the second quarter of 2015, lower availability in Canadian Coal during the first half of the year, and lower prices in Alberta and the Pacific Northwest. Prices in Alberta averaged $33 per megawatt hour (“MWh”) in 2015 compared to $49 per MWh in 2014. Our high level of contracts and hedges mostly mitigated the impact of low prices with the exception of our wind and hydro businesses in Alberta.

“2015 was a busy year with the completion of many initiatives that have positioned TransAlta for 2016 and beyond,” said Dawn Farrell, President and Chief Executive Officer. “Our solid financial results this year reflect the positive impact of our continued focus on costs, efficiencies and hedging. Despite low power prices and challenging market conditions in Alberta in 2015, we generated comparable FFO in-line with our expectations for the year, delivered record safety performance, grew our portfolio of renewable assets, and extended the life of our contracted cash flows. Looking forward, we are focused on building our financial capacity and flexibility as we transition to clean power and utilizing our expertise, scale, and diversified fuel mix to capitalize on opportunities in our core markets.”

As at December 31, 2015, recourse and non-recourse long-term debt totaled $4.4 billion compared to $4.0 billion at December 31, 2014. During the year, strengthening of the US dollar increased our debt balances by approximately $0.4 billion. Almost all of our US-dollar-denominated debt is hedged either through financial contracts or net investments in our U.S. operations. Since the end of 2013, excluding the impact of the US dollar appreciation and pro-forma the closing of our transaction with TransAlta Renewables in January, senior unsecured debt has been reduced by over $1.0 billion, including a reduction of over $700 million on our credit facility and a $300 million reduction in Canadian and US bonds. Over the next three years we plan to continue on this path by repaying $1.2 billion of maturing recourse debt with proceeds from non-recourse debt and cash flow from the business.

Comparable net loss attributable to common shareholders for the full year ending December 31, 2015 was $48 million ($0.17 net loss per share) compared to comparable net earnings of $68 million ($0.25 net earnings per share) in 2014. The decrease was primarily due to lower comparable EBITDA and higher earnings attributable to non-controlling interests. Reported net loss attributable to common shareholders for the full year ending December 31, 2015 was $24 million, or $0.09 net loss per share. Comparable net earnings and reported net earnings for the three months ending December 31, 2015 were $3 million and ($7) million, respectively as compared to $46 million and $148 million in same period in 2014.

(1) These items are not defined under IFRS. Presenting these items from period to period provides management and investors with the ability to evaluate earnings trends more readily in comparison with prior periods’ results. Refer to the Comparable Funds from Operations and Comparable Free Cash Flow and Earnings and Other Measures on a Comparable Basis sections of the Company’s MD&A for further discussion of these items, including, where applicable, reconciliations to measures calculated in accordance with IFRS.

(2) Expected guidance ranges for 2015 comparable EBITDA, comparable FFO, comparable FCF and sustaining capital were revised with the release of the Company’s third quarter 2015 financial results in October 2015.

2016 Outlook

As previously indicated in our third quarter 2015 report, TransAlta expects its comparable EBITDA for 2016 to be in the range of $990 million and $1.1 billion based on the current outlook for power prices in Alberta and the Pacific Northwest. Comparable FFO is anticipated to be in the range of $755 to $835 million. Comparable free cash flow is expected to be in the range of $250 million and $300 million, net of sustaining capital of approximately $330 million to $350 million. Sustaining capital in 2016 includes three major maintenance turnarounds for TransAlta operated units in the Canadian Coal fleet. Availability of the Company’s coal fleet in Canada is expected to be in the range of 87 to 89 per cent in 2016.

2016 Key Priorities

• Continue to focus on delivering operational excellence at our Canadian Coal operations

• Secure a coal transition agreement in the Province of Alberta

• Reposition our capital structure by pursuing project-level debt, targeting $400 to $600 million of project-level financing in 2016

• Continue construction of South Hedland with commissioning expected in mid-2017

2015 Strategic Accomplishments

• Raised over $1.0 billion of capital in 2015, including the recent transaction that closed on January 6, 2016, through two drop-down transactions with TransAlta Renewables raising approximately $390 million in equity; the sale of 20.5 million common shares of TransAlta Renewables to the Alberta Investment Management Corporation (“AIMCo”) for net proceeds of $193 million; and $442 million of long-term non-recourse debt secured by three wind projects.

• Extended the contractual profile of Poplar Creek, Windsor, and the Parkeston gas-fired generating plant. Over the last three years, including these extensions, the weighted average remaining contractual life of the gas fleet has increased from 6 years to 12 years.

• Acquired two wind facilities, representing 65 megawatts (“MW”) of capacity in Ontario and Alberta as part of the arrangement to restructure the Poplar Creek contract.

• Acquired 71 MW of fully contracted renewable generation assets for cash consideration of $106 million together with the assumption of $105 million of project financing obligations. The assets include our first solar facilities, representing 21 MW of capacity in Massachusetts, and a 50 MW wind farm in Minnesota. The acquisition of the solar facilities closed on September 1, 2015 and the acquisition of the wind farm closed on October 1, 2015.

• Company-wide overhead reductions and efficiency and productivity initiatives in Canadian Coal which is expected to contribute cost savings of approximately $45 to $50 million annually.

• Reached an agreement with the Alberta Market Surveillance Administrator (the “MSA”) to settle all outstanding proceedings before the Alberta Utilities Commission (the “AUC”) for a total amount of $56 million. Of this amount, $31 million was paid in the fourth quarter and $25 million will be paid in the fourth quarter of 2016.

• Received approval from the AUC to construct Sundance 7, an 865 MW high efficiency natural gas-fired power plant in Alberta. Construction of Sundance 7 will not commence until we have contracted a significant portion of the plant capacity.

• Completed construction of the natural gas pipeline to our Solomon power station in March. Since then, the pipeline has contributed $10 million to our EBITDA and FFO.

• Advanced construction of the South Hedland power project. Bulk earthworks and civil work were largely completed during the year, and major equipment has been arriving on schedule. The power station, which is expected to generate approximately $80 million of EBITDA on an annualized basis, is fully contracted and is expected to be completed on schedule and on budget and be commissioned for operation in mid-2017.

• As at December 31, 2015, our liquidity was approximately $1.3 billion, compared to $0.9 billion as at September 30, 2015. We are in compliance with the terms of our credit facility and all undrawn amounts are fully available. On January 6, 2016, we completed a transaction with TransAlta Renewables to sell economic interests of certain assets located in Canada and received $173 million in cash proceeds. The cash proceeds were used to reduce amounts borrowed under our credit facilities, further improving our liquidity to approximately $1.4 billion. We have no material debt maturities until 2017 and anticipate renewing our credit facilities, based on reasonable commercial terms, prior to their maturities.

Read More: http://www.transalta.com/newsroom/news-releases/2016-02-18/transalta-reports-fourth-quarter-and-full-year-2015-results

AB2