TransAlta Renewables Reports Fourth Quarter and Full Year 2017 Results, Provides Outlook for 2018 and Declares Dividends

Feb 23, 2018

CALGARY, Alberta (February 22, 2018) – TransAlta Renewables Inc. (“TransAlta Renewables” or the “Company”) (TSX: RNW) announced today its financial results, with Comparable EBITDA(1) and Cash Available For Distribution(1) (“CAFD”) increasing year-over-year for the full year ending December 31, 2017.

Full year Comparable EBITDA of $424 million, an increase of $17 million over last year, was primarily due to the commissioning of the South Hedland power station. Comparable EBITDA for the quarter totalled $118 million, a decrease of $3 million over the fourth quarter of 2016.

For the twelve months ended December 31, 2017, CAFD increased $39 million, to $284 million ($1.21 per share) compared to $245 million ($1.10 per share) during 2016. Fourth quarter CAFD increased $19 million year-over-year to $88 million, primarily due to the additional cash flow from South Hedland. Dividends paid for the year totalled $0.90 per share for a payout ratio of 74 per cent, compared to $0.88 per share for a payout ratio of 80 per cent in 2016.

Quarterly net earnings attributable to common shareholders of $33 million increased $7 million compared to the fourth quarter of 2016. For the year, net earnings attributable to common shareholders totaled $9 million (net loss of $2 million in 2016) including a $137 million impairment of the Australian Tracking Preferred Shares, which was partially offset by the fair value change of the Class B shares liability of $140 million. The impairment was caused by the revaluation of future cash flows attributable to the impact of the Solomon power station sale and South Hedland achieving commercial operation.

Today, the Company also declared monthly dividends of $0.07833 per share for holders of record on April 3, 2018, May 1, 2018 and June 1, 2018 payable on each of April 30, 2018, May 31, 2018 and June 29, 2018, respectively.

“This was a strong year for TransAlta Renewables, both financially and operationally,” said John Kousinioris, President. “With the commissioning of South Hedland mid-year, we are now focused on continuing to further grow our cash flows through both development and acquisitions.”

In November, a subsidiary of TransAlta Corporation (“TransAlta”) received formal notice of termination of the South Hedland Power Purchase Agreement (“PPA”) from a subsidiary of Fortescue Metals Group Limited (“FMG”).  The PPA allows FMG to terminate the agreement if the power station has not reached commercial operation within a specified time period.  FMG continues to be of the view that the South Hedland power station has yet to achieve commercial operation.  TransAlta and TransAlta Renewables remain confident that all conditions required to establish commercial operations, including all performance conditions, have been achieved under the terms of the PPA.  Confirmation of commercial operation has been provided by independent engineering firms, as well as by Horizon Power, the state-owned utility.  TransAlta and TransAlta Renewables will take all steps necessary to protect their interests in the power station and to ensure all cash flows expected under the PPA are realized.  The South Hedland power station has been fully operational and able to meet FMG’s requirements under the terms of the PPA since July 2017.

 

2018 Outlook

The following table outlines TransAlta Renewables’ financial targets for 2018:

In $CAD millions

2017 Results

2017 Outlook

2018 Outlook

Comparable EBITDA

424

425 – 450

400 – 420

Adjusted funds from operations (“AFFO”)

328

320 – 350

315 – 340

CAFD

284

235 – 260

260 – 290

The 2018 outlook includes expected revenues from long-term contracts and sale of green attributes. We expect renewable energy production from our wind and hydro assets to be in the range of 3,400 to 3,800 GWh. Gas-fired generation primarily receives compensation for capacity, and accordingly, production is not a significant indicator of that business. TransAlta Renewables will continue to focus on growing CAFD through the development and acquisition of highly diversified and contracted assets.

 

2017 Highlights and Subsequent Events

  • Entered into an arrangement to acquire two construction ready wind projects, consisting of a 90 MW project in Pennsylvania and a 29 MW project in New Hampshire, supported by long-term contracts with highly creditworthy counterparties.
  • Increased the monthly dividend by approximately seven per cent effective with the September 29, 2017 dividend payment.
  • Announced the investment of approximately $36 million in five new towers, adding approximately 17 MW of capacity to the existing Kent Hills wind farm. The expansion is supported by a long-term contract with New Brunswick Power Corporation, and will bring total operating capacity of the Kent Hills wind farm to approximately 167 MW.
  • Entered into a syndicated credit agreement giving us access to a $500 million committed credit facility. In conjunction with entering into the new credit agreement, the $350 million credit facility provided by TransAlta was cancelled in July.
  • Achieved commercial operation of the 150 MW South Hedland power station on July 28, 2017. As a result of commissioning, we converted the 26.1 million Class B shares held by TransAlta into 26.4 million common shares, a ratio greater than 1:1 because construction and commissioning costs for the project being below the referenced costs agreed upon with TransAlta.
  • Received approximately US$335 from FMG for the early termination of the Solomon power station contract. The proceeds from the termination were used to repay the $215 million of convertible unsecured debentures held by TransAlta and the outstanding amount on the credit facility.
  • Kent Hills Wind LP, a subsidiary of the Company, completed a $260 million bond offering, a portion of the proceeds from which will fund the construction costs for the Kent Hills expansion and the balance of which has been used to redeem the unsecured debentures issued by a wholly owned subsidiary, Canadian Hydro Developers, Inc.
  • Announced the appointment of John Kousinioris as President of the Corporation, and a member of the Board of Directors. Mr. Kousinioris is the Chief Legal and Compliance Officer and Corporate Secretary for TransAlta and has taken on this role in addition to his duties at TransAlta.

The following table depicts key financial results and statistical operating data:

Fourth Quarter and Year Ended December 31, 2017 Highlights

In $CAD millions, unless otherwise stated

3 Months Ended

Year Ended

Dec. 31, 2017

Dec. 31, 2016 Dec. 31, 2017

Dec. 31, 2016

Renewable energy production (GWh)(2)

1,123

975 3,623

3,541

Revenue

134

94 459

259

Comparable EBITDA(1)

118

121 424

407

Adjusted funds from operations(1)

111

91 328

284

Cash available for distribution(1)

88

69 284

245

Net earnings (loss) attributable to common shareholders

33

26 9

(2)

Net earnings (loss) per share attributable to common shareholders, basic and diluted

0.13

0.12 0.04

(0.01)

Adjusted funds from operations per share(1)

0.44

0.41 1.40

1.27

Cash available for distribution per share(1)

0.35

0.31 1.21

1.10

Dividends paid per common share

0.23

0.22 0.90

0.88

Dividends declared per common share

0.31

0.29 0.91

0.96

The following tables provide further detail on the allocation of the Comparable EBITDA between owned assets and assets in which TransAlta Renewables holds an economic interest; as well as a reconciliation to AFFO.

 

3 Months Ended December 31

($CAD millions)

2017

2016
Owned

Assets

Economic

Interest

Total Owned

Assets

Economic

Interest

Total

Comparable EBITDA

84

34 118 64 57

121

Interest expense

(12)

(12) (12)

(12)

Change in long term receivable

6 6

Sustaining capital expenditures

(6)

(2) (8) (4) (5)

(9)

Current income tax expense

(1)

(1) (1) (2)

(3)

Distributions paid to subsidiaries’

non-controlling interest

1

1

Unrealized risk management (gain) loss

1

1 (1) (1)

(2)

Realized foreign exchange gain (loss)

(1)

(1) 1

1

Reserves and other

5 5

Currency adjustment

(1) (1) (1)

(1)

Other

3

3 (1) (3)

(4)

AFFO

69

42 111 46 45

91

 

 

12 Months Ended December 31

($CAD millions)

2017

2016
Owned

Assets

Economic

Interest

Total Owned

Assets

Economic

Interest

Total

Comparable EBITDA

271

153 424 176 231

407

Interest expense

(50)

(50) (48)

(48)

Change in long term receivable

(15)

(15)

Sustaining capital expenditures

(27)

(12) (39) (11) (25)

(36)

Current income tax expense

(6)

(6) (5) (11)

(16)

Distributions paid to subsidiaries’

non-controlling interest

(3)

(3) (5)

(5)

Unrealized risk management (gain) loss

1

1 (1) 1

Realized foreign exchange gain

1

1

Reserves and other

1 1

Currency adjustment

(5) (5) (2)

(2)

Other

4

4 2 (3)

(1)

AFFO

191

137 328 108 176

284

TransAlta Renewables is in the process of filing its Annual Information Form, Audited Consolidated Financial Statements and accompanying notes, as well as the associated Management’s Discussion and Analysis (“MD&A”). These documents will be available today through TransAlta Renewables’ website at www.transaltarenewables.com or through SEDAR at www.sedar.com.

Notes

(1) Comparable EBITDA refers to earnings before interest, taxes, depreciation and amortization including finance lease income and adjusted for certain other items. Adjusted funds from operations (AFFO) includes the deduction of sustaining capital expenditures and distributions to non-controlling interests and excludes the effects of timing and working capital on distributions from subsidiaries of TransAlta in which the Company holds an economic interest. CAFD refers to AFFO less principal repayments of amortizing debt. These items are not defined under International Financial Reporting Standards (“IFRS”). Presenting these items from period to period provides management and investors with the ability to evaluate earnings and cash flow trends more readily in comparison with prior periods’ results. Refer to the Non-IFRS Measures section of the MD&A for further discussion of these items, including, where applicable, reconciliations to measures calculated in accordance with IFRS.

(2) Includes production from the Wyoming Wind Farm and excludes Canadian and Australian gas-fired generation. Production is not a key revenue driver for gas-fired facilities as most of their revenues are capacity based.

About TransAlta Renewables Inc.

TransAlta Renewables is among the largest of any publicly traded renewable independent power producers (“IPP”) in Canada. Our asset platform and economic interests are diversified in terms of geography, generation and counterparties and consist of interests in 18 wind facilities, 13 hydroelectric facilities, seven natural gas generation facilities (including South Hedland) and one natural gas pipeline, representing an ownership interest of 2,316 MW of net generating capacity, located in the provinces of British Columbia, Alberta, Ontario, Québec, New Brunswick, the State of Wyoming and the State of Western Australia. Our objectives are to (i) provide stable, consistent returns for investors through the ownership of, and investment in, highly contracted renewable and natural gas power generation and other infrastructure assets that provide stable cash flow primarily through long-term contracts with strong counterparties; (ii) pursue and capitalize on strategic growth opportunities in the renewable and natural gas power generation and other infrastructure sectors; (iii) maintain diversity in terms of geography, generation and counterparties; and (iv) pay out 80 to 85 per cent of cash available for distribution to the shareholders of the Company on an annual basis. 

Cautionary Statement Regarding Forward Looking Information

This news release contains forward looking statements, including statements regarding the business and anticipated financial performance of the Company that are based on the Company’s current expectations, estimates, projections and assumptions in light of its experience and its perception of historical trends. In some cases, forward-looking statements can be identified by terminology such as “plans”, “expects”, “proposed”, “will”, “anticipates”, “develop”, “continue”, and similar expressions suggesting future events or future performance. In particular, this news release contains forward-looking statements, including certain financial outlooks, pertaining to, without limitation, the payment of dividends and timing thereof; ability to grow our cash flows through both development and acquisitions, including the closing of the arrangement to acquire two construction ready wind projects; ability to establish that the South Hedland power station was fully commissioned in July 2017 and to realize all cash flows expected  under the PPA with FMG; the financial targets and outlook for 2018, including comparable EBITDA, AFFO, CAFD; expected revenues from long-term contracts and sale of green attributes and the renewable energy production from our wind and hydro assets to be in the range of 3,400 to 3,800 GWh; gas-fired generation receiving compensation for capacity; and the filing of the Annual Information Form, Audited Consolidated Financial Statements and accompanying notes, as well as the associated MD&A. These forward-looking statements are not historical facts but reflect the Company’s current expectations concerning future plans, actions and results. These statements are subject to a number of risks and uncertainties that could cause actual plans, actions and results to differ materially from current expectations including, but not limited to: changes in tax, environmental, and other laws and regulations; competitive factors in the power industry; operational breakdowns, failures, or other disruptions; changes in economic and market conditions; potential delays in the commissioning or construction of the Kent Hills expansion; the potential for, and outcome of, any contractual disputes, including as it pertains to South Hedland; and the outcome of any and other risks and uncertainties discussed in the Company’s materials filed with the Canadian securities regulatory authorities from time to time and as also set forth in the Company’s MD&A and Annual Information Form for the year ended December 31, 2017. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect the Company’s expectations only as of the date of this news release. The purpose of the financial outlooks contained herein is to give the reader information about management’s current expectations and plans and readers are cautioned that such information may not be appropriate for other purposes. The Company disclaims any intention or obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Note: All financial figures are in Canadian dollars unless noted otherwise.

For more information:

Investor Inquiries: Media Inquiries:
Sally Taylor Stacey Hatcher
Manager, Investor Relations Manager, Communications
Phone: 1-800-387-3598 in Canada and U.S. Phone: Toll-free media number: 1-855-255-9184
Email: investor_relations@transalta.com Email: ta_media_relations@transalta.com
Our Investor Relations team is here to answer any questions you have about investing in our company.