TransAlta Reports Second Quarter 2023 Results and Raises 2023 Financial Guidance

Second Quarter 2023 Financial Highlights

• Adjusted EBITDA⁽¹⁾ of $387 million, an increase of 39 per cent over the same period in 2022
• Free Cash Flow (“FCF”)⁽¹⁾ of $278 million, or $1.05 per share, an increase of 94 per cent on a per-share basis from the same period in 2022
• Earnings before income taxes of $79 million, an improvement of $101 million from the same period in 2022
• Net earnings attributable to common shareholders of $62 million, an increase of $142 million from the same period in 2022
• Cash flow from operating activities of $11 million, an increase of $140 million from the same period in 2022

Other Business Highlights

• Entered into a definitive arrangement agreement with TransAlta Renewables to acquire all of the outstanding common shares of TransAlta Renewables subject to the approval of TransAlta Renewables shareholders
• Entered into an automatic share purchase plan (“ASPP”) to facilitate repurchases of common shares through the normal course issuer bid during blackout period. The Company returned $71 million of capital to common shareholders in the first and second quarter of 2023 through buybacks of 6.1 million common shares
• Kent Hills rehabilitation program on track with 27 turbines fully reassembled. Turbines are being returned to service as commissioning activities are completed and, to date, 10 turbines have been fully placed back in operation. The remaining turbines are expected to return to service in the second half of 2023
• Northern Goldfields Solar project has entered its commissioning phase. All major equipment has been installed and construction work is largely complete. Energization and testing processes have commenced and the facility is expected to achieve full commercial operations in the second half of 2023
• Mount Keith 132kV expansion project is well advanced. The gas-insulated switchgear will be installed in August and the project will achieve commercial operations in the second half of 2023
• Construction at the Horizon Hill wind project in Oklahoma is advancing well with all major equipment now delivered to site. Turbine erection activities are underway with 27 of the 34 wind turbines fully assembled. Construction of the transmission interconnection is also underway. Based on the schedule to complete the transmission line, we have updated our schedule to reflect commercial operations in the first half of 2024
• Equipment deliveries at White Rock East and West projects are well advanced with the final blade sets due to arrive in August. Tower assembly has commenced as well as the construction of the transmission interconnection
• Acquired a 50 per cent interest in the 320 MW Tent Mountain early-stage pumped hydro development project

2023 Revised Outlook

• Increased 2023 annual financial guidance as set out below:
  • Adjusted EBITDA range of $1.7 billion to $1.8 billion, an increase of 17 per cent at the midpoint of prior guidance
  • FCF range of $850 million to $950 million, an increase of 29 per cent at the midpoint of prior guidance

TransAlta Corporation (TransAlta or the Company) (TSX: TA) (NYSE: TAC) today reported its financial results for the three and six months ended June 30, 2023.

“Our second quarter results continue to demonstrate the value of our strategically diversified fleet, which benefited from our strong asset optimization and hedging activities. With our performance across the fleet and our continuing positive expectations for the balance of year, we have revised our 2023 full year financial guidance upwards for both adjusted EBITDA and free cash flow, with revised midpoints exceeding the top end of our original targets to reflect stronger market conditions and solid operational performance,” said John Kousinioris, President and Chief Executive Officer of TransAlta. 

“We continue to advance our growth plan and are progressing several opportunities, with 418 MW of projects in an advanced stage of development and set to reach final investment decisions. The cash flows from our legacy fleet are positioning us well to realize our Clean Electricity Growth Plan.” 

“As we continue the execution of our Clean Electricity Growth Plan, I am pleased that we have reached an agreement with TransAlta Renewables for the acquisition of the common shares of TransAlta Renewables not already owned by TransAlta.  It is clear that the strategies of both TransAlta and TransAlta Renewables have converged and we are excited to bring these two companies back together. The combined company’s greater scale and enhanced positioning will drive value for all of our shareholders,” added Mr. Kousinioris.

Key Business Developments

TransAlta Corporation to Acquire TransAlta Renewables Inc. to Simplify Structure and Enhance Strategic Position

On July 10, 2023, the Company and TransAlta Renewables entered into a definitive arrangement agreement (the “Arrangement Agreement”) under which the Company will acquire all of the outstanding common shares of TransAlta Renewables not already owned, directly or indirectly, by TransAlta and certain of its affiliates, subject to the approval of TransAlta Renewables shareholders.

The transaction will provide shareholders of the combined company with a single strategy and a clear and compelling opportunity for long-term growth, with greater clarity around the execution of the Clean Electricity Growth Plan. TransAlta Renewables shareholders will benefit from a fair offer reflecting an attractive premium, a clear and sustainable path going forward, ownership in an expanded pool of assets and exposure to the Alberta electricity market. For TransAlta shareholders, the transaction will provide an enhanced strategic position, sustainable and attractive transition metrics, and increased liquidity and synergies, while maintaining the Company’s financial strength.

Under the terms of the Agreement, each TransAlta Renewables share will be exchanged for, at the election of each holder of TransAlta Renewables shares, (i) 1.0337 common shares of TransAlta or (ii) $13.00 in cash. The consideration payable to TransAlta Renewables shareholders is subject to pro-rationing based on a maximum aggregate number of TransAlta shares that may be issued to TransAlta Renewables shareholders of 46,441,779 and a maximum aggregate cash amount of $800 million.

The consideration payable to TransAlta Renewables shareholders represents an 18.3 per cent premium based on the closing price of TransAlta Renewables shares on the Toronto Stock Exchange (“TSX”) as of July 10, 2023, and a 13.6 per cent premium relative to TransAlta Renewables’ 20-day volume-weighted average price per share as of July 10, 2023. The total consideration paid to TransAlta Renewables shareholders is valued at $1.4 billion on July 10, 2023, of which $800 million will be paid in cash, and the remaining balance in common shares of TransAlta. The combined company will operate as TransAlta and remain listed on the TSX and the New York Stock Exchange (“NYSE”), under the symbols “TA” and “TAC”, respectively.

The TransAlta Renewables Board (with abstentions by TransAlta-nominated directors) unanimously determined that the Agreement is in the best interests of TransAlta Renewables and is fair to its shareholders, approved the execution and delivery of the Agreement and unanimously recommends that TransAlta Renewables shareholders vote in favour of the Agreement.

A special meeting for TransAlta Renewables shareholders to consider the transaction will be held on or about Sept. 26, 2023. If all approvals are received and other closing conditions satisfied, the transaction is expected to be completed in early October 2023.

Normal Course Issuer Bid

On May 26, 2023, the TSX accepted the notice filed by the Company to implement a normal course issuer bid (NCIB) for a portion of its common shares. Pursuant to the NCIB, TransAlta may repurchase up to a maximum of 14,000,000 common shares, representing approximately 7.29 per cent of its public float of common shares as at May 17, 2023. Purchases under the NCIB may be made through open market transactions on the TSX and any alternative Canadian trading platforms on which the common shares are traded, based on the prevailing market price. Any common shares purchased under the NCIB will be cancelled. The period during which TransAlta is authorized to make purchases under the NCIB commenced on May 31, 2023 and ends on May 30, 2024, or such earlier date on which the maximum number of common shares are purchased under the NCIB or the NCIB is terminated at the Company’s election.

The NCIB provides the Company with a capital allocation alternative with a view to ensuring long-term shareholder value. TransAlta’s Board of Directors and management believe that, from time to time, the market price of the common shares might not be reflective of the underlying value and purchases of common shares for cancellation under the NCIB may provide an opportunity to enhance shareholder value.

Tent Mountain Pumped Hydro Development Project

On April 24, 2023, the Company acquired a 50 per cent interest in the Tent Mountain Renewable Energy Complex (Tent Mountain), an early-stage 320 MW pumped hydro energy storage development project, located in southwest Alberta, from Montem Resources Limited (Montem). The acquisition includes the land rights, fixed assets and intellectual property associated with the pumped hydro development project. The Company paid Montem approximately $8 million on closing of the transaction and additional contingent payments of up to $17 million (approximately $25 million total) may become payable to Montem based on the achievement of specific development and commercial milestones. The Company and Montem own the Tent Mountain project within a special purpose partnership that is jointly managed, with the Company acting as project developer. The partnership is actively seeking an offtake agreement for the energy and environmental attributes generated by the facility.

Second Quarter 2023 Highlights

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