TransAlta Corporation

Good morning. My name is Ina, and I will be your conference operator today. At this time, I would like to welcome everyone to TransAlta Corporation fourth quarter and full year 2023 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, Simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the star followed by the number two. Thank you. Ms. Valentini, you may begin your conference.

Thank you, Ina. Good morning, everyone, and welcome to TransAlta's fourth quarter and full year 2023 conference call. With me today are John Cusignoris, President and Chief Executive Officer, Todd Stack, EVP Finance and Chief Financial Officer, and Kerry O'Reilly-Wilk, EVP Growth and Energy Marketing. This call is being webcast, and I invite those listening on the phone lines to view supporting slides that are posted on our website. A replay of the call will be available later today, and the transcript will also be posted shortly thereafter. All the information provided during this conference call is subject to the forward-looking statement qualifications set out here on slide 2, detailed further in our MD&A and incorporated in full for the purposes of today's call. All amounts referenced during the call are in Canadian currency unless otherwise noted. The non-IFRS terminology used, including adjusted EBITDA, funds from operations, and free cash flow are reconciled in the MD&A for your reference. On today's call, John and Todd will provide an overview of the annual and quarterly results. After these remarks, we will open the call for questions. With that, let me turn the call over to John.

Thank you, Kiara. Good morning, everyone, and thank you for joining our fourth quarter and full year results call for 2023. As part of our commitment towards reconciliation, I want to begin by acknowledging that TransAlta's head office, where we are today, is located in the traditional territories of the peoples of Treaty 7, which includes the Blackfoot Confederacy, comprising the Siksika, the Pekani, and the Kainai First Nations, the Tsutsina First Nation, and the Stony Nakoda, including the Chiniki, Berespa, and Good Stony First Nations. The City of Calgary is also home to the Métis Nation of Alberta Districts 5 and 6. It was another exceptional year of performance for TransAlta, in which we increased our key financial guidance and targets twice. We generated free cashflow of 890 million or $3.22 per share from record revenues of 3.4 billion. We had adjusted EBITDA of 1.63 billion in line with our record results from last year and record net earnings to shareholders of 644 million, a $640 million increase from 2022. We benefited from strong power prices particularly during periods of market tightness and the exceptional efforts of our optimization, energy marketing, and operations teams. Our integrated and diversified fleet continued to show its value by generating excellent results for the third year in a row. We achieved fleet availability of 88.8% across our facilities, which, when adjusted for the Kent Hills extended outage, actually resulted in an underlying performance of 92.8%. I'm pleased to also share that 2023 was a record year for safety performance. We operated without any lost time injuries across our global operations and delivered a total recordable injury frequency rate of 0.3, an outstanding result that improved upon our previous best outcome ever of 0.39 last year. During the year, and more recently in the fourth quarter, we delivered on a number of key priorities and strategic initiatives. First, our growth team advanced 678 megawatts of construction projects. We completed construction and reached commercial operation of our Garden Plain Wind Facility in Alberta and the Northern Goldfields Combined Solar and Battery Storage Facilities in Australia, representing an addition of 178 megawatts of renewables to Earth. As for our remaining projects, we expect the 200 megawatt Horizon Hill and 300 megawatt White Rock Wind facilities, along with the Mount Keith transmission expansion to achieve commercial operation in March 2024. A portion of the White Rock Wind facilities reached COD earlier this year. Together, these facilities, along with the fully rehabilitated Kent Hills facility, will contribute over $175 million in adjusted EBITDA annually. Second, we advanced two key strategic initiatives with the acquisition of TransAlta Renewables and Heartland Generation. The acquisition of TransAlta Renewables represented an important milestone for our company. It allowed us to simplify and unify our corporate and capital structure, and add a net economic interest in 1.2 gigawatts of high-quality generating capacity to our fleet. The combination enables us to enhance execution with a simplified and unified strategy, which positions us well for future success. We also entered into an agreement to acquire Heartland Generation, which has approximately 1.8 gigawatts of contracted and peaking generation in Alberta and British Columbia. The regulatory approval process for the transaction is currently underway. And once approved, Heartland will add flexible and complementary assets to our Alberta portfolio, further diversifying our generation capabilities in that market. Third, we continue to advance our customer relationships. In the fourth quarter, we entered into a joint development agreement with Hancock Prospecting to define, develop, and operate clean energy solutions in Australia. And finally, starting in April, our shareholders will receive a 9% increase to their common share dividend, representing our fifth consecutive annual increase. We also returned $87 million to our shareholders in 2023 through share repurchases. With another quarter of strong cash flow, We continue to maintain a strong balance sheet with over $1.7 billion in liquidity and are well positioned to deliver on our priorities. It's my view that the repositioning of our company and our strong free cash flow results over the past few years and our expectations for 2024 are not being reflected appropriately in the current trading price of our common shares. As a result, we announced an enhanced common share repurchase program for 2024 of up to 150 million to our ongoing normal course issuer bid folks. With expected free cash flow of approximately $1.70 per share for 2024, we're trading at an implied free cash flow yield of about 20%, which allows share repurchases to deliver great value to our shareholders. This, together with our increased common share dividend of 24 cents per share, represents a return of up to approximately 40% of the midpoint of our 2024 free cash flow guidance to our shareholders. Given the current environment, we believe this course of action is an appropriate and balanced use of our capital, while still permitting us to pursue growth opportunities with appropriate returns and maintain our balance sheet strength and resilience. Over the longer term, we see significant opportunities for the company as the world increasingly electrifies to meet its growth and climate change goals. We continue to view investments in contracted clean energy assets as being in the best interest of the company and have articulated our clean electricity growth plan to 2028. As you know, the company is targeting to add up to 1.75 gigawatts of new capacity to the company's fleet, by investing approximately $3.5 billion to develop, construct, or acquire new assets through to the end of 2028, and expand our development pipeline to 10 gigawatts in the same period, all with a focus on customer-centered renewable storage. We're also focused on the selective expansion of flexible generation and reliability assets where our operating and optimization expertise can add value. As we execute our plan to 2028, we expect that approximately 70% of our adjusted EBITDA will come to be sourced from clean generation as we increase the size of renewables in Berkeley, significantly higher than the approximately 40% that we have today. And as we make the shift, TransAlta will be greener, more contracted, and more diversified. In the meantime, we continue to progress a number of projects towards final investment decisions. including projects not currently shown as being in advanced stage. We have been disciplined in advancing these projects, focused on ensuring that they're appropriately de-risked and construction-ready with appropriate risk-adjusted returns given the environment in which we have found ourselves. Long-term shareholder value creation will ultimately drive our capital allocation decisions. If returns are insufficient, we'll continue to enhance value through dividends and share repurchases and by enhancing the strength of our balance sheet. We're positioned to succeed over the balance of the decade and beyond, with considerable optionality in our generating base and growth pipeline, coupled with our balance sheet strength and strong financial output. In 2023, we expanded our development pipeline by 1.35 gigawatts, or approximately 30%, with prospective projects in all three of our core markets. And with the advancement in our growth pipeline in the fourth quarter, we've exceeded our original five gigawatt development pipeline target two years in advance. Finally, our commitment to decarbonization remains unchanged, and the addition of the Heartland portfolio will continue to be aligned with our longer-term emissions reductions commitment given Heartland's considerable transition efforts. We continue to remain committed to our decarbonization targets and will achieve a 100% mix of renewables and low emitting natural gas by 2025 and net zero by 2045. I'll now pass it over to Todd to go through our segment results.