TransAlta Corporation's CEO Discusses Q2 2012 Results - Earnings Transcript

Start Time: 11:00

End Time: 12:02

TransAlta Corporation (TAC)

Q2 2012 Earnings Call

July 31, 2012 11:00 a.m. ET

Executives

Jess Nieukerk – Director – IR

Dawn Farrell – President and CEO

Brett Gellner – CFO

Ken Stickland – Chief Legal and Business Development Officer

Todd Stack – Treasurer

Analysts

Linda Ezergailis – TD Securities

Juan Plessis – Canaccord Genuity

Robert Kwan – RBC Capital Markets

Andrew Kuske – Credit Suisse

Matthew Akman – Scotia Bank

Benjamin Pham – BMO Capital Markets

Jeremy Rosenfield – Desjardins Capital Markets

Robert Kwan – RBC Capital Markets

Matthew Akman – Scotia Bank

Jeremy Rosenfield – Desjardins Capital Markets

Dominique Barker – CIBC global asset management

Dina O’Meara – Calgary Herald

Presentation

Operator

Hello, this is the Chorus Call Conference operator. Welcome to the TransAlta Corporation 2012 Second Quarter Results Conference Call. As a reminder, all participants are in 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 would 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 second 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, Treasurer.

This morning, we released our second 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 Q2 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. I also remind the audience that IFRS requires us to deconsolidate our Fort Sask, CE Gen and Wailuku facilities and report the results of these operations as part of finance lease or equity income on the statement of earnings.

In addition, the non-IFRS terminology used in this call, including comparable earnings, comparable EBITDA, growth margin, funds from operations and free cash flow is reconciled in the MD&A.

Per share figures for the second quarter 2012 are based on an average of 227 million shares outstanding compared to 222 million shares in the second quarter of 2011. Please note, financial information has been rounded to the nearest whole number.

On today’s call, Dawn will provide an overview of the Sundance arbitration, Centralia and of our business performance in the quarter. Brett Gellner will provide details on our cash flow and a sensitivity analysis and before going to question and answers, Dawn will provide commentary on our outlook.

Let me turn the call over to Dawn.

Dawn Farrell

Thanks, Jess, and good morning, everyone. I would like to start our call today with some opening comments giving all of the information we’ve released over the past week. As you all know, disclosure rules require us to release information as soon as we know it and we’ve had a lot to tell our investors over the past 10 days or so. Today, we will not only talk about the quarter but we will also need to bring everything together. So think of this call as both a quarterly update and a mid-year review.

Let me take a bit of time at the beginning of this call to set back to the beginning of the year. As we entered into 2012, we knew that we had a big year ahead of us. We’ve been very clear with some market about what we needed to accomplish. Among other things, we needed to reinvest approximately $425 million back into our operations, we needed to contract Centralia, get a decision on the Sundance A arbitration and also run a strong operation. We needed to do all of this while setting the company up for growth and tracking to our overall financial strategy of remaining low to moderate risk and maintaining our investment grade credit rating.

Our overall goal for shareholders is to target 8% to 10% total shareholder returns through a combination of the dividend and cash flow per share growth, a goal that we have not and will not lose sight of regardless of any short-term challenges that we face.

The context for our work has been weak electricity prices in the Pacific Northwest markets due to an overabundance of water and very low gas prices, tough conditions renegotiating a long-term contract for our Centralia plant and volatile pricing here in Alberta. Neither are excuses, they are just the facts that we have faced as we’ve moved through the year.

In the past week, we’ve issued several press releases on our second quarter results, our accomplishment on a contract with Puget for our Centralia operation and the final decision of the Sundance 1 and 2 arbitration panel. We’ve adjusted asset values to reflect these outcomes and we’ve had to adjust our capital plans for 2013 to reflect the rebuilding of the Sundance units. Unfortunately, sending this information out in piecemeal fashion along with the weak second quarter results, this has created more uncertainty about our future as we continue to face concerns around our ability to maintain the dividend. So even though we believe that the company is now on much more solid footing, the key questions that remains on investors’ mind is whether there is enough cash to continue on with the strategy that we’ve outlined. Growth with a stable dividend in markets that we know and fuels where we have a competitive advantage are within the context of a strong balance sheet.

Read the rest of this transcript for free on seekingalpha.com

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