TRANSALTA RENEWABLES INC. Highlights
- Adjusted EBITDA(1) range of
$495 million to$535 million - Free Cash Flow(1) range of
$340 million to$380 million - CAFD(1) range of
$230 million to$270 million
"Our 2023 outlook highlights resilient cash flow expectations with a payout ratio of approximately 100 per cent. We are expecting to bring on line new renewable and transmission assets in
"As we look ahead, our near-term objectives will focus on dividend sustainment by focusing on growth opportunities that manage our tax horizon while retaining the dividend payout ratio desired by our income-focused investors."
Since its initial public offering in 2013,
- The current rising interest rate environment and increasingly competitive landscape has made pursuing accretive transactions more challenging
- The Company expects that it will allocate the majority of its cash available for distribution to dividends through 2023, which inherently limits the amount of capital it can allocate to growth opportunities
- The Company currently projects that it will be cash taxable in both
Canada andAustralia in 2024 given the current projects under construction. The impact of cash taxes could increase by approximately$55 million , commencing in 2024 as compared to 2021 - The Company has contract expiries in the near- to medium-term that will see a reduction in cash flow, which includes the expected 30 per cent reduction in gross margin from the
Sarnia cogeneration facility as a result of the prices under the recently awarded contract with the Ontario Independent Electric System Operator
Despite the changing environment summarized above, the Company will be principally focused on the sustainment of its dividend in 2023 and beyond, with growth opportunities focused on organic expansions of its existing assets through the execution of its rights of first offer with TransAlta Corporation ("TransAlta") and, potentially, through dropdowns from TransAlta that could partially offset the Company's tax horizon.
Adjusted EBITDA
For 2023, management expects adjusted EBITDA to be in the range of
- Achieving return to service of
Kent Hills in the second half of 2023 - Reaching commercial operations of Northern Goldfields solar and battery project, which will add annually between AU$9 million and AU$10 million in the first half of 2023
- Reaching commercial operations of the Mt Keith Transmission expansion, which will add annually AU$6 million to AU$7 million in the second half of 2023
- Wind production being normalized to long term average expectations
For 2023, management expects cash flow available for distribution ("CAFD") to be in the range of
- Higher sustaining capital in the range of
$50 to$60 million as a result of higher maintenance atSarnia due to a gas turbine major overhaul, a transformer replacement, long-lead spending for the expected plant-wide outage planned in 2024, and an expected major overhaul and hot section planned atAustralia - Higher financing costs from the scheduled principal payments at the Windrise project
We expect the Company's dividend payout ratio to be approximately 100 per cent based on the midpoint of our CAFD guidance.
The following table summarizes
$ millions | 2023 Outlook | 2022 Outlook | 2021 Actual |
Adjusted EBITDA(1) | 495 – 535 | 485 – 525 | 463 |
FCF(1) | 340 – 380 | 345 – 385 | 357 |
CAFD(1) | 230 – 270 | 245 – 285 | 275 |
Notes | |
(1) | These items are not defined and have no standardized meaning under IFRS. Please refer to Reconciliation of Non-IFRS Measures section of this earnings release for further discussion of these items, including, where applicable, reconciliations to measures calculated in accordance with IFRS. |
We evaluate our performance using a variety of measures to provide management and investors with an understanding of our financial position and results. Certain of the measures discussed in this earnings release are not defined under IFRS and, therefore, should not be considered in isolation, or as a substitute for, or as an alternative to, or to be more meaningful than, measures as determined in accordance with IFRS when assessing our financial performance or liquidity. These measures have no standardized meaning under IFRS and may not be comparable to similar measures presented by other issuers.
The Company's key non-IFRS measures are adjusted EBITDA, free cash flow ("FCF") and CAFD. In the fourth quarter of 2021, comparable EBITDA was relabelled as adjusted EBITDA to align with industry standard terminology. The Adjusted Funds from Operations ("AFFO") was replaced with FCF to better reflect the proxy for cash generated from operating activities. The composition of the metric has been changed accordingly. Notably, tax equity distributions have been removed from the composition of AFFO in the determination of FCF and it has been included in CAFD, as it reflects a settlement of a financial liability. Comparative figures have been reclassified to conform to the current period's presentation.
Adjusted EBITDA
Adjusted EBITDA is an important metric for management since it represents our core business profitability. Interest, taxes, depreciation and amortization are not included, as differences in accounting treatments may distort our core business results. We present adjusted EBITDA along with operational information of the assets in which we own an economic interest so that readers can better understand and evaluate the drivers of those assets in which we have an economic interest. Since the economic interests are designed to provide the Company with returns as if we owned the assets themselves, presenting the operational information and adjusted EBITDA provides a more complete picture for readers to understand the underlying nature of the investments and the resultant cash flows that would otherwise only be presented as finance income from the investments.
Adjusted EBITDA comprises our reported EBITDA adjusted to exclude the impact of unrealized mark-to-market gains and losses, asset impairments and insurance recoveries, plus the adjusted EBITDA of the facilities in which we hold an economic interest, which is the facilities' reported EBITDA adjusted for: (i) finance lease income and the change in the finance lease receivable amount; (ii) contractually fixed management costs; (iii) interest earned on the prepayment of certain transmission costs; (iv) the impact of unrealized mark-to-market gains or losses; and (v) asset impairments.
Free Cash Flow
FCF represents the amount of cash that is available from operations and investments in subsidiaries of TransAlta in which we have an economic interest, to invest in growth initiatives, to make scheduled principal repayments on debt, to repay maturing debt, to pay common share dividends or to repurchase common shares. Changes in working capital are excluded so that FCF is not distorted by changes that we consider temporary in nature, reflecting, among other things, the impact of seasonal factors and the timing of receipts and payments.
FCF is calculated as the cash flow from operating activities before changes in working capital, less sustaining capital expenditures, distributions paid to subsidiaries' non-controlling interest, finance income from economic interests and principal repayments on lease obligations, plus FCF of the assets owned through economic interests, which is calculated as adjusted EBITDA from the economic interests less interest expense, sustaining capital expenditures, current income tax expense, insurance recovery and working capital and other timing. FCF per share is calculated using the weighted average number of common shares outstanding during the period.
Cash Available for Distribution
CAFD can be used as a proxy for the cash that will be available to common shareholders of the Company. CAFD is calculated as FCF less tax equity distributions and scheduled principal repayments of amortizing debt.
One of the primary objectives of the Company is to provide reliable and stable cash flows and presenting FCF and CAFD assists readers in assessing our cash flows in comparison to prior periods. See the Reconciliation of Non-IFRS Measures section of this earnings release for additional information.
A complete copy of
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, pertaining to, without limitation, the following: our 2023 financial outlook, including adjusted EBITDA, free cash flow and cash available for distribution; the expected payout ratio; achieving return to service of
Note: All financial figures are in Canadian dollars unless noted otherwise.
SOURCE
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