Transalta modernizes to prepare for Alta. power prices
On February19,2015 Transalta reported it's fourth quarter and year-end results.Q4 EBITDA and year-end EBITDA were ahead of last year and slightly ahead of guidance.Free cash flow was the same as in 2013 but net earnings were also ahead of 2013.Q4 EBITDA was $301 million compared to$242 million and annual EBITDA was a whopping $1.036 billion compared to $1.023 billion in 2013.This does not seem like a large increase but when investors consider that a large part of their operations are in Alberta and Alberta power prices were down 40% fro the entire year this is a startling result.They did it by operating at 90% of capacity and a robust hedging program.At times they had excess capacity and at other times they had not enough.Their Energy Marketing team was able to "capture arbitrage opportunities and optimize our marketing assets during extraordinary volatile market conditions".Transalta says that EBITDA was lower in 2013 because of these unrealized market gains during volatile markets.They also delivered this rather stellar performance by diversifying out of their traditional Alberta jurisdiction which seems to have chronic low power prices.
Other Highlights
Transalta accomplished a number of other goals during 2014.They made a secondary offering of Transalta Renewables of $136 million;this is ,in effect, equity in their Canadian coal operations.Some of the proceed were used to reduce debt by $300 million($500 million after exchange gains).They completed a 6.6 million preferred share issue worth $165 million.This is valuable equity that makes for a more balanced capital structure instead of taking on more debt.They started construction on their new Australian combined cycle gas plant in Australia.This $570 million project has assured contracts for 25 years and should be accretive to EBITDA in it's first year.It also constructed a gas pipeline in Australia that will be delivering gas in the first quarter of 2015.This project is expected to bring in a contribution of another $10 million in 2015.
Canadian coal Operations
This division produced more EBITDA in 2014 than any other.There was an increase of $77 million to $386 million from $309 million.Transalta expects a reduction in costs in 2015 of $20 million because it will have modernized these operations.It gave a contract to Alstom to increase efficiency and reduce the turnaround for maintenance downtime.Transalta also took over the Highvale coal mine and has made it more efficient also. Because Transalta has become very adept at hedging it expects even greater EBITDA from these operations in 2015.It put these operations into a company called Transalta Renewables and sold a secondary offering for about $136 million.Some of the proceeds were used to pay down debt.Now Transalta owns 70% of Transalta Renewables.
Other Operations
The big increase in EBITDA in 2014 was from Canadian coal; the other operations had slight increases or slight decrease except for hydro which had almost a 40% decrease.The hydro operations are unable to adjust to increase and decreases in demand.Transalta must adjust and find a way to store and arbitrage this energy at higher prices in 2015.This could add another $25 to $50 million in EBITDA in 2015.Hydro produces a steady flow of energy but the demand fluctuates up and down.Transalta must be able to store and sell power when prices and demand have risen.
Conclusion
Transalta could have had a bad year in 2014.Alberta power prices could have reduced EBITDA by about 40% this year.They could have reported EBITDA of only $625 to $700 million instead of $1036 million.New facilities have added earnings but their Energy Marketing division has done an excellent job of hedging and arbitraging to increase earnings.Now their Canadian coal operations have been partly modernized and should bring in more EBITDA in 2015.This blog expects EBITDA of $400 to $425 million from Canadian Coal based on the adjustments already made.With few changes in the other operations and improvements in hydro, Transalta might hit EBITDA of a little less than $1100 million in 2015.This should send the price up closer to $15 per share.
Other Highlights
Transalta accomplished a number of other goals during 2014.They made a secondary offering of Transalta Renewables of $136 million;this is ,in effect, equity in their Canadian coal operations.Some of the proceed were used to reduce debt by $300 million($500 million after exchange gains).They completed a 6.6 million preferred share issue worth $165 million.This is valuable equity that makes for a more balanced capital structure instead of taking on more debt.They started construction on their new Australian combined cycle gas plant in Australia.This $570 million project has assured contracts for 25 years and should be accretive to EBITDA in it's first year.It also constructed a gas pipeline in Australia that will be delivering gas in the first quarter of 2015.This project is expected to bring in a contribution of another $10 million in 2015.
Canadian coal Operations
This division produced more EBITDA in 2014 than any other.There was an increase of $77 million to $386 million from $309 million.Transalta expects a reduction in costs in 2015 of $20 million because it will have modernized these operations.It gave a contract to Alstom to increase efficiency and reduce the turnaround for maintenance downtime.Transalta also took over the Highvale coal mine and has made it more efficient also. Because Transalta has become very adept at hedging it expects even greater EBITDA from these operations in 2015.It put these operations into a company called Transalta Renewables and sold a secondary offering for about $136 million.Some of the proceeds were used to pay down debt.Now Transalta owns 70% of Transalta Renewables.
Other Operations
The big increase in EBITDA in 2014 was from Canadian coal; the other operations had slight increases or slight decrease except for hydro which had almost a 40% decrease.The hydro operations are unable to adjust to increase and decreases in demand.Transalta must adjust and find a way to store and arbitrage this energy at higher prices in 2015.This could add another $25 to $50 million in EBITDA in 2015.Hydro produces a steady flow of energy but the demand fluctuates up and down.Transalta must be able to store and sell power when prices and demand have risen.
Conclusion
Transalta could have had a bad year in 2014.Alberta power prices could have reduced EBITDA by about 40% this year.They could have reported EBITDA of only $625 to $700 million instead of $1036 million.New facilities have added earnings but their Energy Marketing division has done an excellent job of hedging and arbitraging to increase earnings.Now their Canadian coal operations have been partly modernized and should bring in more EBITDA in 2015.This blog expects EBITDA of $400 to $425 million from Canadian Coal based on the adjustments already made.With few changes in the other operations and improvements in hydro, Transalta might hit EBITDA of a little less than $1100 million in 2015.This should send the price up closer to $15 per share.
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