TransAlta Renewables Reports First Quarter 2023 Results

CALGARY, AB, May 5, 2023 /CNW/ -

First Quarter 2023 Financial Highlights

• Adjusted EBITDA⁽¹⁾ of $128 million
• Free cash flow ("FCF")⁽¹⁾ of $93 million
• Cash available for distribution ("CAFD")⁽¹⁾⁽²⁾ of $71 million or $0.27 per share
• Earnings before income taxes of $53 million
• Cash flow from operating activities of $67 million

Other Business Highlights & Updates

• Kent Hills rehabilitation program on track with 13 towers fully reassembled and commissioning commenced in late April, with full return to service of the facility in the second half of 2023
• Northern Goldfields construction nearing completion with commercial operations to commence in the second quarter of 2023
• Mount Keith 132kV expansion project construction activities have commenced and on track to be completed in the second half of 2023

TransAlta Renewables Inc. ("TransAlta Renewables" or the "Company") (TSX: RNW) announced today financial results for the three months ended March 31, 2023.

"Overall, this quarter's performance was impacted by lower than normal wind conditions that prevailed across Canada and negatively impacted the contribution from our Canadian wind fleet. We remain on track to meet our 2023 guidance largely due to the performance of our diversified operating portfolio." said Todd Stack, President at TransAlta Renewables.

"I am pleased that our growth construction program is advancing well despite the macro challenges with supply chain and labour availability. The Northern Goldfields Solar and Mount Keith assets diversify our Australia portfolio and will be contributing to our cash flow for 2023. At Kent Hills, we have made great progress with the rehabilitation project and we are very pleased with the reassembly activities. We currently expect contributions from the facility to begin with the initial turbine commissioning in the second quarter, and we are estimating that it will be fully returned to service in the second half of the year."

"As we move forward, we continue to focus on identifying opportunities to extend our cash tax horizon that we currently expect to impact results in 2024. Absent any growth, our cash available for distribution is expected to decline after the next three quarters due to the expected increase in cash taxes payable and the step down in revenue at our Southern Cross facilities," added Mr. Stack.

First Quarter 2023 Highlights

$ millions, unless otherwise stated	Three Months Ended
	March 31, 2023	March 31, 2022
Renewable energy production (GWh)^(3)	1,219	1,310
Revenues	119	143
Adjusted EBITDA^(1)	128	139
Free cash flow^(1)	93	108
Cash available for distribution^(1)	71	90
Earnings before income taxes	53	49
Net earnings attributable to common shareholders	45	41
Cash flow from operating activities	67	103
Net earnings (loss) per share attributable to common shareholders, basic and diluted	0.17	0.15
Free cash flow per share^(1),(2)	0.35	0.40
Cash available for distribution per share^(1),(2)	0.27	0.34
Dividends declared and paid per common share	0.23	0.23

First Quarter 2023 Results Summary

The Company's renewable power production decreased by 91 GWh for the three months ended March 31, 2023 compared to the same period in 2022. The decrease was mainly due to lower wind resources, higher unplanned outages in US Wind and Solar and lower water resources, partially offset by improved performance at the Windrise wind facility.

Adjusted EBITDA decreased $11 million to $128 million for the three months ended March 31, 2023 compared to the same period in 2022. Adjusted EBITDA was lower in Canadian Wind due to lower revenues from lower production, the timing of environmental credit sales, lower liquidated damages at the Windrise wind facility and higher operations, maintenance and administration ("OM&A") expenses due to higher insurance and escalation of long term service agreement costs. US Wind and Solar had higher adjusted EBITDA due to higher environmental credit sales and Canadian Gas had higher adjusted EBITDA primarily from a new customer that was commissioned at the site during 2022.

FCF and CAFD for the three months ended March 31, 2023 decreased by $15 million and $19 million from the same period in 2022, respectively, primarily due to lower adjusted EBITDA and higher current income tax expense, partially offset by higher interest income and lower sustaining capital expenditures. The Company expects a portion of the current income tax expenses to reverse during the balance of the year as projects under construction are completed in Australia. In addition, CAFD was impacted by the scheduled principal repayment on the Windrise green bond, which commenced in the first quarter of 2023.

Net earnings attributable to common shareholders increased by $4 million to $45 million for the three months ended March 31, 2023 compared to the same period in 2022, primarily due to asset impairment reversals due to favourable changes in estimated future cash flows, higher finance income related to subsidiaries of TransAlta, and lower depreciation. This was partially offset by lower revenues mainly from lower production, lower net other operating income from improved performance at the Windrise wind facility, higher OM&A expenses mainly from higher insurance and escalation of long term service agreement costs and higher income tax expense. Finance income related to subsidiaries of TransAlta was higher mainly due to higher dividends from Australia.

Cash flow from operating activities for the three months ended March 31, 2023 decreased by $36 million, primarily due to lower revenues from lower production at Canadian Wind, higher current income tax expense due to the Company becoming taxable in Canada and unfavourable changes in working capital, partially offset by higher finance income related to subsidiaries of TransAlta.

Significant Events and Other Updates

Kent Hills Wind Facilities Update

Rehabilitation of the Kent Hills 1 and 2 wind facilities is well underway. All of the towers have been fully disassembled with foundation demolition and removal nearing completion. Construction of new foundations is progressing well, with approximately two-thirds of foundations poured. Tower reassembly is also progressing with 13 turbines reassembled to date and associated commissioning activities commenced. We continue to target returning all turbines to service in the second half of 2023. The current estimate of the capital expenditures is approximately $120 million, inclusive of insurance proceeds.

During the first quarter of 2023, the Company filed and served a statement of claim in the New Brunswick Court of King's Bench against certain defendants who the Company believes are responsible for, or contributed to, the failure of the turbine foundation at the Kent Hills 1 and 2 wind facilities. The claim seeks damages for lost profits, replacement costs, and other related costs to perform the remediation of Kent Hills 1 and 2, net of any insurance recoveries. The ability to recover any amounts is uncertain at this time.

Notes
(1)	These items are not defined and have no standardized meaning under IFRS. Please refer to the Discussion of Operating Results, Non-IFRS Measures and Reconciliation of Non-IFRS Measures sections of the MD&A for further discussion of these items, including, where applicable, reconciliations to measures calculated in accordance with IFRS.
(2)	Free cash flow per share and cash available for distribution per share are calculated as free cash flow and cash available for distribution, respectively, divided by the weighted average number of common shares outstanding during the period of 267 million shares for March 31, 2023 (March 31, 2022 - 267 million shares)
(3)	Includes production from Canadian Wind, Canadian Hydro and US Wind and Solar and excludes Canadian, US and Australian gas-fired generation. Production is not a key revenue driver for gas-fired facilities as most of their revenues are capacity-based.

Non-IFRS Measures

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, as a substitute for, as an alternative to, or 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, FCF and CAFD.

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 is composed of our reported EBITDA adjusted to exclude the impact of unrealized mark-to-market gains and losses, asset impairments and reversals and certain insurance recoveries, plus the adjusted EBITDA of the facilities in which we hold an economic interest, which is the facilities' reported EBITDA adjusted for: 1) finance lease income and the change in the finance lease receivable amount; 2) contractually fixed management costs; 3) interest earned on the prepayment of certain transmission costs; 4) the impact of unrealized mark-to-market gains and losses; 5) certain insurance recoveries; and 6) asset impairments and reversals.

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, repay maturing debt, pay common share dividends or 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, principal repayments on lease obligations 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.

Presenting FCF and CAFD helps readers assess our cash flows in comparison to prior periods. See the Reconciliation of Non-IFRS Measures section's of the MD&A for additional information.

Reconciliation of these non-IFRS financial measures to the most comparable IFRS measure are provided below.

Reconciliation of Non-IFRS Measures

Since the economic interests are designed to provide the Company with returns as if we owned the assets ourselves, presenting the operating information and adjusted EBITDA provides a more complete picture to understand the underlying nature of the investments and the resultant cash flows that would otherwise only be presented as finance income from investments.

The following tables reflect adjusted EBITDA and provides reconciliation to earnings before income taxes for the three months and year ended March 31, 2023 and March 31, 2022:

	Owned Assets				Economic Interests
Three months ended March 31, 2023 $ millions	Canadian Wind	Canadian Hydro	Canadian Gas	Corporate	US Wind and Solar	US Gas	Australian Gas	Total	Investments in Economic Interests Adjustments	IFRS Financials
Revenues^(1)	63	3	53	—	33	6	44	202	(83)	119
Fuel, royalties and other costs^(2)	3	1	23	—	1	4	1	33	(6)	27
Gross margin	60	2	30	—	32	2	43	169	(77)	92
Operations, maintenance, and administration^(3)	11	2	8	6	4	1	8	40	(13)	27
Taxes, other than income taxes	2	1	—	—	1	—	—	4	(1)	3
Net other operating income	(3)	—	—	—	—	—	—	(3)	—	(3)
Adjusted EBITDA^(4)	50	(1)	22	(6)	27	1	35	128
Depreciation and amortization										(34)
Asset impairment reversals										10
Finance income related to subsidiaries of TransAlta										23
Interest income										1
Interest expense										(12)
Earnings before income tax										53

(1)	Adjusted EBITDA excludes the impact of unrealized mark-to-market gains or losses. Amounts related to economic interests include finance lease income adjusted for change in finance lease receivable.
(2)	Amounts related to economic interests include interest earned on the prepayment of certain transmission costs.
(3)	Amounts related to economic interests include the effect of contractually fixed management costs.
(4)	Adjusted EBITDA is a non-IFRS measure and has no standardized meaning under IFRS.

	Owned Assets				Economic Interests
Three months ended March 31, 2022 $ millions	Canadian Wind	Canadian Hydro	Canadian Gas	Corporate	US Wind and Solar	US Gas	Australian Gas	Total	Investments in Economic Interests and Adjustments	IFRS Financials
Revenues^(1)	70	4	69	—	31	6	43	223	(80)	143
Fuel, royalties and other costs^(2)	4	1	40	—	1	3	2	51	(6)	45
Gross margin	66	3	29	—	30	3	41	172	(74)	98
Operations, maintenance, and administration^(3)	9	2	8	6	4	1	7	37	(12)	25
Taxes, other than income taxes	1	—	1	—	1	—	—	3	(1)	2
Net other operating income	(7)	—	—	—	—	—	—	(7)	—	(7)
Adjusted EBITDA^(4)	63	1	20	(6)	25	2	34	139
Depreciation and amortization										(37)
Finance income related to subsidiaries of TransAlta										19
Interest income										1
Interest expense										(13)
Foreign exchange loss										1
Earnings before income tax										49

(1)	Adjusted EBITDA excludes the impact of unrealized mark-to-market gains or losses. Amounts related to economic interests include finance lease income adjusted for change in finance lease receivable.
(2)	Amounts related to economic interests include interest earned on the prepayment of certain transmission costs.
(3)	Amounts related to economic interests include the effect of contractually fixed management costs.
(4)	Adjusted EBITDA is a non-IFRS measure and has no standardized meaning under IFRS.

Reconciliation of Reported Cash Flow from Operating Activities to FCF and CAFD

	Three Months Ended
$ millions	March 31, 2023	March 31, 2022
Cash flow from operating activities	67	103
Change in non-cash operating working capital balances	2	(17)
Cash flow from operations before changes in working capital	69	86
Adjustments:
Sustaining capital expenditures – owned assets	(3)	(4)
Finance income – economic interests^(1)	(23)	(19)
FCF - economic interests^(1)	50	45
FCF^(2)	93	108
Deduct:
Tax equity distributions	(11)	(10)
Principal repayments of amortizing debt^(3)	(11)	(8)
CAFD^(2)	71	90
Weighted average number of common shares outstanding in the period (millions)	267	267
FCF per share^(2)	0.35	0.40
CAFD per share^(2)	0.27	0.34

(1)	Refer to the Reconciliation of FCF to Finance Income Related to Subsidiaries of TransAlta below in this earnings release.
(2)	These items are non-IFRS measures and have no standardized meaning under IFRS. Refer to the Additional IFRS Measures and Non-IFRS Measures sections for further details.
(3)	Includes owned assets and economic interests.

Reconciliation of FCF to Finance Income Related to Subsidiaries of TransAlta

The following table is a reconciliation of the finance income recognized on those assets we hold an economic interest in.

	Three Months Ended
$ millions	March 31, 2023	March 31, 2022
Finance income related to subsidiaries of TransAlta	23	19
Tax equity distributions	11	10
Principal repayments of amortizing debt	5	5
Return of capital and redemptions	15	18
Effects of changes in working capital and other timing	(4)	(7)
FCF - economic interests^(1)	50	45

(1)	This item is a non-IFRS measure and has no standardized meaning under IFRS. Refer to the Non-IFRS Measures section of this earnings release for further details.

Reconciliation of Adjusted EBITDA to FCF and CAFD

The table below bridges our adjusted EBITDA to our FCF and CAFD for the three months ended March 31, 2023 and 2022:

	Owned Assets				Economic Interests
Three months ended March 31, 2023	Canadian Wind	Canadian Hydro	Canadian Gas	Corporate	US Wind and Solar^(1)	US Gas^(1)	Australian Gas	Total
Adjusted EBITDA^(1)	50	(1)	22	(6)	27	1	35	128
Provisions and contract liabilities	(1)	—	—	—	—	—	—	(1)
Interest expense	—	—	—	(9)	(1)	—	(7)	(17)
Current income tax expense	(8)	(2)	—	—	—	—	(6)	(16)
Sustaining capital expenditures	(2)	—	(1)	—	—	—	(2)	(5)
Interest income	—	—	—	1	—	—	3	4
Other	—	—	—	—	—	—	—	—
FCF^(2)	39	(3)	21	(14)	26	1	23	93
Deduct:
Tax equity distributions	—	—	—	—	(11)	—	—	(11)
Principal repayments of amortizing debt	(6)	—	—	—	—	—	(5)	(11)
CAFD^(2)	33	(3)	21	(14)	15	1	18	71

(1)	Adjusted EBITDA is defined in the Additional IFRS Measures and Non-IFRS Measures sections and reconciled to earnings before income taxes above.
(2)	FCF and CAFD are defined in the Additional IFRS Measures and Non-IFRS Measures sections and reconciled to cash flow from operating activities above.

	Owned Assets				Economic Interests
Three months ended March 31, 2022	Canadian Wind	Canadian Hydro	Canadian Gas	Corporate	US Wind and Solar	US Gas	Australian Gas	Total
Adjusted EBITDA^(1)	63	1	20	(6)	25	2	34	139
Provisions and contract liabilities	(1)	—	—	—	—	—	—	(1)
Interest expense	—	—	—	(11)	—	—	(6)	(17)
Current income tax expense	—	—	—	—	(1)	—	(5)	(6)
Sustaining capital expenditures	(3)	—	(1)	—	(1)	—	(3)	(8)
Interest income	—	—	—	1	—	—	—	1
FCF^(2)	59	1	19	(16)	23	2	20	108
Deduct:
Tax equity distributions	—	—	—	—	(10)	—	—	(10)
Principal repayments of amortizing debt	(3)	—	—	—	—	—	(5)	(8)
CAFD^(2)	56	1	19	(16)	13	2	15	90

(1)	Adjusted EBITDA is defined in the Additional IFRS Measures and Non-IFRS Measures sections and reconciled to earnings before income taxes above.
(2)	FCF and CAFD are defined in the Additional IFRS Measures and Non-IFRS Measures sections and reconciled to cash flow from operating activities above.

TransAlta Renewables is in the process of filing its Annual Information Form, Audited Consolidated Financial Statements and accompanying notes, as well as the associated Management's Discussion and Analysis ("MD&A"). These documents will be available today through TransAlta Renewables' website at www.transaltarenewables.com or through SEDAR at www.sedar.com.

About TransAlta Renewables Inc.

TransAlta Renewables is among the largest of any publicly traded renewable independent power producers ("IPP") in Canada. Our asset platform and economic interests are diversified in terms of geography, generation and counterparties and consist of interests in 26 wind facilities, 11 hydroelectric facilities, eight natural gas generation facilities, two solar facilities, one natural gas pipeline, and one battery storage project, representing an ownership interest of 2,965 megawatts of owned generating capacity, located in the provinces of British Columbia, Alberta, Ontario, Québec, New Brunswick, the States of Pennsylvania, New Hampshire, Wyoming, Massachusetts, Michigan, Minnesota, Washington, North Carolina, and the State of Western Australia.

Cautionary Statement Regarding Forward-Looking Information

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: the remediation of the Kent Hills wind facility, including the expected timing for return to service and turbine commissioning; the Mount Keith transmission expansion and Northern Goldfields construction projects, including timing of commercial operation; timing of the Company's cash tax horizon in Canada; identifying opportunities to extend our cash tax horizon; impact on cash available for distribution absent growth; and ability to meet our 2023 guidance.

The forward-looking statements contained in this news release are based on current expectations, estimates, projections and assumptions, having regard to the Company's experience and its perception of historical trends, and includes, but is not limited to, expectations, estimates, projections and assumptions relating to: sufficiency of our budgeted capital expenditures in carrying out our business plan; applicable laws, regulations and government policies; the availability and cost of labour, services and infrastructure; and the satisfaction by third parties of their obligations, including under power purchase agreements. These statements are subject to a number of risks and uncertainties that could cause actual plans, actions and results to differ materially from current expectations including, but not limited to: our potential inability to identify accretive growth opportunities or to fund any such growth opportunities; our potential inability to acquire operating or development assets from TransAlta; competitive factors in the renewable power industry; operational breakdowns, failures, or other disruptions; failure to meet financial expectations; inability to achieve our ESG targets; general domestic and international economic and political developments, including armed hostilities, the threat of terrorism, cyberattacks, diplomatic developments or other similar events; equipment failure and our ability to carry out or have completed the repairs in a cost-effective or timely manner, or at all, including if the remediation at the Kent Hills wind facilities is more costly or takes longer than expected; industry risk and competition; fluctuations in the value of foreign currencies; counterparty credit risk; changes to our relationship with TransAlta Corporation; inadequacy or unavailability of insurance coverage; legal, regulatory and contractual disputes and proceedings involving the Company; changes in economic and market conditions; reduced access to the capital markets, including debt, equity and tax equity; changes in tax, environmental, and other laws and regulations; adverse weather impacts; legal, regulatory and contractual disputes and proceedings involving the Company, including the Kent Hills rehabilitation claim; and other risks and uncertainties discussed in the Company's materials filed with the Canadian securities regulatory authorities from time to time and as also set forth in the Company's MD&A and Annual Information Form for the year ended December 31, 2022. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect the Company's expectations only as of the date of this news release. The Company disclaims any intention or obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Note: All financial figures are in Canadian dollars unless noted otherwise.

SOURCE TransAlta Renewables Inc

Investor Inquiries: Phone: [phone] in Canada and U.S., Email: [email protected]; Media Inquiries: Phone: Toll-free media number: 1-855-255-9184, Email: [email protected]