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TransAlta Renewables Reports Second Quarter 2020 Results

CALGARY, AB, July 31, 2020 /CNW/ -

Second Quarter 2020  Highlights

  • Comparable EBITDA(1) of $115 million, a $4 million or 4% improvement to the same period in 2019

  • Adjusted funds from operations ("AFFO")(1) of $90 million, a $10 million or 13% improvement to the same period last year

  • Cash available for distribution ("CAFD")(1) of $67 million or $0.25 per share in the second quarter, an increase of 14% on a per share basis as compared to the same period in 2019

Year-to-Date 2020 Highlights

  • Comparable EBITDA(1) of $233 million, a $6 million increase over the same period last year

  • Adjusted funds from operations ("AFFO")(1) of $184 million, a $10 million improvement to the same period in 2019

  • Cash available for distribution ("CAFD")(1) of $158 million or $0.59 per share in the quarter, an increase of 5% as compared to the same period last year

TransAlta Renewables Inc. ("TransAlta Renewables" or the "Company") (TSX: RNW) announced today solid financial results which were in line with expectations for the three months and six months ended June 30, 2020.

"Results for the quarter were solid and we are proud to be generating renewable power seamlessly for our customers throughout our regions during this unparalleled time. We were also able to continue to advance our discussions with TransAlta on dropdown opportunities in order to deliver our growth objectives," said John Kousinioris, President. "I continue to thank all the front-line TransAlta employees and contractors, that operate and maintain the TransAlta Renewables facilities, for their resilience. We have adapted to the new reality of this global pandemic and continue to reliably deliver the essential power that our customers and communities need as we carry-on through this unprecedented challenge."

Comparable EBITDA for the three and six months ended June 30, 2020, increased by $4 million and $6 million, respectively, driven by higher Comparable EBITDA from US Wind and Solar partially offset by lower Comparable EBITDA from Canadian Wind and Canadian Gas. Comparable EBITDA was favourable at US Wind and Solar driven by full period operation of the Big Level and Antrim wind farms along with higher environmental attribute revenues generated from the US Solar facilities. This was partially offset by lower Comparable EBITDA at Canadian Wind primarily due to lower carbon offset revenues, lower government incentives driven by program expiries, timing of green attribute revenues, and insurance proceeds received in 2019 and lower Comparable EBITDA at Canadian Gas due to lower merchant power prices in Ontario in the first six months of 2020 compared to the same period in 2019.

AFFO for the three and six months ended June 30, 2020, increased by $10 million in both periods and CAFD for the three and six months ended June 30, 2020, increased by $10 million and $9 million compared to the same periods in 2019, primarily due to higher Comparable EBITDA, lower sustaining capital expenditures, partially offset by higher tax equity distributions.

Net earnings attributable to common shareholders for the three months ended June 30, 2020, decreased by $1 million compared to the same period in 2019, as a result of lower comparable EBITDA from Canadian Wind and Canadian Gas and an increase in unrealized losses due to the change in the fair value of financial assets offset by foreign exchange gains resulting from the strengthening Australian dollar relative to the Canadian dollar since the first quarter. The unfavourable change in fair value of financial assets is largely due to changes in discount rates on the preferred shares tracking the amortizing term loan in Australia. Income tax expense increased period over period by $17 million, mainly due to the recognition of a deferred income tax recovery in 2019 of $18 million relating to a decrease in the Alberta corporate tax rate.

Net earnings attributable to common shareholders for the six months ended June 30, 2020, compared to the same period in 2019, decreased by $74 million, as a result of lower comparable EBITDA from Canadian Wind and Canadian Gas, a decrease in finance income, an increase in unrealized losses due to a change in the fair value of financial assets and an increase in income tax expense, offset by foreign exchange gains resulting from the strengthening Australian dollar relative to the Canadian dollar. Variability in finance income and the change in unrealized fair value of financial assets is significantly related to the classification of the distributions received from the Company's investments in its economic interests as return of capital or dividends received, timing of dividends declared on the preferred shares tracking Australia cash flows, changes in fair value on the preferred shares tracking the amortizing term loan in Australia and foreign exchange impacts. Income tax expense for the six months ended June 30, 2020 increased by $14 million primarily due to recognition of a deferred income tax recovery in 2019 noted in the quarter above.

COVID-19 Response Update
TransAlta Corporation ("TransAlta"), as the manager and operator of the Company's business and assets, formally implemented its business continuity plan on March 9, 2020, which focused on: (i) ensuring that TransAlta employees that could work remotely did so; and (ii) TransAlta employees that operate and maintain our facilities, who were not able to work remotely, were able to work safely and in a manner that ensured they remained healthy. During the second quarter of 2020, TransAlta began a staggered approach to bring employees that were working remotely back to the office. All of TransAlta's offices and sites follow strict health screening and physical distancing protocols with personal protective equipment readily available. Further, TransAlta maintains travel bans aligned to local jurisdictional guidance, enhanced cleaning procedures, revised work schedules, contingent work teams and the reorganization of processes and procedures to limit contact with other employees and contractors on-site.

All of our facilities, including those which we have economic interests through TransAlta, continue to remain fully operational and capable of meeting our customers' needs. We have modified our operating procedures and TransAlta has implemented safety protocols that are allowing all its office employees to now return to sites across the fleet by the end of July. The Company continues to work and serve all of our customers and counterparties under the terms of their contracts. We have not experienced interruptions to service requirements. Electricity and steam supply continue to remain a critical service requirement to all of our customers and have been deemed an essential service in our jurisdictions.

Although these are unprecedented times, the Company remains highly diversified with facilities that are highly contracted and located in various geographies. Our cash flows have been relatively unaffected in the quarter due to the high contractedness of our asset portfolio and financial strength of our customers. We continue to have a strong balance sheet with ample liquidity to provide added flexibility during this time.

The Company continues to maintain a strong financial position in part due to its long-term contracts. The Company currently has access to $498 million in liquidity, including $29 million in cash.

Second Quarter Ended June 30, 2020 Highlights

In $CAD millions, unless otherwise stated

3 Months Ended

6  Months Ended

June 30, 2020

June  30, 2019

June 30, 2020

June 30, 2019

Renewable energy production (GWh)(2)

1,098

867

2,271

1,868

Revenues

103

111

213

238

Net earnings attributable to common shareholders

30

31

33

107

Comparable EBITDA(1)

115

111

233

227

Adjusted funds from operations

90

80

184

174

Cash flow from operating activities

71

52

153

183

Cash available for distribution

67

57

158

149

Net earnings per share attributable to common
  shareholders, basic and diluted

0.11

0.12

0.12

0.41

Adjusted funds from operations per share(1)

0.34

0.30

0.69

0.66

Cash available for distribution per share(1)

0.25

0.22

0.59

0.56

Dividends declared per common share

0.23

0.23

0.47

0.47

Dividends paid per common share(3)

0.23

0.23

0.47

0.47

The following tables provide further detail on the allocation of the Comparable EBITDA between owned assets and assets in which TransAlta Renewables holds an economic interest; as well as a reconciliation to AFFO.

3 Months Ended June 30
($CAD millions)

2020

2019


Owned Assets

Economic
Interest

Total

Owned Assets

Economic
Interest

Total


Comparable EBITDA

64

51

115

71

40

111


Interest expense

(10)

(10)

(10)

(10)


Sustaining capital
expenditures

(4)

(4)

(10)

(2)

(12)


Current income tax
expense

(1)

(6)

(7)

(2)

(2)


Tax equity distributions

(6)

(6)

(2)

(2)


Distributions paid to
subsidiaries' non-
controlling interest

(3)

(3)

(4)

(4)


Realized foreign exchange
loss

(2)

(2)


Insurance recovery

(4)

(4)


Currency adjustment,
reserves, interest income,
and other

2

3

5

3

2

5


AFFO

48

42

90

44

36

80


















6 Months Ended June 30
($CAD millions)

2020

2019


Owned Assets

Economic
Interest

Total

Owned Assets

Economic
Interest

Total


Comparable EBITDA

131

102

233

145

82

227


Interest expense

(20)

(20)

(20)

(20)


Sustaining capital
expenditures

(6)

(3)

(9)

(17)

(3)

(20)


Current income tax
expense

(1)

(7)

(8)

(1)

(4)

(5)


Tax equity distributions

(12)

(12)

(3)

(3)


Distributions paid to
subsidiaries' non-
controlling interest

(3)

(3)

(4)

(4)


Realized foreign exchange
loss

(3)

(3)

(1)

(1)


Insurance recovery

(4)

(4)


Currency adjustment,
reserves, interest income,
and other

4

2

6

3

1

4


AFFO

102

82

184

101

73

174


A complete copy of TransAlta Renewables' second quarter report, including MD&A and unaudited financial statements, is available through TransAlta Renewables' website at www.transaltarenewables.com or at SEDAR at www.sedar.com.

Notes

(1) Comparable EBITDA refers to earnings before interest, taxes, depreciation and amortization including finance lease income and adjusted for certain other items. AFFO includes the deduction of sustaining capital expenditures and distributions to non-controlling interests and excludes the effects of timing and working capital on distributions from subsidiaries of TransAlta in which the Company holds an economic interest. CAFD refers to adjusted funds from operations less principal repayments of amortizing debt. These items are not defined under International Financial Reporting Standards ("IFRS"). Presenting these items from period to period provides management and investors with the ability to evaluate earnings and cash flow trends more readily in comparison with prior periods' results. Refer to the 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) Includes production from Canadian Wind, Canadian Hydro and US Wind and Solar and excludes Canadian and Australian gas-fired generation. Production is not a key revenue driver for gas-fired facilities as most of their revenues are capacity-based.

(3) Includes DRIP payments.

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 23 wind facilities, 13 hydroelectric facilities, seven natural gas generation facilities, one solar facility and one natural gas pipeline, representing an ownership interest of 2,527 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, Minnesota and the State of Western Australia. Our objectives are to (i) provide stable, consistent returns for investors through the ownership of, and investment in, highly contracted renewable and natural gas power generation and other infrastructure assets that provide stable cash flow primarily through long-term contracts with strong counterparties; (ii) pursue and capitalize on strategic growth opportunities in the renewable and natural gas power generation and other infrastructure sectors; (iii) maintain diversity in terms of geography, generation and counterparties; and (iv) pay out 80 to 85 per cent of cash available for distribution to the shareholders of the Company on an annual basis.

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 potential impact of COVID-19 on the Company, and the actions to be undertaken by the Company or TransAlta in response to the COVID-19 pandemic; the electricity and steam that is being provided by the Company continuing to be an essential service in the jurisdictions in which we operate; and access to liquidity. Forward-looking statements are subject to a number of significant risks, uncertainties and assumptions that could cause actual plans, performance, results or outcomes to differ materially from current expectations. Factors that may adversely impact what is expressed or implied by forward-looking statements contained in this news release include risks relating to the impact of COVID-19 and the associated general economic downturn, the impact of which will largely depend on the overall severity and duration of COVID-19 and the general economic downturn, which cannot currently be predicted, and which present risks including, but not limited to: more restrictive directives of government and public health authorities; reduced labour availability impacting our ability to continue to staff the Company's operations and facilities; impacts on the Company's ability to realize its growth goals, including acquiring assets from TransAlta; decreases in short-term and/or long-term electricity demand; increased costs resulting from the Company's efforts to mitigate the impact of COVID-19; deterioration of worldwide credit and financial markets that could limit the Company's ability to obtain external financing to fund its operations and growth expenditures; a higher rate of losses on accounts receivables due to credit defaults; further disruptions to the Company's supply chain; impairments and/or write-downs of assets; and adverse impacts on the Company's information technology systems and the Company's internal control systems as a result of the need to increase remote work arrangements, including increased cybersecurity threats. Other factors that may adversely impact the Company's forward-looking statements include, but are not limited to, risks relating to:  operational risks involving the Company's facilities, including unplanned outages at such facilities; disruptions in the transmission and distribution of electricity; the effects of weather and other climate-related risks; disruptions in the source of water, wind, solar or gas resources required to operate our facilities; natural disasters; equipment failure and our ability to carry out repairs in a cost-effective or timely manner; and industry risks and competition. The foregoing risk factors, among others, are described in further detail in the Company's Management's Discussion and Analysis and Annual Information Form for the year ended December 31, 2019, which are available on SEDAR at www.sedar.com. 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


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