Kia ora. Hello, and welcome to Contact's interim results presentation for FY 2026. We're gonna start by reflecting on highlights from the first half, and we'll take you through the financial results. We'll then move onto a separate presentation on the NZD 525 million equity raise to announce this morning, and then we'll open for question and answers when both presentations have been made. We won't stop at the end of the results section.
Turn to page 4. First half FY 2026 was transformational for Contact. We completed the Manawa acquisition on the 11 July 2025, welcoming the Manawa staff and assets to the fold. Integration has since progressed very well, and we've secured more than 80% of the announced cost synergies in the first six months of ownership, that is, on a run rate basis. Manawa hydro and renewable PPAs increased our renewable generation in the first half by 1.3 TWh, and we generated 0.2 TWh to our new Te Huka 3 geothermal power station.
What that meant is that generation was 97% renewable in the first half 2026, up from 89% in first half 2025. EBITDA was also up 24% to NZD 500 million as a result of the Manawa acquisition and our renewable investments. Profit was up 44%, and the Board have declared a dividend of NZD 0.16 per share, consistent with our indication of NZD 0.40 per share total dividend for FY 2026. We continue to deliver for our customers. We started supplying electricity to New Zealand Steel's new electric arc furnace in December last year.
We've also secured the All of Government gas contract and are now supplying 2PJ of gas to support critical infrastructure and community assets throughout New Zealand. We continue to support our retail customers through innovative products like the Time of Use Good Plans, with more than 150,000 customers now choosing discounted or free off-peak power. Into page five, onto the market. We've seen significant hydro inflows across New Zealand in the first half, with inflows at 128% of mean, leading to lower spot prices for electricity. As a result, generation was more than 90% renewable across the market, and the hydro storage lakes filled up, with natural storage ending the period at 128% of mean.
Hydro storage, together with gas storage at AGS being nearly full and the Genesis stockpile replenished, has put the market in a very good position going into winter 2026, with reducing fueling risk. Gas scarcity remains a key issue, with production down 16% in the first quarter of the financial year compared to the same period a year before. We're seeing an uptick in demand coming through. Demand was up 4% in the first half 2026, or 1% when normalized for the demand response at NZ Aluminium Smelters, which was activated in the dry conditions of the first half 2025, if you remember. Line costs stepped up significantly from the first of April 2025. As this is a pass-through cost to customers, this has created upward pressure on overall electricity tariffs across the market.
On project execution, our renewable build program is tracking well. Contact has 1.1 TWh of renewable generation and 100 MW of battery capacity currently under construction. Construction is complete on the Glenbrook Ohurua Battery, and transmission system integration is nearing completion as commissioning continues. Commissioning actually began in early February, and we expect the battery online around about the end of March.
At Te Mihi Stage 2, site construction by the EPC contractor is progressing to schedule, with cooling towers on site and supporting civils complete. Kowhai Park, which is being built through our JV with Lightsource bp, over 50% of solar panels have been installed. We expect to have the solar farm online around the end of June. Putting this together with our recently completed geothermal builds, Tauhara and Te Huka 3, we have maintained a continuous build program since 2021.
This has led to a continuity of our major project expertise, key staff, suppliers, contractors, setting us up well as we continue with our renewable build plans Contact31 strategy. Looking ahead, we have better clarity across the key market risks, giving us confidence to invest in line with our strategy. With New Zealand Aluminium Smelters now on a long-term contract, which includes demand response, and the HFO now in place, the market is in a much better place to manage the dry year risk and support security of supply through the energy transition.
We saw a measured response from the Government alongside the release of the Frontier Report in October. The review found that the Current Market Design and the rules are working well to facilitate market entry and investment in generation. The industry commissioned an extensive report themselves on the sector from BCG, which was published in November. It shows that we are developing renewable generation at the fastest rate in New Zealand history, and that the market challenges we are seeing are largely due to the rapid decline in the gas market.
We expect to see resolution on further key market topics this year, including the All of Government energy procurement, LNG infrastructure and RMA reform, which there have already been announcements on. As always, the electricity sector is likely to be a focus in an election year. This is not new. However, we expect at least the mainstream parties to draw from the Government-led review and the BCG report to understand industry challenges and the investment required now and going forward. And with that, I'll hand over to Matt to take you through the results.
Thanks, Mike. Kia ora. My name is Matt Forbes, and I'm pleased to present Contact's 1H 2026 financial results. This half was defined by delivery, good financial performance, the successful integration of Manawa Energy, and continued progress across our renewable development program. This result reflects the deliberate choices we have made to reposition the business for larger scale, improved earnings quality, and lower risk, leaving us well-placed for the next phase of growth under Contact31 strategy. Before turning to the detail, I'll step through three key themes from the first half. The first key theme was the acquisition of Manawa. The NZD 2 billion acquisition completed on the 11th of July 2025, and is already contributing as expected, adding capability and scale, improving earnings quality, and materially reducing portfolio risk from day one.
On an annualized basis, Manawa adds 1.9 TWh of low cost, long life hydro generation and exposure to contracted renewable supply PPAs. This structurally reduces our exposure to Clutha hydro volatility, the gas market uncertainty that we faced, and aging thermal assets. Importantly, Manawa increases our expected earnings while reducing the level of overall risk, and underpinned by the early delivery of the cost synergies, with the majority already secured within the first six months.
The second theme for the results is our sales discipline. Long-term PPAs with major counterparties were fully in place, a new supply to New Zealand Steel commenced, and we benefited from the fixed price Mercury contract acquired with Manawa. These long-dated inflation-protected arrangements now underpin a meaningful proportion of forecast generation. They improve our earnings visibility and cash flow confidence while continuing to invest in new renewable capacity.
So our approach to strategy channel management remains really deliberate. We're prioritizing channels for stability and generation shape, while retaining some market exposure to ASX or a market-linked pricing. The third theme in the results is our operational delivery. Te Huka was online in the period and has consistently generated above its business case. Planned statutory outages, including at Tauhara, were well managed, and we strengthened our gas position, contracting an additional 7PJ annually from Greymouth Gas on top of the gas from OMV. Together, these actions support customers, underpin system reliability, and reduce Contact's dry year risk.
Turning now to financial performance. EBITDAF for 1H 2026 was NZD 500 million, an increase of NZD 96 million on the prior period, driven primarily by the portfolio scale from the new geothermal generation and the Manawa acquisition. Partially offset by a normalization of pricing, which reflects the unusually stressed conditions in 1H25. Renewable generation volumes increased by 1.5 TWh, contributing NZD 123 million to EBITDAF versus 1H25, and this reflects the structural increase in geothermal output, with Te Huka online and the inclusion of Manawa, rather than any short-term market or hydrology effects. Pricing was a headwind.
Long-term contracted channels reduced EBITDAF by NZD 13 million, while market-linked pricing reduced EBITDAF by NZD 37 million. Importantly, this reflects the proportion of volumes in long-dated PPA channels and the normalization from elevated 1H25 pricing, in market-linked channels. Other income increased by NZD 42 million, driven by higher retail gas margins, Manawa income streams, insurance proceeds, and the absence of the Methanex gas loss recorded last year. Fixed operating costs increased by NZD 68 million, primarily reflecting the inclusion of the Manawa operating cost base and time bound transaction and integration costs. Turning briefly to net profit, NPAT increased by NZD 63 million, driven primarily by the increase in EBITDAF.
Depreciation and interest increased as expected following the Manawa acquisition, and the fair value movements were positive versus the prior period. These are non-cash and do not affect underlying cash earnings. Looking at our segment performance, this highlights the impact of the Manawa acquisition and the strength of our wholesale business, alongside impressively disciplined retail execution. Wholesale EBITDAF increased by NZD 110 million to NZD 577 million, driven by higher renewable generation volumes and the inclusion of Manawa. As mentioned, these benefits were partially offset by lower achieved prices, reflecting the normalization of market conditions.
The retail business EBITDAF was a loss of NZD 25 million, consistent with the prior period. This is despite NZD 79 million of network and energy cost inflation during the first half. Approximately 90% of these higher costs were recovered, reflecting the disciplined pricing and strong margin management. This is not only critical to supporting our financial performance, but underpins our confidence to fund such a large renewable growth program.
Corporate costs increased by NZD 15 million, largely reflecting the Manawa transaction and integration costs, high incentive costs associated with Contact's outperformance, and targeted spend to support the Contact31. Starting with the wholesale business, renewable generation accounted for 97% of total output in the half, reflecting both the new geothermal capacity and the step change in portfolio mix following Manawa. Thermal generation declined to 178 GWh, which is the lowest level on record, and reflected the increase in renewable generation.
This is the portfolio we've deliberately been building towards. With the addition of the long-dated fixed-price PPAs acquired through Manawa, average generation costs were higher in the period, but they also enabled us to contract a significant larger portion of fixed volume. And as I mentioned, these fixed volumes support earnings certainty and reduces exposure to market volatility, and you have seen the benefit of that during the national inflows over the last five months, which have seen very low wholesale prices. Stepping back, since the launch of the Contact26 strategy in FY 2021, renewable generation has increased from 81% to an expected 98% in a mean hydrological year.
This is a structural transition that materially improves our portfolio resilience, asset quality, and earnings quality. Looking at our wholesale contracted revenue, this reflects that theme around strategically shifting towards longer-dated, fixed-price channels. Strategic fixed-price sales increased by 1.7 TWh in the half. This was driven by the acquisition of Manawa's long-term supply agreement with Mercury, a full period of the Tauhara-linked PPAs, higher NZ Steel volumes, and a new contract with New Zealand Steel.
Pricing outcomes were as expected. Long-dated contracted prices now reflect structurally higher wholesale price levels, while short-term CFD pricing moderated as contracts rolled into a more normalized near-term market environment. Other wholesale income increased, reflecting non-electricity generation income from Manawa's hydro assets and the absence of prior period losses associated with the Methanex gas arrangements. Moving on to trading outcomes, our performance was solid and reflects our better positioned portfolio.
Total merchant generation volumes were broadly flat, as we were able to hedge up the Manawa merchant volumes in the period. The improvement in location losses reflects increased North Island generation following the Manawa acquisition and additional geothermal capacity, which is closer to load. And in Q2, when very low prices saw us run shorter times, it was economically more attractive to purchase from the market than generate from our own assets.
This resulted in very low LWAP to GWAP spreads and improved financial outcomes overall. Turning to the performance of our retail business, performance in the first half reflects the strong cost recovery and disciplined execution in the face of significant input cost inflation. Retail margins were under pressure, and as noted earlier, the increases in network and transmission costs added NZD 79 million during the first half. Despite this, strong pricing actions limited the EBITDAF impact, resulting in a loss of NZD 25 million, which was consistent with the prior period.
This outcome reflects a careful balance: one, supporting customers through a challenging economic environment, two, maintaining the financial sustainability of our retail business, and three, continuing to have the confidence to continue to invest in renewable generation. Within retail, gas gross margins improved from NZD 7 million to NZD 15 million, supported by higher sales volumes enabled by the additional supply from Greymouth. Our telco business continues to perform, with connections up 16% and gross margin increasing to NZD 8 million, while cost to serve remained well controlled.
You see the multi-product offerings continuing to support our customer growth and our retention across the retail portfolio. Moving on to other operating costs. The increase in the half largely reflects the acquisition of Manawa rather than underlying cost pressures. Operating costs increased by NZD 60 million, primarily reflecting the Manawa operating cost base, along with transaction and integration costs.
General inflation contributed around NZD 5 million, with operating cost headwinds above this, driven by higher insurance, labor costs, enhanced employee benefits, and the relentless march of council rates. Importantly, we're already delivering on the expected Manawa synergies. We achieved a NZD 7 million in-period reduction in operating costs during the half, with 80% of the synergy target achieved on a run rate basis after the first six months. Under Contact31 strategy, productivity remains a core focus. In total, we're targeting NZD 38 million of operating cost savings by FY 2027.
That is NZD 28 million from the Manawa synergies, which includes NZD 13 million we expect to deliver in-year within FY 2026, and an additional NZD 10 million from broader productivity initiatives in FY 2027. Maintaining cost discipline across the rest of the business is essential to ensure that these productivity benefits translate fully into earnings. Looking at cash flow, which strengthened materially in the half, operating free cash flow is up to NZD 249 million, an increase of NZD 111 million on the prior period, driven by high EBITDAF and working capital outcomes partly offset by higher interest costs following the Manawa acquisition. Working capital was still at NZD 68 million outflow in the first half, and this reflects the timing of payments associated with the newly signed HFO fuel supply arrangements and geothermal spares procurement.
These movements are timing related and not reflected on underlying performance. Same business CapEx was NZD 59 million in the half, but with FY26 guidance of between NZD 170 million and NZD 185 million, we expect a heavier second half spend. Operating free cash flow conversion was 50% in line with guidance. For the next two slides, I'll stay focused on the 1H 2026 performance and execution read through, with the investment decisions we've taken today and the strategic funding plan to be addressed later in the presentation. Starting with growth capital expenditure, we see strong Te Mihi Stage 2 JV to deliver solar at Kowhai Park and the completion of our first battery at Glenbrook.
Overall, projects are tracking as expected, with guidance for FY26 growth CapEx of NZD 500 million to NZD 510 million, again, pointing to a significant acceleration in the second half of this financial year. Turning to the balance sheet, net debt has increased as expected, reflecting both renewable investment and the Manawa acquisition. During the period, we issued a new EUR 500 million euro EMTN note, further diversifying our funding sources and extending our debt maturity profiles. Pro forma net debt to EBITDA was 2.8x at 31 December, supported by expecting earnings, the equity credits from our hybrid bonds and remains well within target ranges. Dividends for 1H 2026 is set at NZD 0.16 per share, consistent with the prior year and in line with our dividend policy.
For FY 2026, we continue to target a full-year dividend of NZD 0.40 per share, which represents a 3% increase on FY 2025, with the interim dividend representing 40% of the full-year target. The increase in absolute dividends reflects the number of shares on issue following the Manawa acquisition. Looking ahead, our FY 2026 expected reported EBITDA is now NZD 965 million, which is an increase of NZD 15 million on our expected reported EBITDA we announced in August, reflecting the first half outperformance. There've been no change to second- half assumptions, which use mean hydro expectations, and the guidance upgrade is driven entirely by delivered performance in the first half. This consistency reflects the quality of the portfolio we're now running, one that is more resilient, more predictable, and better positioned to fund the next phase of renewable growth.
With that, we'll conclude the presentation of the results, and I'll hand back to Mike to lead on the equity raise.
Thank you, Matt. Hello again. But before we get into the presentation, we have to acknowledge that due to legal restrictions, we're unable to discuss any details around the equity raise other than the basic terms referred to in the announcement and investor presentation released on NZX and ASX today this morning. During this presentation, we'll provide an overview of the equity raise, the use of proceeds, financial impacts, and base set offer detail before opening up the call to Q&A. So we're pleased to announce today that Contact is launching a NZD 525 million equity raising to Contact31 strategy. As New Zealand's most diversified generator with the largest national development, renewable development pipeline, we are well positioned to capture the large and growing New Zealand energy market opportunity.
Contact31 strategy is focused on leading New Zealand's renewable energy future and delivering the highest value outcomes for our investors and New Zealand. The equity raise will advance the execution potential upsizing of renewable energy projects, which would Contact31 strategy. The capital raised will be used to commence the pre-FID drilling on Tauhara 2 to advance steam field development and explore upsizing the target capacity from 50 MW to 60 to 70 MW. It'll be used to fund our investments in the Glenbrook Battery 2.0 Glorit Solar development projects. The proceeds are also expected to enhance our ability to bring forward development pipeline opportunities, which are in line with Contact31 Capital Allocation Framework.
The equity raise is expected to reduce the first half 2026 S&P net debt to EBITDA ratio from 2.8x to 2.3x, enhancing our ability to accelerate further development opportunities from the broad opportunity set now in front of us. The raise is structured as a fully underwritten placement of NZD 450 million and a non-underwritten retail offer of up to NZD 75 million, with the ability to accept oversubscriptions at Contact's discretion. Our portfolio is well positioned in the New Zealand market, diversified across geothermal, hydro, wind PPAs, thermal, and emerging solar and battery capacity. We have the largest renewable development pipeline in New Zealand, giving us strong development optionality to meet growing demand. We are the leader in geothermal energy, operating seven geothermal stations, producing around 5 TWh per annum, around 50% of New Zealand's annual geothermal generation.
In addition, we have continued to build out our competitive strengths and battery development through securing prime locations near growing customer bases, investing in-house development capabilities and leveraging our complementary generation portfolio mix. This combination, a diversified portfolio, deep development optionality, and a strong track record of delivery underpins our ability to capture the growing market opportunity. New Zealand's national energy transition is in flight, and electricity demand is expected to grow by 3 to 5 TWh by 2030, driven by electrification across data centers, dairy, transport, and industry. Increasing renewable penetration is also creating greater intraday volatility, lifting the value of flexible firming solutions such as batteries and stored hydro. Customer behaviors are also evolving. Large C&I users are seeking price certainty, and residential electrification is shifting load pattern.
With enhanced clarity on market fundamentals, including the New Zealand Aluminium Smelters operations and winter energy security, the environment now supports long-term investment with confidence. In this sense, Contact31 strategy was developed to play to Contact's strengths and lead New Zealand's renewable energy future. We're committed to extend our advantage, New Zealand's geothermal leader, lead on new flexibility in New Zealand, build into new demand with wind and solar, and lead the energy transition at home. In that context, today's capital raising will advance the execution and potential upsizing of renewable energy projects, which would accelerate Contact31 strategy. Matt?
Thanks, Mike. Now over to the use of proceeds. Proceeds from this equity raise will be invested to advance the execution and potential upsizing of renewable energy projects, and we'll continue to invest in line with Contact31 Capital Allocation Framework. The combination of geothermal, batteries, and solar investments positions us to deliver flexible, low-cost supply as demand continues to grow. The capital raised is expected to be invested across three pillars. Pillar one: We're investing NZD 30 million to start pre-FID drilling on Tauhara 2, to advance steam field development, and to explore options to upsize the project from 50 MW to 60 to 70 MW. Updated reservoir modeling has indicated that a plant of between 50 to 70 MW can be supported, compared to the original 50 MW plant we identified at our Investor Day. The drilling program will help confirm these modeling estimates.
This investment aligns Contact31's strategic commitment to extend our advantage as New Zealand's geothermal leader. In pillar two, today, we have improved investment in the Glenbrook Battery 2.0 and Glorit Solar projects. We expect to invest NZD 235 million in the Glenbrook Battery on balance sheet, and around NZD 45 million to fund Contact's share of the off-balance Glorit Solar project. Once complete, the Glenbrook Battery project will increase our battery capacity to 300 MW, strengthening our ability to manage market volatility, shift renewable output into higher value periods, and lead on flexibility in New Zealand.
Glorit Solar project secures 230 GWh per annum of contracted output under PPA to Contact, while retaining the capital efficiency, and adhering to Contact's strategy of building new demand with wind and solar. The remaining proceeds are expected to enhance our ability to bring forward development of pipeline opportunities under pillar three. We believe that we have great optionality across our development pipeline and believe that having a greater ability to bring these accretive developments sooner, if market conditions and project economics are supportive, will strengthen our competitive position and support an acceleration of Contact31 strategy.
The following slides provide additional information on each of these pillars. Geothermal generation provides an attractive, long-life, baseload, reliable, renewable generation and is an anchor to intermittent renewable growth. Geothermal energy development and operations is a cornerstone of Contact's operational capabilities and key to our competitive strength. We are New Zealand's largest geothermal producer and have a strong track record of identifying, securing, constructing, and operating geothermal opportunities.
As part Contact31 strategy, we've outlined our targets to have an additional 250 MW of geothermal capacity, either operational or under construction or at FID by 2031. The updated Tauhara 2 reservoir modeling has indicated that a plant of 50 to 70 MW can be supported. This is the additional to the 50 MW identified and disclosed to the market at our Investor Day. That additional 20 MW equates to 165 GWh per annum of output, or around NZD 18 million of potential incremental EBITDA in FY 2031, based on our long-run wholesale price expectations and the indicative costs to build.
This outcome will increase the expected project costs by NZD 130 million to NZD 150 million, based on our assumed costs of NZD 6.5 million-NZD 7.5 million per MW. The NZD 30 million drilling program that we've committed to today is expected to help confirm modeling estimates, help us to better determine the optimal capacity and plant configuration prior to final investment decision in FY 2027. Our target returns for geothermal investment remain in line Contact31 Capital Allocation Framework of between 10% and 12%. Batteries will play a crucial role in the New Zealand energy system by providing important flexibility to accommodate thermal generation displacement and retirement, intermittent renewable growth, and rising peak demand. As renewable penetration continues to increase, intraday volatility will grow.
Batteries provide the firming and capacity required to maintain reliability of the system and to optimize value for Contact. Over time, the sources of value that we'll get from a battery will evolve. Early returns are expected to come from reserves and arbitrage, but longer-term benefits include portfolio shaping, hedging flexibility, and integration with our baseload geothermal. Not all battery developments or projects are created equally.
Attractive battery developments are driven by a small number of factors: site proximity to load, strong grid connectivity, having experienced development partners, and efficient deployment sequencing, all areas where Contact has proven development capacity. The Glenbrook Battery 2.0 has a number of these attractive attributes. It's strategically located, located close to the Auckland demand centers and transmission, and increases the value from stored energy, enhancing GWAP capture and reduces Contact's reliance on thermal peaking.
The project has not been exposed to the recent spike in lithium prices, with the lithium price fixed in December 2025. We've also been able to leverage our development experience from the first battery at Glenbrook with a replicated technology, design, and contracting approach, supporting our cost and confidence in delivery. These attributes compared, combined with the strong interest from third-party off-takers, are expected to support project returns in line with our capital allocation frame. The Glenbrook Battery 2.0 lifts our total battery capacity to 300 MW and is expected to cost NZD 235 million, with a fully ramped EBITDA of around NZD 35 million to NZD 40 million per annum. The Contact board has also approved an investment in the Glenbrook Solar Project, subject to final funding arrangements.
The project was granted consent following an appeal to the process in 2025, and the solar farm is expected to provide around 285 GWh of upper North Island generation close to load, supporting grid stability and improving Contact's GWAP. We have committed to a 15-year PPA arrangement for 80% of the generation from this project. The project's off-balance sheet JV structure reduces the upfront capital requirement while preserving access to the important renewable output with a long-term PPA. The project is expected to cost NZD 305 million, with our equity contribution estimated to be around NZD 45 million and achieve Contact IRR in excess of our 12% target return.
Moving on to this slide on Contact31, we modeled three New Zealand electricity market demand scenarios to support the development of the strategy. The strategy and development targets Contact31 assumes a disorderly decarbonization scenario, which is represented by the red line, second from the bottom on the chart on the left-hand side.
Any additional proceeds from the equity raise are expected to enhance our ability to bring forward development projects in our development pipeline if a more aggressive New Zealand electricity market demand scenario eventuates. We have a broad set of attractive development opportunities in front of us beyond what is included Contact31 development targets. Maintaining a large and diversified pipeline helps drive development efficiently and improves our ability to respond dynamically to market signals.
Onto the financial impacts of the raise. We've built a balance sheet which is diversified by funding source and tenor to support financing flexibility with an attractive cost of capital. The equity raise is expected to enhance development acceleration flexibility through an increase in investment capacity, with the equity raise expected to reduce 0.5, 2.6 S&P net debt to EBITDA ratio from 2.8x to 2.3x. Leverage is expected to remain in our target 2.6-2.8x over the medium term, in line with our Capital Allocation Framework. Our FY 2031 targets remain in place, with the potential upsides from the upsizing Tauhara 2 and the acceleration of future growth opportunities, drawing nearer. Onto some details of the offer.
The NZD 525 million equity raise comprises a NZD 450 million dollar, dollars fully underwritten placement and a non-underwritten retail offer of NZD 75 million. The structure has been chosen to provide almost all existing shareholders the opportunity to subscribe for at least their pro-rata portion on a best efforts basis. New shares under the placement will be issued at NZD 8.75 per share, reflecting a 7.2% discount to the dividend-adjusted last close and a 7.9% discount to the ex-dividend adjusted five-day VWAP. The retail offer allows eligible shareholders to apply for up to NZD 100,000 for New Zealand eligible shareholders or AUD 41,000 for those in Australia that are eligible.
The retail offer will be set at the lower of the placement price and a 2.5% discount to the five-day VWAP, up to and including the last day of the retail offer period, with additional information on the retail offer will be made available once the retail offer opens on the 19 February 2026. On to the timetable. The new shares issued under the placement is expected to commence trading on the Friday, 20 February 2026, and as mentioned, the retail offer opens on the 19 February 2026 and due to close on Friday, the 6 March 2026, with trading of new shares on both the NZX and the ASX expected to be Monday, the sixteenth of March.
As outlined in the NZX release, the Board has exercised its discretion to adjust the DRP strike price to be the lower of the DRP strike price calculated as per the usual DRP methodology, which is the 2% discount, and the retail offer price. The DRP strike price will be announced on the 12 March 2026, and allotment of new shares is expected to occur on the 25 March 2026. Okay. New Zealand's energy sector's transition continues to create a compelling market opportunity, with demand increasing and the market requiring new renewable generation and firming capacity. Contact is well positioned as New Zealand's most diversified generator, supported by the largest renewable development pipeline in the country.
This equity raise of NZD 525 million is expected to advance the execution and potential upsizing of renewable energy projects, which Contact31 strategy. These investments support meaningful renewable generation growth, expanding our flexibilities and storage, and positions us to deliver customer-focused solutions as demand evolves. We anticipate making further announcements with respect to the equity raising in accordance with our NZX and ASX continuous reporting obligations in due course. We will communicate directly with investors with respect to their eligibility to participate in the equity funding raising. We really do appreciate your engagement today, and we welcome any questions. Thank you. Nga mihi nui.
Thank you. We'll now open to questions, starting with questions from the room and then moving to those online. If you wish to ask a question, please raise your hand, and this will place you in the queue. When invited to ask your question, you will need to unmute your microphone. I'll open to questions from Andrew Harvey-Green for Forsyth Barr.
Thanks, Shelley. Yeah, thanks, team, for that. And, I guess, quite exciting with the equity raise, and I think that all makes sense. I guess my first question, though, is, at the Investor Day, it was a pretty strong impression that, you were trying to get through this period without raising it. Can you just sort of talk through what's changed in your thinking from late November through to today?
So that's there. There's a number of things there. One, the upsizing Tauhara 2, we were talking 50, we're now talking 60-70, which in and of itself is NZD 150 million-NZD 250 million of additional capital. Glorit and the battery have both happened faster than we anticipated, and for instance, the battery, we're locking in a very sharp lithium price with Tesla. And the deal with Forest and Bird was a welcome development just before Christmas.
A lot of things seem to happen just before Christmas.
But I think more broadly, the point around, Contact31 on the red line, and, you know, there is a reasonable potential for the black line to eventuate. And if I take you back to our last equity raising in 2021, when we raised funds for Tauhara, because we went with the equity raise, we were able to fund Te Huka 3 without a blip. And I think that ability to respond to changing market dynamics and conditions, is absolutely critical going forward.
Yeah. Andrew, we, we absolutely could have Contact31 strategy on balance sheet. We were very clear around our expected project costs and the sources and uses of that funding. That's effectively a base case. We're thinking about an expected case of outcomes, and raising this equity now gives us the ability to meet, you know, higher than trend outcomes, and that's why we believe it's a good opportunity for shareholders now.
I guess kind of linked to all of that, I think slide 27 sort of outlines your list of projects. I think there's six that you're looking at potentially getting to FID in FY 2027, which feels quite ambitious. I, I was totting that up at around about NZD 1 billion of capital, assuming all the wind and solar is done on off balance sheet.
Balance sheet.
Circa 800 MW of capacity plus the battery on that. I mean, realistically, how much of that do you think you might be able to get away? And sort of, can you sort of talk to, I guess, the size of that opportunity relative to the market, I guess?
I think it's just stepping back. The latest suite of projects, Glorit, Kowhai Park Solar Farm, we've been able to link to the Fonterra con- the conversion of the Fonterra. And it's fair to say that Southland wind projects will have that same linkage back to another discernible event on the demand side. So the geothermal, we've built the execution muscle. They are first-class baseload projects, and the trick there is to maintain that, to maintain that muscle and to continue to exercise with a good, healthy cadence in the running through the execution. Batteries, we'll wait and see.
Okay. Next couple of questions I have, I guess, is linked to, I guess the most recent development in the market, which is the LNG announcement from last week. I mean, TCC is now being decommissioned. My interpretation, I guess, is that it looks like we need some more gas plant capacity to so, I guess, to achieve the Government's goals of generating 1.5 TWh over three months. Is that consistent with your views? And then maybe talk to a little bit around the battery storage opportunity as well.
Okay. So there, there again, let's unpack those questions. I think, the question of additional gas spike capacity, yes, we'll still have our peakers. Obviously, we have the diesel at Whirinaki. There is also, potential opportunity with behind the meter gas turbines, still in a variety of industrial facilities in New Zealand. Whether we need more after that is another question, mindful that, you've got tied in the Genesis assets as well. AGS is gonna be critical to the gas supply market, whether it's indigenous gas or LNG, because of its ability to store gas over summer or inject and store and take gas at volume to be discharged back to the market. So obviously, it will play a critical role going forward, with or without LNG.
Last question from me is just around, I guess, the guidance upgrade. This is for you, Matt. So of the NZD 15 million, how much would you describe as structural from the first half versus all just one-off related to favorable operating conditions?
No, no, that's all structural. Our hydro generation, even though national conditions were very oversupplied, was actually down year on year, so it reflects our geothermal capacity and the acquisition of the Manawa assets. Yeah, obviously, we're seeing really good price recovery in the retail channel, which is probably tracking slightly better than we expected. So that gives us the confidence to retain our guidance for the second half of the year, noting that market conditions are very volatile out there.
So, but if it's all structural in the first half and you haven't changed second half assumptions, doesn't that imply we've got some structural follow-through coming through in the second half as well?
Well, I mean, structural is known, structural elements as opposed to outperformance elements. So, you know, these things are always—we're always looking at the mean hydrological conditions coming to the period. You know, we don't guide on short-term changes to hydrology or short-term changes to storage, but you know, we come well prepared into this financial instance, coming to year with fuel and storage, so.
Okay, thanks.
Thanks, Andrew. So we're open to questions online, starting with Vignesh Nair from UBS. Vignesh, if you can unmute and go ahead with your questions.
Good, good. Good morning, Mike and Matt. Can you hear me?
Sure, can.
Awesome. Congrats on the strong results. A couple of questions. First, again, following from, you know, Andrew, on the gen dev pipeline, one thing I noticed was you've pushed Argyle from earliest third FY 2026 to earliest third FY 2027. Keen to get a bit more color on this to begin with. Is it because the cost of smaller scale farms are just getting too high? Sort of, what's driving that?
Yeah. So, as you'll recall, we had some snafus to use Mike's term, around the Glorit Solar Farm , and an appeal to the consent that we achieved there. So we've reprioritized the pipeline to advance Argyle up the agenda. You know, with Glorit being a larger scale project with better returns, you know, we have prioritized that project now that we've come free of that consenting snafu. And therefore, it's just a time and resources and attention question as opposed to an economic question, Vignesh.
Very clear. Batteries next. You mentioned the sharp lithium price, Mike. You know, prices have moved a fair bit in the last couple of months. Is this project, you know, confirmed today? Should that be read as trough battery CapEx spend gone?
Oh, that would require me to speculate on the lithium price. It is significantly lower than our first battery and other batteries being built in the New Zealand market currently. Since then, prices have spiked, so there could be a period where it represents a very sharp price. But that's not to say that lithium prices come down again, so never say never. And I think more broadly, our teams are continually challenging the costs of the associated works, the transformer switch gear, the civils, and so, yeah, that I, I would, I would not want to speculate on that. It is a sharp price. We're very proud of it, but the team will continue to work hard to control costs going forward.
Just a last question on the gen dev section. Tauhara 2, obviously, the increase to 70 potentially MW, does that impact the opportunity set for Stage Three? Just keen to get more color on the size of the field.
No, stage two is about using up a fair chunk of the remaining resource consent. Stage three will be about, if there is upside potential in the field, we'll need an additional resource consent for offtake. It will be about any neighboring resources as well. So, we don't see it as impacting stage 3 . It's just taking the opportunity of what is available to us now, given the favorable reservoir reaction.
Okay, that's understood. Sort of the last question, just on the broader market. You know, Transpower last week talked to 700 megawatts of capacity scheduled to be added to the grid in the first half of this calendar year. Yourself and your peers are still ramping up development. Sort of, are you able to talk about, sort of the confidence on demand growth, not into 2030, but perhaps in the next three to, you know, two to three years?
Yeah, well, FY 30 is only one year out from the next two to three years. So, take the three to five terawatt hours, which we set out in the pack as being pretty firm. But there are obviously other opportunities with further potential conversions, potential new industries, potential. Yeah, there are a range of opportunities, which would start to move you up towards that black curve.
But Vignesh, we've been very clear, the pillar of the strategy around wind and solar is connected to demand from customers. And the Glorit Solar Farm that we've invested, the Kowhai Park Solar Farm, that is just there to meet new demand from Fonterra coming to market. So, you know, we, we're getting the projects prepared so to be able to meet the demand from customers. This is a demand-led strategy.
Understood. Thanks. Very clear, gents. That's all, that's all from me.
Vignesh. We'll now take questions from Grant Swanepoel at Jarden. Grant, go ahead, Grant.
Good morning, team. First question: Have you raised enough capital that we can now create the expectation that by FY 28, you can move towards that mid-payout ratio of your four-year trading dividend?
Hello, Grant. The primary purpose for the capital raise is effectively to be able to meet the market conditions that we see ahead of us. We see them as highly conducive. We see lots of customers looking to move off gas onto electricity, and therefore, it's around being prepared for above expectations Contact31 pipeline of projects. Yeah, as you mentioned, when we outlined our pathway to funding those development projects on balance sheet, we did have some retained earnings through that funding mix, and therefore, sort of as demand evolves, as the projects become clearer, we'll have a clearer view as to, you know, where in that dividend payout ratio we can expect.
Because of the way the projects that are coming to us are, you know, above our target returns, we want to continue to develop those projects to get better long-term outcomes for shareholders, rather than just short-term dividends.
Well, can I just follow up on that, how your board is thinking? Why would they only raise NZD 525 if they still think that an 80%-100% payout ratio is reasonable as a dividend policy, and not raise enough to make sure you hit the mid part of that payout ratio?
I mean, the dividend payout ratio is a function of earnings and cash flow delivered through the prior periods, and therefore is relatively mechanical. There's been no discussion at the Board level about where the most appropriate target within that range is, but you know, it'll be set at that specific time.
Thanks, Matt. Next question, just on your battery growth. So you've got 500 MW by 2031, 300 MW in the near term, and you're pointing to, as is the market, to about 900 MW in the market by 2030. Does your modeling on batteries give you confidence that NZD 35 million is the type of return you can make on this 200 MW investment? But does that presuppose that your competitors aren't going to push now to just cover their own portfolios and get past that 900? And do you see that fall off quite quickly once you move past 900 by 2030?
I think there's a number of dynamics in there, Grant, is 900 was the BCG number, that was put out. But remember, if we end up with more demand and more intermittent wind and solar being built, then obviously, as you go up the, towards the black curve, you're going to need more batteries. And so that dynamic will continue to play out. So, we do see first-mover advantage. All the experience overseas, there's a significant first-mover advantage, so we're moving as quickly as we can. I can't speculate on what our competitors will be thinking, but I think the thing to hold in your mind is that, there could be upside to that if that higher demand scenario comes off.
And Grant, our sort of fundamental belief is that over the medium term, batteries will be required in the market as more intermittent renewables come online, and those batteries will have to get a return. And we believe participants will act rationally, you know, with that expectation. Now, because we've got what we believe is a very low-cost battery in the context of the market and a very strong site, we think they will be protected under a number of market scenarios. But the batteries are quite a useful tool in the toolkit.
They, the sources of value from them can change through the cycles, you know, from reserves and frequency keeping in the early stages to more, you know, arbitrage as we phase out thermal generation. And then later on, you know, in a battery's life, it's gonna be able to bring in more, intermittent renewables. So, you know, from a, from a market perspective, we think this is the right asset, and the portfolio benefits that we get from it are just cream on top.
Fantastic. Thanks, Mike and Matt. It's really good to see that Contact has now continued this continuous performance, and we don't get the old Contact of always finding some little fault somewhere along the way. Congratulations. Thank you.
Thanks, Grant. We'll take questions from Josh Dale at Craigs Investment Partners.
Morning, Mike, Matt. Just first two questions relate to the balance sheet. I think I know the answer to this, but in light of wanting to accelerate development timelines, does raising capital change your thinking at all around maybe taking wind and solar developments on balance sheet, even if only initially to get projects underway?
We've been delighted with the. It's not just the off-balance sheet. The capacity and capability that Lightsource and BP have brought to this country and to us has been fantastic. Their supply chain management, their contractor management, has been fantastic. When we go out looking for a wind partner, we're looking for something similar. Yes, we want to take the finance off balance sheet, but we're also looking for something special. We're looking for the capacity and capability to go faster, build at lower cost, make these projects more economic for Kiwis. So it's not just about. So in short, wind will be off balance sheet initially.
Okay, thanks. At your Investor Day, given your balance sheet constraints at the time, you talked to looking at hybrids for equity credit. I assume that's off the table now, but will still sit as an option?
No, no, hybrids are still a good source of funding. Obviously, we have two hybrids, you know, currently issued, which provides us with NZD 175 million of total balance, of which we get a 50% equity credit. Now, throughout the refinancing of these options, you can upsize those, so you can get sort of marginally more equity credits. As we mentioned during the Investor Day, having, you know, capacity to use those types of instruments in an unexpected downside is also valuable and useful. So, potentially not as much needs to be pulled on those, but creating, having levers across the DRP hybrids and retained earnings, you know, we see as very valuable. Because we're not trying to do less, yeah? We're trying to do more.
So the baseline is the baseline, so we don't expect any less equity required.
Thanks. Last question: Would the development of an LNG terminal raise the prospect of decommissioning Whirinaki at all? Or do you have any thoughts on the future of Whirinaki in light of LNG?
No, we're very happy with Whirinaki. It serves its purpose for us in terms of a diversified portfolio, both in terms of location and fuel. The LNG terminal is more about New Zealand Inc. ensuring the resilience and security of supply for New Zealand. We have the Huntly, HFO, we have the demand traits from major industries like New Zealand Aluminium Smelters. We would like to get increased operating ranges on hydros, and LNG plays into that mix. I don't see it. The problem with retiring something like Whirinaki is you take the string away, and particularly for a period of stress, that's not an appropriate action.
Okay. Thanks very much, guys.
Thank you, Josh. We'll take questions now from Stephen Hudson at Macquarie.
Stephen, kia ora. How are you?
Hi, Mike, Matt, and Shelley. Thanks for the presentation, and congratulations on the result. Most of my questions have been posed, but just on the pillar three sort of bucket, and the demand sources there, Matt, you sort of alluded to gas to electricity migrations as being the key source of demand there. I would have thought metals might be a little bit more prospective in the near term. I just wondered if you can comment on that one.
The decline, the conversion of gas to electricity is a key driver. Metals, obviously there's the EAF starting up at New Zealand Steel. The smelter at aluminum prices do appear very strong, but it would be speculation if we put a marker in the ground on that. What we do see are the facts in front of us. And so those sources of new demand, I think, we've encapsulated quite well.
Yeah, Stephen, it's all the usual suspects that we'll be looking at to bring these projects forward, really.
Fair enough. Just on, I suppose the longer term horizon, just remind me, Matt, the trigger point at which the credit rating agencies would sort of force you to move any off-balance sheet, PPA offtake on balance sheet? From memory, it was sort of 20% of your total, total generation might be a trigger point to on balance sheet.
Yeah. So they don't have a specific trigger, but it does come down to sort of, you know, a few of the elements around how important the contracts are to you and your willingness to keep those sort of off-balance sheet vehicles if they run into trouble. But we're very far away from that at the moment, Stephen, so nothing to change our strategy around the development of the solar and wind projects.
Would twenty percent be a decent sort of threshold to keep in mind?
Yeah, seems that seems reasonable. Sounds reasonable.
Yeah. Okay, useful. Thank you. Last one I'll sneak in just on LNG. Government would have us believe that, the sort of the triangular form of the trilemma, no longer exists, and, and they can win on all three fronts with LNG. I guess some cynics in the market might sort of think, that, an improvement in, sustainability and security of supply might come at the cost of, of higher price. Where, where, where would you be in, in this debate?
I think LNG is a security play. We don't see it materially altering our expectations of price in the modeling because both the Huntly HFO, the strategic coal reserve, and let's say the smelter demand flex, are priced roughly at what landed LNG would probably be dispatched at. So we don't see it as a price conversation, we see it as a security conversation.
If you were to have a conversation about price, would you be closer to $200 coal HFO or $300 LNG number?
Well, in that case, you would dispatch the coal first. I think that the whole idea of LNG, it's, it's not we're gonna undercut coal, never dispatch coal. It will be something's happened in the market, a very dry year, a major asset failure, we need 1.5, 1.2-1.5 TWh of energy for this winter, and you would bring it in, or the gas market has declined faster than expected and you can't fill it. So it's one of those other stress factors. Yeah, it's probably the best way.
Yeah, you have to continue to follow the market signals that are being set for the right generation types to be built. And, you know, I think with the combination of all of those sort of backup generation, you know, we'll be able to confidently continue to build into renewables.
Okay. Thanks very much, guys.
Thanks, Stephen. No more questions from online.
I'd like to close, Mike.
Okay. Right, with that, I'll just make some concluding remarks. Thank you everyone for coming online today, that is appreciated. I will note that, obviously the conversations will continue with the announcements today, but it is a proud day for Contact Energy in terms of the FIDs which announced. It's a proud day for Contact Energy in terms of the transformation which has been delivered, in terms of the Manawa acquisition, and the delivery of the, the synergy benefits. And it's a proud day for Contact Energy in terms of the confidence that we're expressing in the equity raise, and our confidence in the New Zealand market and go forward and the the investment opportunities which are emerging. Thank you again.