Earnings Call: H2 2021

Aug 16, 2021

Ladies and gentlemen, thank you for standing by, and welcome to the Mercury Annual Results Analyst Briefing for 2021. At this time, all participants are just in a listen only mode. Following the presentation, there will be some time for a question and answer session today. And just please be advised that today's conference is being recorded. But I will now hand the conference over to your first speaker for today, Chief Executive, Vince Hawksworth. Thank you, and please go ahead, Vince. Thank you, and good morning, everybody, and welcome to the FY 2021 Mercury Annual Result Presentation. I'm joined here this morning by William Meek, our Chief Financial Officer, and we'll work through the presentation jointly. So turning to Slide 3, I'll start there with the highlights. So our EBITDA result of $463,000,000 was obviously down versus the prior year, reflecting the 4th lowest inflows since 1999 and obviously also our of 42 days and the low inflows combined with the high spot prices, which occurred due to generally low inflows and also low gas deliverability resulted in a difficult year compared with the prior one. We have though been very focused internally on continuous improvement. And we've talked before about our thriving focus and that continues to deliver for us as we work smarter and faster and aims to deliver the $30,000,000 improvement that we've talked about previously. Externally, the year we've seen us focused on creating value through mergers and acquisition opportunities. We're really pleased about the TILT Renewables acquisition, which brought the New Zealand assets of TILT into the mercury stable. And we're excited by the Trustpower retail transaction, which subject to approvals will see us increase our scale quite importantly. We declared a final dividend of $0.102 per share, which together with our interim dividend means the dividend for the year is $0.17 per share. This is the 13th consecutive year of dividend growth and represents 7.6% increase on FY 2020. We're providing guidance today of $590,000,000 at the EBITDA eth level due to contributions from TILT Renewables and the Tiritia Wind Farm and our continuous improvement initiatives for the FY 2022 year. Now I'm going to turn to the next page, Page 4, and hand over to William for the next part of the presentation. Thank you, Vincent, and welcome to everyone on the line today. So I'm going to touch on the financial performance and some of our key financial measures here on Slide 4, starting with energy margin. So as Vince has already said, was down 126 gigawatt hours for the year with spot prices up around $70 a megawatt hour on the FY 'twenty year, so quite sharp increases in pricing. And we did see quite low wind flows, particularly in the second half of the year, seeing both the light decline to very low levels, which impacted the flexibility of our generation position from Lake Taupo across the Waikato catchment. And as Vince has also mentioned, the outage on the 7th June at the kouro with a return to service on 20th July also took 3 weeks of production from that plant out at a time that prices were near record highs. Operating expenditure, dollars 4,000,000 lower at $190,000,000 than prior year, has been restated for SaaS, Software as a Service. So Mercury has implemented those Africt changes to our accounts restating last year's also by a similar number, dollars 6,000,000 so $194,000,000 FY 2020 versus $190,000,000 in this financial year. EBITDA is essentially the movement there of $27,000,000 down, largely a combination of energy margin, operating expenditure and some slight changes to other income. NPAT declined quite significantly to $141,000,000 from $209,000,000 in the prior year. Biggest movement there was around the fair value of financial instruments, mostly electricity. So we saw a negative $47,000,000 movement there on mostly power contracts against the $22,000,000 positive movement in the prior year. So that's the biggest impact to NPAT. We did enjoy a $41,000,000 gain on the back of our sale of our interest in Hudson Ranch, geothermal plant in California back in November. And we did capitalize $11,000,000 of interest to the Chiratia project, which is now going through commissioning. We also recognized a $15,000,000 loss related to disposals of some assets at Cowro on the back of that outage. Operating cash flow and free cash flow, I'll talk to together. So only a slight movement there in operating cash flow of $14,000,000 down to $338,000,000 for the year. If you look at actually the core drivers, receipts from customers, less payments to supplies and employees actually was only $4,000,000 different from the prior year. We did see cash interest $9,000,000 lower at $51,000,000 and cash tax is significantly higher. So cash tax is largely explaining decline in operating free cash flow from $352,000,000 to $338,000,000 Free cash up largely on the back of much lower CapEx expenditure. So CapEx almost half of what it was in the prior year. We had no drilling this year, and we did make decisions to defer some projects on the back of the impacts of COVID-nineteen, particularly the refurbishment of the Koto sorry, the Carrapiro hydro station, which is going through essentially a full replacement for turbines and generators there. So that was delayed a year largely due to COVID-nineteen and concerns about factory inspection testing and the ability of overseas contract to deliver that well given the challenges moving into New Zealand. A big year of growth investment, driven mostly by Turatier at $194,000,000 So Turatier, dollars 151,000,000 spent in 'twenty one, taking total project spend to $335,000,000 We did make an investment into Energy Source Minerals. So that's the holding company for the project that's looking to extract lithium from the brine at Hudson Ranch. We also invested $11,000,000 into now broadband during FY 2021 and spent around $20,000,000 on the Rotokawa upgrade, which should see us increase output at Rotokawa Power Station and Nawa Puru joint venture by 5 to 6 megawatts, which is in play now. So a good step up there and good to see progress at Tiriti. Dividend up 7.6% on the prior year to $0.70 a share. So looking at just over $230,000,000 of dividends declared in FY 'twenty one. Turning to the bridge of earnings. We can see we start last year at $4.90, end up at $4.63, dollars 27,000,000 lower. So lower generation volumes worth about $14,000,000 Probably the key takeout here is the effect of spot prices. We look at the combination of fixed price variable volume purchases plus derivative settlements. We've got a doubt of about $489,000,000 versus the impact to generation, which is positive $441,000,000 So that's probably the biggest impact, particularly evident in the last couple of months of FY 'twenty one. The other big takeout here is the lifts in yields. So we're seeing around 7% lifts in customer yields. That's from mass market through C and I, so some strong growth here and a lift in actually the total sales position. Position. So total sales up over 200 gigawatt hours in those segments. So a fairly comprehensive bridge there for our EBITDA debt performance in 'twenty one. And I'll hand back to Vince for Slide 6. Thanks, William. So Slide 6 covers our key performance indicators going from the top. Look, we've been really pleased with how strong the Mercury brand remains in terms of consumer awareness. And that has been proving out as we've launched our moves campaign over the last couple of months, which has seen some retention benefits where we're not tending to lose as many customers as we were previously. The net promote score remains firm. And as I say, churn, we are seeing declines in churn as we have launched our moves campaigns. With respect to our partnership column there, we're really pleased that the Climate Change Commission's final advice continues to support electrification as a way of decarbonizing. And that from our point of view is the right way to go. We see the rollout of renewables supporting wider decarbonization as the key thing that needs to occur. We've engaged with the New Zealand battery project because we think it's important that there is a broader discussion than just a discussion about Onslow, but a discussion that considers all of the ways that as New Zealand we can decarbonize and the role that electricity plays. I note that Turatiya, whilst delayed, we have now had first energy from that project and I'll talk a bit more about that subsequently. On a health and safety and employment side of things, look, we've had a good year from a health and safety point of view, but of course, we always realize that you're only as good as your last incident. What has been really pleasing is our focus on human factors as well as process factors. In terms of shareholder returns, again, good shareholder returns at a TSR of above 45%. We've talked about the dividend. But importantly, we are creating a platform that will transform the future. So turning to the health and safety slide. I think the main focus here for us is, as I said, not just the ability to have a lower trifa or lower incidence, but much more importantly, the focus on human factors. Because as I say, as performance and process improves, people do make the difference. We'll continue to look to do that because when you come to health and safety, the last line of defense is always the culture that you have in the business. This year, very importantly, we've refreshed our strategic framework. So whilst we've retained our long term 2,030 ambitions and goals, we've got really focused on what our 3 year objectives look like. Last year, I talked about the Thrive project that had been underway for some time, and we're now starting to see the benefits of. And you'll see in the 3 year objectives, we have 2 halves to the center circle there. 1 being thriving today, about the activities that we will undertake to create that thriving environment and the other being shaping tomorrow. Particularly, want to draw attention to the objectives within that circle. So our thriving today objective is to increase the value of our business to a $700,000,000 EBITDA ref over the next 3 years. And the TILT transaction obviously helps that platform. But we think it's really important to in achieving those financial outcomes to enhance our license to operate. We are really focused on collaborating with our stakeholders, whether they be eWe or regulators or whether they be government and customers. We think this industry has a lot to offer New Zealand and Mercury can play a leading role in this space. We also want to unleash the full potential of our people and that is done through a culture where people can really participate and see the benefits that are achieved through their efforts. So that's thriving today. Shaping tomorrow is also really important. The role that this sector of mercury will play in decarbonization in New Zealand is critical. And that is the centerpiece of our shaping tomorrow strategy. If we create the executable options for growth and we now have a platform from TILT that will allow us to play a major role in that decarbonization, then both New Zealand, the sector and Mercury can be successful. Of course, to do that, we need to be adaptive and resilient as an organization and responsive to future needs. And our investment in people and processes will deliver that. So that's kind of how we see our next 3 years fitting in with those long term objectives. And of course, if we achieve all of that, we will truly inspire New Zealanders to enjoy energy in more wonderful ways. Moving to the next slide and William will talk to this one. Thanks, Vince. We're on slide 9 now with these four charts here, which I'll just step through. So this really deals with the fuel supply to New Zealand and particularly the fuel supply that impacts certainly the power sector. So we're in the business of energy conversion. So we're talking essentially energy sources, be they water, gas or coal, wind, solar and then particularly converting those to electricity. The first chart shows gas production, key takeouts. You can see quite significant decrease at Paracora. Particularly over the last 2 years, it's you're looking at around about 100 TJs a day from 2 years ago. We're looking at drilling to improve output there hopefully in the Q1 of next calendar year. But 100 TJs a day is essentially E3P and TCC base load continuously. So it's a big impact to the energy system in New Zealand and certainly very important that we're seeing lifts across those most major fields. So certainly, we're seeing some improvements at Maui and Mangehae Wa, which is positive. Again, it will be common knowledge, certainly the imports of coal to drive the ranking units at Huntley have lifted significantly. Certainly, the reliance on Huntley is has been quite significant over the last calendar year, but you can see that those coal prices based on the Indonesian coal index have lifted significantly combined with quite sharp increases in the ETS prices too, which are now around $48 So those coal prices plus carbon means to run Huntley, you're staring at a number that's close to $150 a megawatt hour on coal. So certainly, those fuel prices really driving impacts into the power market. Hydro storage, 55% of New Zealand's power comes from hydro. We can see there against historical averages and historical min and maxes in the blue shaded area on the top right chart, the yellow line skirting along through that late summer, early autumn period, the bottom, the minimum we've seen in the last 20 odd years, that did reflect back into high power prices during that period. We did see quite a rapid recovery through May June as wet conditions lifted South Island Lakes, while it was remained dry in the North Island. So a deep dive into the Waikato catchment and Lake Taupo storage over FY 'twenty one. Again, probably a few points to pull out of this slide on Slide 10. 9% of inflows in the second half of this financial year. The lake typically, we like to bring the lake up to near full over summer as that autumn period is our driest months. So you tend to see, as you can see in the average, that Lake Taupo will traditionally fall from January through to April May. Certainly, the declines there in terms of lake level were sharper and coincided with, as you can see in the table, spot prices at Otahue trending well into the $200,000 So starting February at $2.38 and then lifting to $2.95 by May. The yellow line, we got within, I think, about 15 centimeters from the bottom of the lake. At 10 centimeters from the lake, our resource consents requires us to essentially have minimum flow from Carrapira on the Waikato River that will constrain generation on the hydro system to around 7.5 to 8 gigawatt hour days with Carrapara at minimum flows. Once you hit the 0 operating lake range level, which is 1.4 meters of range, at that point, we match outflows. Outflows from like Talpo will match inflows. So you will see daily generation fall to about 4 or 5 gigawatt hour days, which is quite a significant decrease. If you take June, for example, where you'd expect to be generating around 12.5 gig days in a normal year, so quite a significant decline. Fortunately, that didn't happen, and we did see some rain late in June and then into July. That saw the light start to tick up again. We're now on Slide 11. Really a couple of things here, talking about our sales position to customers. So certainly, Mercury is certainly aware that the impacts of the high fuel prices into the power market are impacting certainly impacting customers, particularly the Commercial and Industrial segment with repricing at circa futures levels occurring. Mercury has committed to that market, and we see that we've stepped up our sales by and then in this chart here, by about 400 gigawatt hours ignores some of the buying contracts. So we have committed strongly to C and I, and we've eased back in terms of mass markets, which I'll talk to more in the next slide. You can certainly see a market in the pricing chart around channel yields. You've got futures prices, spot prices well above the net yields that Mercury is selling into mass markets. So certainly, it's a challenging market for retailers. It's a challenging market for Mercury. And with ICPs down circa 20,000 in FY 'twenty one on the back of a 28,000 decline the year before. So we did make decisions to sign longer dated C and I contracts. The consequence of that in the front end is that they're out of the money. And so that does that did impact profitability for FY 'twenty one. But as the heading says, some short term paying for longer term gain on those contracts. Slide 12. This really focus more on the churn, and that's largely driven by our mass market business, our retail business. It still remains fiercely competitive. We're certainly seeing competition both in terms of just raw pricing, but also in terms of bundled offers. National churn remains above 20%. We are very focused on value for our customers. And certainly, the high price environment is creating some challenges there. As I said, 20,000 customer loss in terms of market share during FY 'twenty one. Terms of market share during FY 'twenty one, but that is more than offset by increased sales into the C and I segment. You will have seen, certainly, if you live in the city, the Mercury Move campaign has been pretty bright. So the words of Coldplay and the song yellow was certainly true here in Auckland. There is certainly a lot of yellow signs promoting the Move campaign and certainly we're very proud to see some of the successes of that coming through in terms of increased or decreased net churn. So you can see the yellow line starting to trick up towards the sort of net neutral zero mark. So we're expecting to see more of the above. Also some more targeted offers into those mass market segments helping that net churn figure. But I'll hand over to Vince. Thanks, William. So we're now on Slide 13. So, Cowal Outage, as William mentioned, from the 7th June to 20th July, clearly a significant loss of 100 megawatts in our portfolio. Ultimately, the result of a loss of lubrication oil to the generator and steam turbine bearings, and that really resulted in the destruction of the generator and steam turbine rotors and also the exciter. Couple of key things really, the availability of critical spares was really seeing the benefits of that. Our ability to bring the plant back in such a controlled and quick and safe way was down to the abilities of the team, both internally and contract rule wise and having those spares. One issue that we did face was that the Exciter, we did not have a spare for the Exciter. And had we had to rely on an overseas manufacturer, we would have seen a 5 month further delay in that return to service. But a small engineering company in Coalau called Millbank, who we want to give a shout out to, we're able to manufacture a new exciter in 5 or 6 weeks, such that that didn't really become the critical path to return. So it was a fantastic outcome that we have that sort of capability in New Zealand. And I think a bit of a lesson in this pandemic world about being able to look after yourself. I mean, we obviously have had some lessons out of this, as there always is, and we've taken actions to prevent reoccurrence of the fault of this nature, including the review of systems at other similar stations that we have and obviously also sharing this knowledge with through the manufacturer as well. Insurance remains under discussion. We also had an important relationship with Norskirk Tasman and on the closure of the mill, we've negotiated nearly exit from a foundation hedge that have been in place for a long time. That has the result of reducing sales and a $10,000,000 net impact expected in the coming year as part of that termination settlement. It does obviously though releases that load for our future use. On carbon, we chose to exercise the ETS fixed price as others have done and to at a total cost of $8,000,000 in FY 2021 at a $35 per unit versus the current price of circa $50 per unit. We also purchased $700,000 emissions credit through the government auction process and currently have an inventory of $2,200,000 credits. Turning to Turatia. Well, obviously, Turatia has been a challenging project as we talked about previously. We are feeling that at least with North, there is some light at the end of the tunnel, some real potential to see the energy turn up. And we have now started commissioning with 27 turbines erected of the 33, and we expect EBITDA contribution to start coming as we commission that part of the wind farm. Still with the target for total completion in the last quarter of this calendar year. Turretia South though remains challenging from a civil's perspective and those of you that are looking at the presentation will see the lower picture there and the size of some of the civil work that needs to be done. We continue to work with Vestas and their subcontractors to look for ways forward that can bring forward the completion date from that mid calendar 'twenty three date. We note the Turotia spend and that the total project cost is forecasted at $464,000,000 in line with guidance. Opportunities we had in this financial year was the sale of TILT business. And I'm on slide 15. Ultimately for Mercury, our desire was to continue to see TILT grow. But faced with the reality of the business being sold, we worked hard to find a partner that we could work with and capture the New Zealand assets. That resulted in the process we've described previously in releases with an initial successful bid of $7.80 per share subsequently increasing to $8.10 in April. But we can feel really pleased by the contribution that investment has made for us with our 19.9% shareholding costing $144,000,000 selling for $608,000,000 adding the debt and ending up with the New Zealand assets. As I said earlier, this adds over 1100 gigawatt hours of wind generation and the development pipeline. Alongside TILT and Genesis, the PPA for Omomari, now known as Kawakawe. This is, I think, a very important thing. Right at the start, when we said we were acquiring the TILT assets, we said we were taking really seriously the role that these needed to play in the decarbonization of New Zealand and work with both competitors and others to see this pipeline rolled out. We're really excited that we'll be able to start that journey with Genesis and are pleased that they and TILT and ourselves were able to get this PPA signed. Turning to our other acquisition activity, obviously, Truss Power retail acquisition. Whilst we didn't expect this to necessarily come to market when it did, we were determined to participate sensibly in this acquisition and are pleased to be successful at $441,000,000 which gives us the retail business, a electricity supply agreement, the ISP network and is contingent on the Commerce Commission approvals, which are now in process and the restructure of the TECT rebate arrangements. There's still a fair way to go and the exact timing of completion of this transaction is at this point uncertain. However, we do forecast significant synergies on a cost side and also expect to be able to see revenue upside as we become a truly bundled offering in the retail market. The full year contribution of $50,000,000 will be offset by $30,000,000 of transition costs in year 1, but of course, we don't yet know when year 1 will start. Now I'm going to hand back to William to talk about continuous improvement and Thrive. Thank you, Vince. So we're on Slide 17. And really, I just want to talk about Thriving today and Thriving tomorrow, which comes straight from our strategic framework. So Thriving is a continuous improvement program. A lot of it is about the way we work. And certainly, this slide lays out some of the initiatives and cultural changes we're making inside Mercury to ultimately deliver that 30 mil uplift of value in FY 'twenty 2. So you can see here there's a schematic here. This is the digital river. This is an initiative that is now running. Essentially, this is a sophisticated hydraulic model, which can model generation across the Waikato system, looks to optimize unit dispatch, multi day, and it's a hugely valuable tool to help our traders and dispatchers essentially extract maximum value across the river catchment. So we're really excited about some of the gains that, that Digital River will help our people to actually run those hydro assets better. Morota tailwater lowering, we've got some operating restraints. Waipapara is the smallest station in the on the Waikato chain. It's downstream of Morata, which is by far the largest. And essentially, by looking very carefully at the operating constraints and ensuring that assets are protected, we can essentially deliver greater peaking from Muratai for longer by managing those constraints better, while managing the physical risk to plants. So that's also quite interesting in terms of how that will influence, say, GWAPS for the Waikato River. Wakapuwai, culture change program, so we've touched on that. It's really about how we do our best work together and align essentially our culture with essentially the performance mindset. Moving to more rapid cadence around quarterly planning, business planning, again, to really allocate resources, both people and money, to the things that really matter to the firm. So that's something that we're very focused on as a leadership team and with our senior leaders across the business and how we work, with our people. Derivatives trading looks pretty exciting to us. We think we do have a competency here. So looking about how we might leverage that outside the core products of power, potentially into carbon markets, etcetera, is something we're exploring further. Around the procurement space, some nice wins around manual meter reading. We were just reviewing how that's who supplies that under what terms and optimizing our meter reading runs given 15% of our meter is still non smart and some of those will never be smart. Gas meters are still manually read. Class III outage reviews. So these are reasonably significant outages, certainly less than Class IVs, but really moving and analyzing condition based maintenance versus time, having a really deep dive review around scope and what actually gets done to essentially minimize both the scope and time frames for undertaking those Class III outages, which occur periodically every couple of years. So net of that is a $30,000,000 benefit forecast in 'twenty two, split approximately onethree OpEx, twothree revenue. Now on Slide 18, really just touching on guidance again. So EBITDAF for FY 'twenty two at $590,000,000 that's reflecting hydro generation of 3,900 gigawatt hours. So that's 150 gigawatt hours less than our mean hydro, which we're now starting at 4,050, reflecting refurbs that have been undertaken on the river. That does exclude any contribution from the Trustpower retail acquisition. As Vince says, the timing of that remains still uncertain or any insurance proceeds from Koto or any LDs related to the Teruatia project. Our dividend guidance sitting at $0.20 so a 17.6% uplift on FY 2021 or $0.03 a share with same business CapEx of $70,000,000 So a pretty comprehensive and detailed bridge there taking us from today's actuals through to FY22 guidance at $590,000,000 And I'll hand back to Vince to close part of the presentation. Thanks, William. I'll just close on Slide 20. And Slide 20 is a photograph of the Turatiya North site. And I think you can see there that it's a pretty impressive site. We just now bring that all to fruition and deliver those important gigawatt hours. So that concludes our presentation. Although I do want to note a couple of further things that over the last few weeks, we've been joined by Stuart Hamilton as our GM of Generation and Craig Nootroski as our GM of Customers. So we now have a fully fledged executive team who are really all set to go and hit the opportunities that we have created within the Mercury business. We also have the benefit of Dennis Barnes joining us as a Director in September. And I think that will again add to the quality of debate around the Board table as we transition to that net carbon neutral future that we all aspire to. So with that, I'll close and operator hand that back to questions. Thank you so much. But your first question today comes from the line of Andrew Harvey Green from Forsyth Bar. So please ask your question, Andrew. Thanks, operator. And good morning, Vince and Will. A few questions for me. First of all, just around obviously the last couple of months of the year were pretty tough given where hydrology went and wholesale prices were. Are you rethinking your risk management strategy given the downside risks of being short on the current environment has gone up? Yes. Look, I think hindsight is a wonderful thing, isn't it? And I think if you look at the graph on Slide, give me a second, Slide 10, if you look at that, I think the story to draw from that is some of those decisions and you look at the pricing, some of those decisions would have had to been made in the last quarter of the calendar year in that sort of October, November time. And we'll certainly be thinking quite carefully about that in the scenario work we do around thinking about where the lake can be. But ultimately, I think, yes, hindsight is wonderful. Would we have done some things different? Yes. Will we think about those differently in the future? Yes. And I guess the follow on question from Matt is any implications for what underlying earnings might be if you, I guess, take a bit of risk off the table, presumably that does have come with a bit of a cost? Yes. I think we're still comfortable that we've given guidance based on our ability to manage things. Yes, sure. Okay. And second question is just, I guess, around some of that guidance and noticed we've got the tower of our insurance and liquidated damages potentially. You want to give us a bit of a sense on what the potential might be across those two things? And I guess sort of wrapped up in that is the extent that liquidated damages might be impacted by sort of any renegotiation on Turitia South, any sort of I guess update on those negotiations? William here, Andrew. Yes, so both of those discussions are ongoing. Turitier damages, we're still focused on getting plants running and commissioning. We keep engaging with Vestas on those. They're confidential. We're not going to talk about those in a public forum. But yes, they may not even come to fruition in FY 'twenty two, given the project actually doesn't complete. We're not expecting completion until mid 'twenty three anyway. On the and on insurance and Caravel, same thing. It's still early days with insurers working through what that might mean and what the full extent of the claims will be. Most of that claim will relate to essentially repairs and replacement of damaged equipment. There will be a little bit of BI potentially given a 30 day stand down for insurance, and the outage was 2 weeks longer than that. But again, those discussions are still ongoing. Yes. Okay. And last question for me was just around the investment in now broadband and the timing of that. I'm not familiar with it. So I'm interested in, I guess, note in terms of the scale of that business around, I guess, fiber connections and how that fits in strategy wise with the Trustpower transaction? Yes. So the Now investment occurred in the well, prior around the sort of Christmas period, prior to Christmas, this last year gone. Of course, we made that investment without any knowledge of whether the Trustpower business would come to market. Now has got sort of circa 16,000, 17,000 connections. It's got an operating base, which in terms of an ISP network aggregation operating center. It has quite a well tuned ability to deal in small to medium enterprises as well. Our investment in that, we're not the 100 percent owners of that. We invested with the original investors. And I guess anything that impacts on that vis a vis Trustpower will play out once we know the outcome of the Trustpower process. So it's kind of difficult for us to make any assumptions around that. At this stage, we still sit and await the Commerce Commission process. Yes. Okay. That's all for me. Thanks. Your next question comes from the line of Grant Swinpaugh from Jarden. First question, is Trustpower still on track to be done at the beginning of calendar year 'twenty two? Well, again, Grant, it's really down to the Commerce Commission and Teck process. Well, we know that Teck have a court date in November. We don't know how the judge will then proceed to give his or her opinions on that. And we know that the Commerce Commission process is underway. And so I guess our sort of working assumption is it will be early in 2022 and but we're not in control of that process. Thanks. And I think it's pushed out since the deal. Second question, the $35,000,000 in the guidance for Tuticor, how many gigawatt hours are you assuming from that plant? It's essentially assuming full output from October, whatever that comes to. So that's what 3 quarters of 470. Thank you. North Kuskogg, that $10,000,000 payment, is that assumed in your forecast for FY 2022? And is there nothing left in there for FY 2023? Yes. So you can see there's a note in our at the back of our annual report around that deal. So essentially, that's that just reflects the impacts in terms of earnings. So essentially, that foundation contract has been terminated, but we've acquired some other positions from Norske given they have ceased operations here in New Zealand with a net effect of essentially decreasing our sales position. That just washes through in some of the uplift for FY 'twenty two as you sell it into the market? Correct. You don't specifically disclose it in your guidance? No. Thanks. The $30,000,000 TILT net, can you just explain to Ms. Layman on how the $14,000,000 associated accounting for March year end is ripped out in FY 2022 EBITDA? So for TILT so at the moment, we're recognizing we were recognizing TILT as essentially an associate. So you're recognizing your share of profits and other income. So that equity accounting goes now given those we're not a shareholder in TILT, but since we recognize the uplift of since TILT's revenue, which is 45,000,000. So 45,000,000 less than 40,000,000 gets you to about $31,000,000 Okay. Maybe offline can give you some more detail on that. And final question, that SaaS $10,000,000 expense in your cost line, is it an ongoing or is this a once off? No. Essentially, with software as a service, where you are modifying essentially mostly cloud systems, where you don't actually control the software, it's still provided by essentially a third party. While historically, we would have capitalized that as IT costs now essentially all going to OpEx. So essentially, you've just got a substitution out of CapEx into operating costs. So that is ongoing, but it will depending on the level of customization and change, it will fluctuate over time. But we're talking single 1,000,000 unless you're investing significantly into a cloud platform. Yes. We've been an early adopter of that, Grant. So it'll flow through for all businesses that use software as a service, cloud platforms. So I think you're going to get it a lot with most large New Zealand corporates are going to possibly most will wait until this financial year to recognize us. You'll see it appear at the interims, I suspect. Thanks, Will. Thanks, Vince. Okay. Your next question comes from Jeremy Kinkade from UBS. Please ask your question, Jeremy. Good morning team. Just two questions for me. The first one around the full refurb of Calipero. Is that in the $70,000,000 of stand business CapEx? Or is that growth CapEx? No. It's inside stand business. Essentially, just it's maintenance or it's maintenance of existing stations. Yes. And it will flow into subsequent years. Yes. Because it's a 5 year program. Sure. Okay. And then my other question is, I'll just be interested in your thoughts around the outages of last week and obviously there's been some industry commentary around changing the market structure such as introducing capacity markets or breaking up the gin tailors. I'll just be interested in your thoughts around that. Last Monday night was an incredibly rare event. Last Monday night was an incredibly rare event. I can't recall in the last decade or so an event of that nature. I think as these various investigations get under the hood of what actually occurred, what will sort of emerge is that some of the communications that were associated with that day probably led to actions that were unnecessary. And certainly in our case, we were very particular about the outages that we had that day as the day played out and brought plant back. We had what we believe to be a record generation peak from our Waikato stations on that evening. I think we've got to be really careful about conflating a meeting of a peak demand, which has a number of issues playing out and some sort of other problem associated with decarbonization and renewability that I think you've got to sort of separate those things. I think you've got to be really careful about reacting to one particular specific event and say that now is an indicator for major structural change. Structural change. We need to be really aware that when you make changes that are structural, they're not quick to do because they have to be properly implemented and they're not easy to unwind. And if you want a completely different but parallel to that, look at the issue around low user fixed charges and how long that argument has been going on about unwinding those. I think in this case, we have careful finding a solution for a problem that will, I think, become perfectly explainable. Now in terms of vertical integration and things of that nature, look, right from the late '90s, we've had vertically integrated businesses and we've seen lots of regulatory and market change and that has served us really well in terms of managing investment risks. And it's very easy to fire a gun at vertically integrated companies. But ultimately, if we stand back from this and we want to achieve electrification of New Zealand that delivers a net carbon 0 outcome, then we need investors to step up with large amounts of money. And just looking for Mercury, dollars 450,000,000 at Turatiya in a project that will run for 30 years, You look at the Omomari project or Kawakare project as we call it now, it's another investment we are proposing to make. Look at the refurbishment on the Waikato River to ensure that those assets are intergenerational. That sort of deployment of capital is enormous. And I think the last thing we want to do is make that something that people start to get nervy about. I think we've got over the TY hump and we don't need to create another hump. That's very clear. Thanks very much. Your next question comes from Stephen Hudson from Macquarie Securities. Just a couple of quick ones from me. Just in terms of Slide 15, where you run through the development pipeline for TILT, I just wondered if that was the full extent of that pipeline or whether or not there may be other sort of prospects at less mature stages of development. Secondly, just on the Norska hedge, is 5.17 sort of gigawatt hours from 2023 the number that we should be thinking of on an ongoing basis in terms of capacity laid open for you to sell into CFD market from here? And just on ANZESS, I just wondered, Vince, if you could give us a bit of an update on your working assumption on that asset post 2024? So I'll start with the first one, Stephen. Look, we've only put on this chart those that are in the public domain. You would expect us to keep some of the other things in there closer to our chest at this point in time. And I do note that this Slide 15 is about the tilt assets. Of course, Mercury itself has others and we've talked about Tokutoy in the past. And so if you start to add those 2 things together that I think is pretty positive. On the one about Cowara, I'm going to throw to William in a moment. On the in terms of the aluminum smelter, I guess I take the view that as time goes by, the energy industry in New Zealand is more able to factor in whatever that outcome is because of the certainty that we are heading towards net carbon neutral in 2,050. But look, my understanding and you've done far more work on this than I have is that they're not doing too badly at the moment. And I think the observation I would make is if we go back to the global financial crisis, everybody sort of dumped the idea of being environmentally clean or net carbon neutral or any of those things got dumped in the face of the financial pressures. We're just experiencing a global pandemic where even in the face of that, I think most businesses now are still keeping track to greening their position, if you like, or being less carbon intensive. And I would have thought that that smelter will sit very importantly in Rio's thinking around how it wants to position itself in the next decade to 20 years. I'll pass to William for the other question. Yes. So on the Norskisorg deal, essentially, the foundation the hedge long term hedge arrangements with them were an 80 megawatt contract, so 700 gigawatt hours a year. So essentially, we've inherited a 400 odd gigawatt hour position for this year and 200 next year. So those numbers in Slide 13 of 375 and 517 essentially the assuming you were going to hold your net position the same as at the same settings it is now, that would be available to 60 sell back into the market. Your next question comes from Cameron Parker from Craig Investments. Just a couple for me guys. Just going back to Andrew's question with regards to risk mitigation and so forth, are you or would you think about engaging with Genesis over dry year risk and soon we'll back up given the absorption expiries coming up in 2022? Yes. Look, I mean, we'll engage with anybody in the market to work through sort of risk management type issues. And I hope we have demonstrated with our support for their FutureGen project that we're not taking all our toys home and playing on our own. We think this is all too big for that. So if there's a sensible thing to be done around that, of course, we'll engage. Great. Thanks, Vince. And how should we be thinking about the new PPA signed with Genesis and commencement of that and also the Terra repowering and so forth? How do you guys think about that? Are they mutually exclusive or? Well, I think every look, at the end of the day, I think every deal that we choose to do stands it's got to stand in its own merits. So ultimately, we're comfortable with the PPA that's been signed and there's a fair bit of work to do to breathe life into that project and we'll get on and do that. We've got the benefit of the people that came over who the tilt staff that have come to Mercury as part of this in New Zealand. In terms of Taruru repowering, I mean, ultimately, there's a fair bit of work to do there. It's a real option. And but it needs to be considered in as you would any of those things about the upside benefits vis a vis the ongoing revenue streams that come from the current installation. And we've got to get right underneath the bonnet of that one over the coming months year or 2. Just like all the other projects, we've got the opportunities to do. It's definitely a big pipeline for sure. And in terms of the Turitea South, I was just wondering that there's a little bit in terms of slippage and so forth, there's a little bit going on in that area at the moment. You're thinking 2023, is it what's the probability of a potential further slippage of that, do you think? Look, I'd say that the only certainty is whatever I say will be wrong. Having visited the site a few times, it is a major civil undertaking. We obviously have some disputes to deal with our provider. But when you travel around that site and see the amount of material that's being moved, I would still feel that there is some room to improve somewhat. But we have to find a way through that conundrum with our contractor partnership and we haven't resolved that yet. So we are talking positively like all of these things as William said earlier, you start with saying there's one stream of work that says just let's get the project finished. And if everybody is in that mindset, that's good. There's another stream of work that says, well, everybody is going to get their boxing gloves on ready for the punch up if you can't resolve a situation commercially. And that's going on as well. But we are we're pleased to see the sort of goodwill that the contractors are bringing to this challenge. So when there's goodwill there, you can remain optimistic. Great. Thanks, team. That's all for me. Your next question comes from Eamon Rood from Energy News. Going back to Trustpower and the NOW Broadband acquisition, can you explain maybe elaborate on what the retail strategy is going forward and those revenue upsides you alluded to earlier? What when do you expect those to translate into an increase in earnings? Yes. Look, it's a difficult question to answer for a number of reasons. One is we're not in control of the closure date of the Truss Power acquisition. And because of that and because obviously it's subject to Commerce Commission review at the moment, we don't want to get a hold of that process. We respect that process deeply. With respect to now, well, we have a plan. That plan will eventuate, but I don't really want to flag that for all of our competitors on this call. Okay. Thank you, Vince. Okay. And your last question comes from Neville Gluis from Jarden. So please ask your question, Neville. Good morning, guys. 3 for me. First one, just on the next generation timing. I'm assuming Kaewakau A, we'd be looking at FID, decision around that this year. If that's the case, should we expect you to look at another project FID next year? Obviously, you've got a suite of options in front of you. Or should we expect to pause in terms of the next investment decision perhaps for the following year? With the Kawakawe 1, look, I think we have a process to get through to FID, probably not in a position to disclose that just at the moment. I think we would want to do that in partnership with Genesis as we get as we work through what needs to be done between now and then. And of course, part of that is the resource consent, which is currently being considered. And as you'd well understand, Neville, the resource consents sometimes can put a bit of a curveball into these processes. And so whilst there's been a lot of work done, we're not in a position to pick that one out. But I think we all know that if we're going to reach the big picture targets, we're going to need projects closing every year to 18 months or so. We didn't buy the TILT pipeline or make the investments we have into Phuketoy just to sit on our hands as the environment has changed. So as I think everybody said, we're sort of poised on the cusp of significant change in the sector with renewables rolling out. And that's why I suppose I've been pretty clear that I wouldn't want to see sort of regulatory changes, knee jerk changes that actually put that at risk. Okay, great. Thanks. I'll get you to choose which of your children is favorites, whether or not Pukutto, Ataru, I want to do. But if you wanted to offer sort of what you thought the next decision would most likely look to be which one looks most prospective next? No guarantee. Look, you can ask my kids. I don't pick favorites. Very good. Okay, next question. Demand response, it seems to be absent from a lot of the discussion around how you work in a highly renewable power system, when your competitors contact keen to sort of grow a product there. It seems to be important for the market as a whole. Do you have a product and push there? I'll start to look at again, Neville, I think the short answer is we haven't done as much work as it appears that contact have done in that space and I sort of commend them for bringing that forward. But we do talk to our larger customers quite a lot about what they want. So demand response is going to be important, isn't it, as we transition over the next couple of decades. I think what's also important in that is that organizations do also want to be focused on their core product. So as a business, you're not actually in the business of demand response in most cases, you're in the business of doing something. And that's usually pretty important. So I think there's an important balance to be worked through there, but I'm sure we'll get engaged in those conversations. Just a quick follow-up on that. I mean Sorry, Neil, just on that. I mean, we would normally I mean, putting a commercial industrial customer onto a spot contract creates the demand response automatically. So certainly, Mercury has been a vocal proponent of essentially separating physical supply from hedging. And so the customer does have that incentive when prices are high, when they're on spot to actually make those decisions in real time themselves. So you don't need to have a special product necessarily for that to occur because they can enjoy the benefits of the hedge and reduce their physical exposure and therefore reap some benefits of that as a product. I think too the lines company is probably hot water control is probably not as it's not a focus like it used to be. It's definitely not as prevalent. And that is a very low cost way to essentially provide interruptible load for reserves or for demand management. And so that's probably another avenue that's certainly worth exploring. But yes, it's certainly more cost effective for a distributor to do that than a retailer. Right. I guess in both cases, this may be one of those situations where it takes the now some focus of a generator to or generatorretailer to bring those products to fruition, whereas alliance companies or industrial perhaps don't see the difficulties and perhaps don't see a clear path to how it could be achieved and maybe not well positioned to gauge what the benefits will be out of a future electricity market. But yes, we'll wait and see. 3rd question, last one. Obviously, with the acquisitions, Trustpower, TILT and Turotar and I guess your commentary about the software as a service approach, it'd be useful if you can give us kind of an update of what we should think about in terms of staying business CapEx when you're populating evaluation model, say, for this decade. How should we think staying business CapEx will look assuming you get completion on Trust Power, merge everything together and operating going forward. Can you give us some figures or can some parts of that? Yes. So obviously you've got a with a changing mix of generating plant and then bringing in Trustpower, key synergies, CapEx is shared between the 2 retail businesses. But you've got an ISP that currently don't have. Yes, I mean core business is still driven by essentially large scale refurbishments, the drilling program. Wind is CapEx requirements of wind, again, depending on the O and M arrangements, can be modest because they're largely contained within the maintenance agreements. We're still in terms of Mercury's core business, Solms, Truss Power, we're still looking at CapEx in the sort of medium term of $90,000,000 a year. But that will be bumpy depending on whether you're drilling or not. Right. Yes. So that's sort of average with the drilling's average out. And sorry, that excludes Truss Power, did you say? The Truss Power retail business implications? Yes. Right. And how do you think we should think about that once you've got your synergies in place? I think in the past we've talked and it was predominantly around the systems as I recall for Trustpower for the retail business, which I imagine will be replaced by software as a service as a cost line. But I have $15,000,000 to $20,000,000 in mind per annum. You just got to be careful you're not doubling up. Exactly. Well, you've got cost synergies on Slide 16. You say cost synergies at $35 per annum after transition. That's cost in a dollar sense as opposed to just operating costs because clearly, what you're investing in So maybe we could assume sort of 5 to 10 you think once synergies are in place? Yes, both businesses are spending, let's say, round numbers, 15 apiece in capital expenditures on IT systems. So it's going to be bigger than the combined will be bigger than 15, but less than 30,000,000. Okay. I know that's useful. And the Turitier, with both projects running, if we thought sort of $5,000,000 to $10,000,000 Does that sound like a sensible number? Again, averaged over sort of cycles of maintenance. Yes. It'd be smaller than that because it's mostly contained within the O and M. I mean, as the plants obviously age, it's that you'll you potentially get a higher CapEx profile. But certainly, early on in the project, it's largely contained within the maintenance agreements with OEM. Okay. There are no further questions at this time. So with that, I'll hand the conference back to you, Vince, for any concluding remarks. Thanks, operator. Thanks, everybody, for all the questions. It's really helpful. Hopefully, we've cast some light on last year and also some light on what to expect down the track. And we look forward to continuing our discussions with you all in the future. Thanks for attending. And we'll sign out. Ladies and gentlemen,