Earnings Call: H1 2021

Feb 22, 2021

Good morning, everybody. Welcome to the Vectrus Limited Conference Call and Webcast to discuss the company's financial and operational results for the half year ended 31 December 2020. I must advise you that this conference call is being recorded today. And now I can hand over to Vector's Chair, Jonathan Mason, who will take you through the call. Please go ahead, Jonathan. Good morning, everyone, and welcome to Vector's results briefing for the half year ended 31st December 2020. My name is Jonathan Mason, and I have been Vector's Chair since last September. Joining me on the call today is Group Chief Executive, Simon Mackenzie and Chief Financial Officer, Jason Hollingworth. A reminder that as in recent briefings, we are not intending to go through a detailed page by page recital of the investor material. Rather, we want to provide insights into what we see as the key aspects of the results and allow more time for Q and A with you all. I will begin today's presentation with a summary of the dividend for the half year, then hand over to Simon to provide an overview of the key aspects of the results. Jason will then comment a bit more on the numbers before Simon takes us through the performance of each business segment prior to closing with a short statement on Vector's outlook. We will then be happy to take your questions. On to dividends. The Board has determined that the interim dividend for the half year will be $0.0825 per share. The dividend is partially imputed at 10.5% and will be paid to shareholders on the 8th April 2021. I would also like to mention a few key highlights, some of which Simon and Jason will elaborate on. The Climate Change Commission's draft advice, which was released earlier this month, underlines the Board's confidence in Vector Symphony strategy. The Commission's focus on the criticality of decarbonizing transport highlights the importance of electricity distribution companies and their role in enabling this transition. For some time, Vector has been investing in innovative technology and solutions to make sure we are ready for the changing demand patterns and increased need for electricity. We are well placed to deliver exactly what the commission is calling for. This part of the report is positive for Vector and as I said, affirms our strategic direction. With our experience and investments, Vector will be at the center of the efforts to electrify transport and make the New Zealand economy more sustainable. We have an important role to play in New Zealand's economy in the coming decades, particularly given our place in Auckland, the largest and fastest growing city in the country. As we consider the commission's advice around gas, our focus will be on how we ensure reliable and secure supply for customers until a considered transition plan is in place, while balancing customer and shareholder expectations. We are continuing to review the commission's draft advice and will be providing feedback during the consultation period. During the period, we achieved a significant 21% improvement in SADI, which is our network reliability score for our electricity network. This great result is primarily due to our vector teams and field service providers delivering innovative solutions and working extremely hard to improve customer reliability. Gross capital expenditure was up 8.6 percent to $260,700,000 this half year, which reflects ongoing investments in METER deployments in New Zealand and Australia and our efforts to improve the reliability and resilience of our networks. Before I ask Simon to elaborate on these highlights, I'd like to acknowledge that like many other businesses in this half year, we face significant disruption due to the COVID-nineteen pandemic. I would like to thank the Vector team and our partners who have exhibited resilience and adaptability time and time again. In the context of these conditions, our result today is even more pleasing. I will now hand over to Simon to provide more detail on these highlights and to discuss additional insights into the half year results. Simon? Thanks, Jonathan. The first half of the twenty twenty one financial year has been positive. Despite the uncertain conditions, we are operating in due to the COVID-nineteen pandemic and the new default price path 3 regulatory settings. Vector has continued to perform steadily and to advance our Symphony strategy. Throughout the pandemic, we have implemented robust protocols to protect our essential workers and ensure reliability of our services to the community. We are continuing to refine these protocols and are currently talking to the government about access to vaccinations for our essential workers. Recent developments in Auckland and Melbourne have further highlighted our need to be vigilant. We've also engaged with Doctor. Rod Carr from the Climate Change Commission, and as Jonathan said, we are reviewing in detail the draft advice that was released earlier this month. It's absolutely important to remember that this is draft advice that there are a number of steps before the government announces any decisions and policy changes later this year. Decarbonization is a key component of our overall Symphony strategy through both enabling customers and the development of innovative energy solutions and technologies. The Climate Change Commission's draft advice, particularly around the electrification of transport, aligns with our direction and efforts over the past few years. A workaround in our network, our customer EV trial means we are well advanced to manage changing loads and behaviors on top of investments in digital technologies to support these. We have purposely built capability, evolved our culture, and forged partnerships so we can deliver our strategy. There is a huge opportunity before Vecta to enable our customers and to help New Zealand as a whole to transition to a very different future of energy. For Vector staff, our partners here and overseas, it's a really exciting time. But we can't lose sight of affordability and resilience as we transform the energy market. The centrally planned model with remote generation will not serve customers or the environment well, and Victor's view is that locating generation and storage close to where the demand lies will result in much better outcomes for customers not only in terms of affordability but also resilience and mitigating some of the climate change impacts. Gas as you will have read has been highlighted given the draft advice is to stop new connections from 2025 and a transition out for existing connections around 2,050. Our view is that the availability of an affordable reliable alternative that customers want will be the critical driver of the final timing. Doctor. Ka has said that barbecue bottles are not included in this transition. We will be making a submission which will highlight how electricity distribution companies can play a vital role for transforming the energy section plus lay out our views on gas. Now I'd like to move to the results from each of our business units. Firstly, our electricity and gas networks. We added 9,804 new electricity and gas connections this half year, which is up 15.5% on the prior year. I think that really underscores the context of the growth in Auckland. We continue to invest at a high level in our network with capital expenditure for the first half at $157,100,000 supporting network integrity and Auckland growth. Many others talk in recent times of investment in the electricity sector, but to put in context, our expenditure over the last 5 years in electricity alone has totaled $1,300,000,000 Overall, electricity volumes were down 1.6% at 4,324 gigawatt hours with lower business volume due to the COVID-nineteen lockdowns, partially offset by higher residential volumes. We are pleased to report, as Jonathan mentioned, a 21% improvement in our system average interruption duration score or SADI as it's otherwise known, which is the measure of reliability of our network. The significant improvement was due to a large program of work we ran internally in collaboration with our field service providers and was achieved in spite of the ongoing challenges of weather, Auckland traffic congestion, vegetation and COVID. To metering, this business continued to grow well in both New Zealand and Australia with 52,000 advanced meters deployed in Australia and 18,000 in New Zealand over the period. This brings our total advanced meter fleet to 1,780,000 with almost 330,000 of these in Australia. I'd especially like to acknowledge our teams in Victoria and New South Wales have shown great resilience through the disruption caused by the pandemic over the year. To support this growth, we invested CapEx of 81,800,000 which is 26% more than this period last year. In gas trading, we had a 3% increase in 9 kilograms LPG bottle swaps for the half bringing the total to 375,271. Liquor gas had a 2.7% decrease in tolling volume, totaling 55,239 1,000 tonnes. Eco Products Group trading as HRV has had a steady start to the year with strong customer interest and positive trading. We did claim a $1,600,000 wage subsidy for HRV when it was unable to operate during Alert Level 4 last year, but this was fully repaid in October 2020. Vector PowerSmart continues to be affected by COVID-nineteen issues which are impacting its ability to access work it has contracted in the Pacific Islands. We are working with government agencies and customers to find solutions to recommence projects. In terms of recent highlights, our strategic alliance with Amazon Web Services announced last year has seen the team hit the ground running. We are working closely with AWS in our Auckland offices when locked ins allow to deliver energy solutions such as the development of a next generation advanced meter platform to reduce the processing time for meter data as well as provide analytical solutions for retailers and other customers. Another highlight is working with our field service providers to complete an asset management project which was launched late in 2020. The new software will allow us to automate the way we track, manage our assets, so we can better analyze our maintenance programs with near real time information. This is already resulting in both cost and resource efficiencies. We continue to invest in cybersecurity working with our specialist global partners as cyber threats grow and become more sophisticated we are starting to provide these services and advice to other businesses, not just in the energy sector. I'd like to now hand over to Jason Hollingworth, our CFO, to go through the numbers. Thanks, Simon. Just moving on to Slide 4. In the past year, Victor delivered a solid financial performance, recording adjusted EBITDA of $273,800,000 up $9,300,000 or 3.5 percent on the same period last year. Revenue decreased 7.4 percent to $647,700,000 largely due to the DPP3 electricity reset, lower pass through revenue, the sale of the Kapuni gas interest to Todd and the impacts of COVID-nineteen. This was partially offset by an increase in metering revenue and higher capital contributions. Capital expenditure in the 1st 6 months was 260,700,000 dollars up $20,700,000 or 8.6 percent on the prior period. This reflects our continued investment in infrastructure to support network integrity, Auckland growth, increasing deployments of advanced meters, commencement of the 4 gs modem upgrades across New Zealand's advanced meter base and increasing stock levels to counteract risks associated with global production shortages linked to COVID-nineteen. Group net profit after tax was $102,100,000 which was $21,600,000 or 26.8 percent higher than the prior year. This is largely due to increased earnings, higher capital contributions, a deferred tax credit adjustment and lower interest costs, partly offset by higher depreciation and amortization. Operating cash flow was 6.8% higher at $271,300,000 This increase was largely due to a number of factors, including higher capital contributions, higher receipts associated with lost rental rebates and also reflecting that the prior year included a distribution of these rebates to customers. Now looking at segment earnings on Slide 5, starting with regulated networks. Earnings of our regulated networks were up $6,700,000 to $195,900,000 with the increase largely due to the retention of loss rental rebates. As indicated at our full year results and in our annual report, lost rental rebates were retained to help limit Auckland electricity customer price increases and compensate for volume reductions as a result of COVID-nineteen. Gas trading earnings were down $6,200,000 to $14,600,000 but after adjusting for the sale of the Kapuni gas treatment plant and associated assets, the result was largely flat year on year with lower natural gas volumes and margins offset by improved performance from the Ongas LPG business. The Capone transaction now appears in the interest line as interest income on the sale consideration. Adjusted EBITDA for Vectors Metering segment was up $7,000,000 to $83,100,000 as a result of continued growth in advanced metered appointments in both New Zealand and Australia. On Slide 6. In the first half of FY 'twenty one, gross CapEx was up 8.6 percent to $260,700,000 The high level of CapEx continues to be driven by investment in the regulated networks and media deployments in New Zealand and Australia. Capital contributions were up 14% to $51,000,000 Regulated CapEx continues to be at historically high levels due to investment to improve the reliability and resilience of our networks as well as higher growth CapEx reflecting the continued growth in connections and infrastructure projects. In addition, given the risks associated with supply shortages due to COVID-nineteen, we've also taken the opportunity to increase the level of metering stock. I'd like to now hand back to you Simon. Thanks, Jason. In our regulated business, adjusted EBITDA for the 6 months to 31 December 2020 was up $6,700,000 or 3.5 percent to $195,900,000 against the prior 6 month period. The increase in adjusted EBITDA was assisted by the retention of loss rental rebates. Under the current regulatory price path, regulatory settings, any decrease or increase in electricity revenue relative to our maximum allowable revenue targets set by the commission can be adjusted up or down through electricity prices as of 1st April 2022. As advised in 2020, given the impact of COVID-nineteen and the lower use of electricity in Auckland, we have changed our approach of distributing loss rental rebates and now we're using these to help limit any future price increases that may occur. This is to smooth the impact of future price increases for customers by using these rebates effectively as a shock absorber under the new revenue cap regime, which we are required to meet by the Commerce Commission. The impact of indirect cost savings and rebates achieved in order to counteract the impacts of COVID-nineteen were partially offset by lower electricity revenue due to the DPP 3 reset, which came into effect from 1 April 2020, which saw prices reduced by 6.9%. We have previously flagged the impacts of the inflation assumptions used by the Commerce Commission that we and other regulated companies are facing. This issue has been further exacerbated by the setting under DPP 3 and of course the historically low inflation environment we are currently experiencing. Our ongoing concern is that this is not a sustainable outcome for regulated businesses, meaning that our ability to invest for the long term interest of consumers and earn an appropriate return is seriously limited. As always, our objective is to work alongside the Commerce Commission to try and resolve these issues. Moving to gas trading, in March 2020, we finalized the sale of the Kapuni gas treatment plant and associated assets to Tide Energy, so the comparative FY 'twenty results include the earnings from these assets. If we exclude the impact of the Kapuni assets from the comparative year's results, then adjusted EBITDA is down 1.4 percent at $14,600,000 due largely to lower natural gas volumes and margins, but partially offset by improved performance from the OnGas LPG business. The OnGas LPG business continued to strengthen during the first half of this year. Bottle swap 9 kilograms volumes were up 3% to 375 1,271 bottles from 364,304 a year earlier. LPG sales were mixed with cylinder volumes higher but bulk sales lower driven by COVID-nineteen demand. Overall LPG sales were down 1.5% at 23,764 tonnes. Liquor Gas LPG tolling volumes were down 2.7% to 55,239 tonnes from 56,761 tonnes a year earlier. Natural gas sales volumes were down 2.9 petajoules to 5 petajoules from 7.9 petajoules in the prior period mainly due to the loss of a major customer from January 2020. Moving to metering, in the 6 months to 31 December 2020, we installed almost 18,000 additional advanced meters in New Zealand and more than 52,000 additional advanced meters in Australia. Our advanced metering base grew 8.5 percent to 1,780,000 from 1,640,000 the year before. We have now deployed over 330,000 advanced meters in Australia and are averaging over 10,000 meter installations per month. We remain on target to install between 120,000 and 130,000 meters in FY 'twenty one. In the past year, we announced a significant upgrade program to replace all existing 2 gs modems with future proof technology, which will support 4 gs and 5 gs technology as it becomes available. Once complete, this investment will clear the way for continued meter connectivity and enable ongoing product innovation opportunities decades into the future. So now to outlook. Our COVID strategy is serving us well during what has been a very unpredictable time. However, we are confident that we are moving in the right direction and that the company is well placed to address any challenges. The release of the Climate Change Commission's draft advice highlights the need for the energy industry to transform with EDBs playing a key role in using new technology, demand side optimization and smart investment, we can enable the urgent need for decarbonization in the sector, and in particular, transport. For several years in line with our strategy, we've been leading the adoption and thinking around new technologies. This has led us to develop strategic partnerships with world class technology companies to enable our network to effectively manage a world where EVs, batteries, solar, peer to peer trading, a raft of other new technologies are not only demanded by customers but necessary if New Zealand is to meet its carbon reductions. This is about creating smart infrastructure that puts customers at the heart of the energy system, moving us away from the centralized linear model we've had to date to one that will enable a different sort of energy future. As I mentioned earlier, we are specifically focused on affordability and supply resilience given the impacts of climate change and the need to decarbonize. The draft advice outlines how critical it is for distribution companies to be equipped, resourced and incentivized to innovate and support the adoption in their networks of new technology and business models to encourage electrification in particular from increasing numbers of electric vehicles. We also support the recommendation of establishing a Ministry of Energy to lead a coordinated approach for a positive customer outcomes. So over the past few years, Victor has invested in a number of initiatives including an EV trial across Auckland to understand consumer behavior and the impact on our network. This is revealing a lot of really interesting and important data for our network and also consumers. We've worked with ECA to electrify Waiheke, which aims to be the 1st fully electric island. We've launched and managed an EV charging network in Auckland. We've deployed large scale batteries as well as small scale batteries and have significant experience and understanding of the dynamics of batteries. In addition to this, we've also built multiple solar farms as well as battery and solar solutions across the Pacific. So as Auckland continues to grow and we're investing in order to maintain network integrity and support that growth, we're anticipating around 15,000 new electricity connections in the full 2021 financial year. We also expect a strong full year result in our metering business as our advanced metering deployment continues to track well including in Australia. Based on this half year result, we expect the FY 'twenty one adjusted EBITDA to be increased to the range of $500,000,000 to $520,000,000 up from previous guidance of $480,000,000 to $500,000,000 That's provided there are no further impacts of COVID-nineteen on economic activity and consumers. So in closing, I'd like to take this opportunity to thank our Victor people both here in New Zealand and Australia, our suppliers and key partners who have demonstrated resilience and adaptability in this constantly evolving and challenging time. Many of our colleagues and people both in the field and in the business are essential service providers who deserve significant praise for adapting to these challenging times and serving the communities and the business. So we thank you for your efforts and continued support as we strive towards our vision of a new energy future. I'd like to hand back to Jonathan now. Thanks, Simon. Simon, Jason and I are now happy to take questions on to Q and A. Thank you. Ladies and gentlemen, we'll now begin the question and answer session. We have multiple questions in the queue. Our first question is from Andrew Harvey Green from FullSouth Bar. Please ask your question, Andrew. Hi, good morning, team. Very strong results, which is great. A couple of questions from me. First one just around the CCC report and I just want to revisit, I guess, and sort of your initial thoughts. I mean, obviously, particularly around the proposal to ban new gas and LPG connections from 2025 and then phasing out thereafter. At this point in time, obviously, that's a net negative to your gas distribution business. But long term, they'll be offset by higher electricity consumption. Do you see it as sort of a net positive neutral or net negative at this point in time if that policy was enacted? Yes. Hi, Andrew. Well, look, I mean, obviously at this point in time, it's just draft and there's a lot of work to be done. I guess from our perspective, we see that there needs to be a conversation obviously with the Commission, the government and other parties to ensure that the transition for consumers is managed and is appropriate, that the impact on consumers that have residential gas appliances also recognized whilst also appreciating that the gas networks have been signaled as wanting to be left available for other sources, whether that's blended gas such as biogas and hydrogen or other services. So to be honest, I think it's a little bit early to take a strong view either way. Obviously, you're correct in the sense that if there is some form of transition, which obviously there is proposed and will likely be, whether it's gas onto electricity, then that will be an uplift in our electricity network. I guess the issue with that is, of course, comes back down to that we do need to ensure that the regulatory settings incentivize that transition and also make it attractive to invest for that growth, which would be significant. So basically at this stage, we are kind of looking at it as there's still a lot of analysis and discussions to be had before we actually ascertain exactly how that pathway would be conducted and its interest of consumers and the government that we will work closely together to satisfy the needs of all parties involved. Okay. Yes, thanks. And the second part I had relates to that, which I think you touched on in the answer there, Simon, was I'd just be interested to get, I guess, a bit of an understanding about the infrastructure requirements from the electricity side of things if we did see all of that current gas load switch from gas to electricity and LPG, I guess? Yes, sure. Andrew, I mean, again, obviously depends on the rate of speed of any transition. I guess the way we look at it is that a conversion of, let's say, residential, in particular, if people were migrating their appliances off, it's not a one for one conversion because we also see some of the new technologies such as induction cooktops, which actually create a significant demand. So even a relatively modest induction cooktop could have a peak demand of around 7 kilowatts, which is pretty significant when you think the average after diversity maximum demand of a residential house is about 2.5 kilowatts. And then we also look at on top of that the impact of electric vehicle charges. So if someone's got gas, they also decide to put in an electric vehicle charger, which again, conservatively could be 7 kilowatts actually starts lifting up the demand of the network. This all plays into exactly why we've been so focused on our Symphony strategy, which is recognizing that we have to have control solutions, we have to have technology that as much as possible can ensure that that load is optimized for one of a better word, whilst still delivering the customers their service requirements and looking at how the peaks can be smoothed and how the consumption can be better utilized across our distribution network. Otherwise, in an uncontrolled world, you get quite significant local clustering effects potentially of network constraints and upgrades that could be both costly and that goes to the affordability challenge. So it really does underscore the requirements and why we've spent a lot of time in establishing these significant global alliances with the likes of AWS and impressed and other technology providers globally underpinned by cyber solutions to meet those challenges. If you just look at residential gas across the network and you converted all that across, it's quite a significant uplift in demand, but it's of course, it's not specifically right it's not evenly spread across Auckland. It's spread over different parts of Auckland where customers are connected to gas. Yes. Okay. Thanks for that. Next question I just have is around loss rental rebates and I must probably sort of missed the magnitude of the impact that was going to have this half. Just want to clarify my understanding, I guess, to make sure, in essence, it's a smoothing process that's going on here. You are still intending to return those loss rental rebates to customers, but in different periods as opposed to new periods that I guess that the rebates were coming in. Is that sort of the right way to be thinking about it just to enable that smoothing? You're right to be thinking about it enabling smoothing. The degree to which we basically return them, as we said, is kind of using them as a mechanism to smooth as well as limit any price shocks. Obviously, moving from a price path to a revenue path means we have a maximum allowable revenue, which we're allowed to collect. And so what we've done is rather than if we've had, for example, our revenue forecast based on a volume was came out that we collected less revenue because volume was down, then rather than basically putting the prices up, we've actually utilized the loss rental rebates to smooth those out. So an ongoing basis is the revenue path plays out. If we're under, then we'll use some loss rental rebates. But if we are on target, then loss rental rebates would also be looked to be returned to consumers. So it's just really what the situation is on a 6 monthly or yearly basis about how do we utilize them to limit any price impacts to customers. Okay. Because I noticed I think there's about $5,500,000 provision for rebates in the 6 months, more presumably in the 12 month period going forward to be returned. Is that correct? Haven't used at 31 December. So that's left on the balance sheet, which is potentially available to be distributed to customers unless we use them to offset future volume variances, which Simon just talked about. So again, that was the balance that was left at 31 December. Okay, great. And last question from me was just to get a bit of a sense from your perspective at least, I mean, where was the, I guess, the unexpected upside that led you to increase the guidance upgrade of 20,000,000 dollars I think it'd be fair to say that we looked at the economic performance across Auckland and probably seeing better activity than we'd expected, volumes on the network slightly better than what we were expecting, as well as we weren't too sure about how the metering business was going to roll out particularly over in Australia. So in particular those areas have led us to more confidence to put the range up. Right. That's all for me. Thank you. Our next telephone question comes from Stephen Hudson from Macquarie Securities. Please ask your question. Good morning, gentlemen. Just a couple from me. Just firstly, on the your current policy of staggering refinancings. I just wondered if I could pose a question to Jason whether or not you might look to consider that now that seemingly we're in a rising interest rate environment. I understand sort of Transpower, for instance, aligns that's really priced with the regulatory reset. So just interested in that. And then secondly, just back to loss rental rebates. Could I just sort of confirm that if volumes return back to your forecast level next year, that the $196,000,000 EBITDAF run rate for this half is sustainable. There's not a sort of significant step down. I guess it's similar to the question that was asked before, but I'm just trying to get a feel for what volumes have to do before your earnings run rate is at risk. I'll deal with the first one, Stephen, about the refinancing. We have been looking at this and we do understand some ADBs basically reset their total debt book at the reset of the DPP 3. Our challenge is having a very large debt book for a start and because we both have regulated and unregulated assets, when we look at the approach we adopt if we strictly split our debt book into 2 pieces and adopted different approaches to hedging, we end up with a similar framework that we currently have, which is managing the debt book as an entire book. And we didn't climb in and reset everything back when the commission reset the current DPP3. And obviously, we've benefited from that in the last couple of refinancings that we've done. And we continue to watch things, but at this stage, we're not intending to change our approach. And we have looked at it and taken some advice, and we think we're sort of on the right path. But it's complicated by the size of our balance sheet and by the fact that we've got a mix of assets and not all just regulated. So, yes. The second question was around the impact of the smoothing of the loss rental rebates. It's complicated because the loss rental rebates are received and we booked them and put them on our balance sheet. And partly what we've done in the 6 months is recognize some future price increases that we won't be putting in place by retaining these loss rental rebates. So I don't want to give you sort of wrong information about how we come out of this half because we've actually taken some loss rental rebates that relate to future price increases that we won't be taking from customers in the FY 2022 year. So it's not quite as simple as just looking at this year's 6 months and trying to extrapolate it forward. So I'm happy to take it offline, but it's more complicated than just sort of looking at this year's result and assuming that's going to continue on into the future, if that makes sense. Okay. Actually, just a quick follow-up on the first question, Jason. The can you just give us a rough feel for what your current marginal funding cost is? I know you just done a large, I think, sort of $300,000,000 bank refi. Can you give us an idea of the cost of that was? Candace, I point can point you to a note where we disclosed some wholesale bonds we issued in the period, which have got the margins in there. I think we issued them at 1.58%. That was the last wholesale bond we did just before balance date. New Zealand dollar issue, I think it was 6 years, 7 years, yes. And the sort of the bank facilities, what sort of spread are we looking at there? I don't want to talk about that because we've just refinanced some and we're in the middle of doing some more at the moment and there is quite a range sometimes. So I don't want to sort of put any numbers out there to be honest because we run a pretty competitive process on that and that's in our interest to continue to do that. But that wholesale bond, obviously, you can see that and that gives you a sense of where that market was Our next telephone question is from Grant Swinhgolf from Jard. Please ask your question, Grant. Good morning, team. Sticking to the same theme of questions. Just on page 10, that's €7,100,000 of uplift in other electricity revenue impacts. Can you unpack that a little bit for us? A fair tax adjustment actually in relation to the ECO impairment that we took at the full year. That's the deferred tax related to those intangible assets that we actually should have booked at 30 June that we've booked in the half. So that's the majority of that. Okay. And the second question still relates to the $15,500,000 of price increase offset. Are you still going to be putting through an inflationary price increase in April or does that negate that? No, we are still putting out an inflationary price increase through in April. And then thank you. And then follow on to that $20,000,000 upgrade. Simon was talking about economic performance etcetera, but your regulated business has no impact from economic performance now that you have these caps in place and the knowledge that you could use the loss of rental rebate. So I just wanted to follow-up where that $20,000,000 came from. Are you front loading FY 2022 into FY 2021 with those rebates? Or is this that you guys were just lowballing at the start of the year? Thank you. Not lowballing at the start of the year. So can you just repeat your question, Graham? I'm trying to like I can't The explanation of the $20,000,000 upgrade was that those economic performance was better than expected, but your regulated business is now a cap. So therefore, you can you know what it is at the start of the year and how you can utilize loss rental rebates. So your only squeeze on where you can change your outlook expectation is on your unregulated business and are you now expecting the unregulated business to do $20,000,000 better or was it something else? Okay. It's to do with the loss rental rebates that we've booked in the half because we've they were received and sitting on our balance sheet relating to the past, if you know what I mean? We received these loss rental rebates at 30 June 2020. I think from when we had $17,000,000 or quite a large amount sitting on our balance sheet. And the board decided because of COVID and because of trying to reduce future price increases to customers that we would retain those. And when they made that decision, we had to book it. We couldn't just leave it on our balance sheet to release it as the price increases would have otherwise came through. So we've actually booked a provision that we had at 30 June on the basis that we've decided to offset future price increases to customers by retaining those loss rental rebates. So we've protected customers from future price increases and their accounting rules require us to take those to income when we make that decision. And part of that is to do with volume movements we've had over COVID. So volumes have been down and again the Board have decided to use the loss rental rebates to offset that volume movement so that we don't have to put customers' prices up in the future. And we had better volume than we were anticipating with regards to the impacts of COVID. Yes. And so the extent actually adjusted. Thanks, Simon. Thanks, Jason. There are no more further questions at this time. I'd like to hand the call back to Jonathan for closing remarks. Please go ahead. Great. So if no further questions, we'll end now the teleconference and webcasts. If analysts, investors or investors have any further questions, please contact Jason or Matthew Britton or call our usual media phone number. Thank you everyone for joining us.