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Edited Transcript of CEN.NZ earnings conference call or presentation 14-Feb-21 9:00pm GMT

·83 min read

Half Year 2021 Contact Energy Ltd Earnings Call wellington Feb 15, 2021 (Thomson StreetEvents) -- Edited Transcript of Contact Energy Ltd earnings conference call or presentation Sunday, February 14, 2021 at 9:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Dorian Kevin Thomas Devers Contact Energy Limited - CFO * Matthew Forbes Contact Energy Limited - IR Manager & GM of Corporate Finance * Michael Fuge Contact Energy Limited - CEO ================================================================================ Conference Call Participants ================================================================================ * Grant Swanepoel Jarden Limited, Research Division - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Matthew Forbes, Contact Energy Limited - IR Manager & GM of Corporate Finance [1] -------------------------------------------------------------------------------- Good morning, everyone, and welcome to Contact's interim results for financial year 2021. I'm appropriately social distanced around the corner following the events of yesterday. But obviously, looking forward to speaking to you today about this transformative day for Contact. The agenda for today will be a presentation of the half year results, followed by the Tauhara and capital management plan, after which we'll take questions from the phone line and those who registered in the room as well. And welcome to Mike Fuge, our CEO; and Dorian Devers, our CFO. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [2] -------------------------------------------------------------------------------- Yes. Thanks, Matt. Let's get it underway. Just the usual disclaimer around us, please note with the appropriate caution. If we look at the agenda, I'll do the H '21 highlights, then Dorian will take you through the detail, and then we'll take any questions after that. Guys, how's it going? And just a moment of reflection. Isn't it remarkable that 1 year on, we find ourselves again in this position, but I think the difference is we're all quite used to it, and the fact is that we can make an announcement of the magnitude we're making today without missing a beat. And I think that's a tribute to where the company has come from in the last 12 months and the changes they've made in terms of becoming agile and adaptable to the circumstances. Moving on to the performance highlights. So all a good story. EBITDAF, $246 million, which gets us tracking back to the magical $480 million we talked to the market. We've done that with a significantly less gas portfolio. We've reshaped the book to get there. Profit's up. Net profit's up. Operating free cash flow is up. Operating free cash flow per share is up. And the other one there is as well as the active channel management that we've undertaken with some incredible asset availability, we have executed very quietly a very substantial shutdown campaign on our geothermal assets, so a credit to the operations and engineering teams. They've done that, they bought the plant back early. It's running well. That's part of being a good asset manager or an outstanding asset manager, and it's good to have come through that period and come through it well. If we see to the next slide, at the top there. Look, the way we have changed in the last year has, quite frankly, been remarkable. We've put in place transformative ways of working program to redesign all aspects of this work. We're sitting here in an office, a virtual office, where the intent is that we release 3 of the 4 floors we have here in Brandon Street. We've moved to a more flexible office space in Auckland. And across the company, we are all moving in a more agile way. We've converted our second bilateral bank facility into a sustainability-linked loan. And the simple message is we continue to -- we intend to continue on this path towards a far more flexible, adaptable workforce, which, given the announcements we've got today, is almost a prerequisite to the growth ambition we had. We can't afford to have growth at any cost. Our intention is to have growth with a degree of prudence and cost control around that. In terms of our customers, digital self-service interactions are up 45%, which is great. It's great for our customers. It's great for our cost to serve. We've got the fully integrated chat service channel, which is great. It means we can interact with customers, Messenger Facebook, WhatsApp. The NPS growth has gone from plus 17 to plus 30 over the last 6 months. And we have over 500,000 energy and broadband connections with a year-on-year increase of 2.2%. I think last time we looked, we're looking at about 515,000, with broadband going past the 40,000 mark. The major outages have gone well, as I alluded to. It's a great credit to the team, particularly around the geothermal plant, which, in particular, rely on a high-quality asset management. Fuel has been managed tightly and in line with the market. The country is short of gas at the moment, but we are well covered. And that's just not about securing gas contracts. That's managing the demand side of the portfolio. And safety continues to be outstanding with the -- even with the high level of outages. We're incredibly proud of that. In terms of sustainability and ESG targets, this is becoming a theme. Contact, prior to me arriving, had taken a leadership position on this, and I want to do -- want to pay credit to that. But the reality is that we continue on that journey. So we're aiming for a 22% reduction year-on-year in our Scope 1 and 2 emissions. We've converted 53% of our electric vehicle fleet. We're aiming for 100% on that. We are looking to reduce our impact on the Waikato River. We've already talked about how -- the progress we've made on that. We plan to plant over 100,000 trees. We've reached 25,000. We continue to invest in our communities. And with this growth phase, that will only expand. Energy hardship, we've put a lot of effort in, where we're planning to spend $250,000 and asking ourselves how we can do more. Diversity. This company, quite frankly, is a leader in New Zealand, and I'll come to those stats, where we aim between 40% and 60%. And across all levels from Board right through the company, we're broadly in line with that, and that is a fantastic achievement. And sustainable finance, you've seen the news has broken, if we've got the bank facilities on the sustainably-linked line, and we got -- we were 62 percentile in DJSI. The answer on that is we want to do more as we go forward. And climate change -- addressing climate change, the Tauhara project itself that we announced today will reduce our emissions by 500,000 tonnes per annum as a fuel substitution. If we look on the next slide, just making -- giving some sense to those, what we've achieved to date. You see the reduction in generation emissions intensity due to increased hydro. But also, it reflects a much better run we had last year on the combined cycle, TCC, which is far more efficient compared to our peakers, and we look to that to continue. Renewable generation was down a bit last year, just with the shortage in hydro. You see that from a standing start 2 years ago, we can now accept 42% of customers with impaired credit with their broader suite of products we have developed to meet their needs. And you can see on the far right that those diversity stats, where across the board we are -- apart from one area, we are in the range we need to be. And you can see the improvement in each area from the diamond, where we've moved up to a balance. Now remember, diversity is not just about male/female. It is about diversity of thought. It is about diversity of culture. It's about diversity of location. It is about diversity of age. And that broadness is what gives this company incredible strength as we move forward across both generation and customer. If we go to demand, look, it's been flat. You see at the bottom there. NZAS has come off a bit. That's fourth potline. But with the dry South Island, irrigation demand has been up, and North Island demand has been remarkably steady. This -- in one of the most unusual years, I think we'll all agree that New Zealand's had and given what we thought could happen. This is a very pleasing result, and it's nice to be -- have that platform as we look, and it gives us confidence for the future. If I move to the next slide, you can see the generation type. It has turned slightly dry as we go forward. You see coal has played an increasing roll over the last year. I think there's an opportunity for that to be subbed out with gas. Hydro, obviously, the hydrology hasn't helped. Geothermal, well, we're doing something about that over the coming years, and we're very excited by that opportunity. It's not just about hydrology, though. There's a whole range of factors, and it's nice to report that if we look at those factors that affect our electricity price, they are underpinning it. Aluminum prices are strong. Coal prices are strong. The demand impact from COVID has been limited, and we see the announcements from the CCC that will only support demand growth, which we're excited about and we've actually put resources and money towards. We've put some of our most capable people on how we can help this country grow demand. I have a personal fundamental belief it's not necessarily just about throwing money at it. It's about the talent that you throw at it. And James has assembled a fantastic team, which, quite frankly, is market-leading. Gas and carbon. Obviously, gas has had its challenges. We expect that to continue. Carbon prices have increased and methanol pricing. So all those things point to, on the right there, the very strong prices we've seen. We don't necessarily see very high prices as a good thing because remember, that the CCC's proposition is that electricity will lead the conversion, not just of the electricity sector but of the energy sector. And one of the fundamentals to make sure that happens is a fair and reasonable price. And so that's why sort of high price -- the sustained high prices for the long term are not good for the industry because they will make people either hesitate and go slower, where we would like them to have the confidence to move forward. And that, again, sets the context for the Tauhara announcement. If we look at the next slide, retail. Look, this is the unsung story of Contact. I'm incredibly proud of what this team has achieved. When all the other major gentailers, Meridian, accepted or experiencing losses to Tier 2s, we have grown. They do have a market-leading cost to serve. The digital app is the most rated in the market, and the competition is intense. They've produced a flat to slightly increased profit, and that sounds slightly underwhelming. But you've got to remember that the way we do our transfer price is that they experience that increasing wholesale price so they have absorbed a hell of a lot of an increase in the additional cost, $8 a megawatt hour, in that period. So that performance year-on-year masks an incredible performance underpinning it, and we're incredibly proud of the team and what they've achieved there. And on that note, I'll hand over to Dorian. -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [3] -------------------------------------------------------------------------------- Thanks, Mike. Before I get into the operational and financial performance, I just wanted to high spot some of the key themes that are going to come out as we go through it. So the first and very encouragingly, we've been able to reprice and optimize our sales channels faster than we expected to recover those higher thermal fuel costs that we've been talking about for the last couple of years. So as Mike mentioned, that means that the EBITDAF performance in the first half of the year is back in line on a run rate basis with that $480 million number that we talked about a lot. And that's in spite of the fact that we've had less geothermal generation because of some planned statutory outages. And a good example of that repricing in our channels, as Mike said, is actually our retail business, flat EBITDAF year-on-year. So the higher thermal fuel costs that get passed through to that business based on our arm's length transfer price are being recovered for a combination of tariff increases, but also very importantly, being able to leverage that regulated network cost reduction to buffer consumers from those higher fuel costs. So that's important to see and very good to see. I should also say on gas, gas deliverability, we expect that to continue to be a problem in the medium term, and we expect electricity prices to remain high in the medium term. So one of the things that we're thinking about at the moment is our C&I book. You can see in these numbers, our net debt that we make on C&I at $75 a megawatt hour is quite a long way below market pricing at the moment. And it's easy to say this with hindsight, but unfortunately, we did contract most of that book prior to October 2018 when fuel risk became an issue for the entire market, and it hasn't gone away when we had those unplanned Pohokura gas field outages. But that does mean we now have options. It's always good to have options. Do we reprice it as it rolls off and recontract it? If we're comfortable with our fuel risk, yes, we do. If we're not comfortable with our fuel risk, we double down on that risk management. So that's the spectrum. We'll be somewhere on it. And just talking about gas and fuel risk, we got notified by OMV in December that we would only get 10.5 PJs of gas for 2021. That's less than the 14.3 PJs that we were expecting to get everyone on the field. It was prorated down accordingly. I guess what I would say is we've got a strong track record over the last 2 years of dealing with gas issues and fuel risk. You can see that we've got the lowest contracted sales book that I think we've ever had. And I just mentioned, we do have ability to take that further if we feel we need to around C&I. And we've got the usual mitigations in place such as gas storage, Taranaki and the swaption. So whilst it's a topic that we talk a lot about as a leadership team and indeed with the Board, it's not one that we are overly worried about at the moment from our perspective, although we do recognize it's a very important market topic. Just on those higher electricity prices I talked about into the medium term. We do expect new renewables to be built as a result of that. It's only natural, but we do feel the demand outlook has improved. You've seen the Climate Change Commission report that came out last week or the week before last, and it talks about the electricity being the solution to the decarbonization problem New Zealand is facing and leveraging electricity to grow and squeeze out those other forms of energy, which comes from more carbon-intensive sources. So that's very positive. And you've also seen the announcement from Belfast and Meridian recently around hydrogen and looking at options to ensure, importantly, their supply and demand continuity post-2024 and I say if Tiwai does actually leave. So last point before I get into things, a few disclosure topics. So we acquired the rest of Simply on the 1st of September 2020. So we went from 49.9% to 100% ownership. So that means we've been fully consolidating Simply into our numbers from that point. We have not provided anything for the UTS. I think that tells you something. It's a very unique UTS, the so-called confluence of events. And we don't know any mechanism that can come up with a financial remedy for that. And the last point I'd say is we've stopped disclosing significant items in our accounts, which is more in line with best reporting practices. You can trust that if there is anything significant, that continuous disclosure rules mean that we will tell you about it and that me and Mike will be able to high spot it in forums like this. So on to the numbers. So the profit of $78 million is up by $19 million. And the key driver of that is EBITDAF, which is up by $25 million. We've got also a neat waterfall that we normally show. I'll just take you through that. So pricing net of network cost changes is up by $24 million, and this is recovering those high thermal fuel costs but also selling into that fuel risk. And I -- what I mean by that is there's been a lot of fuel risk inherent in the market for the last 6 months. You've had a very dry sequence in the North Ireland. You've had hydro storage levels at quite low levels, and you've also had this continued issue around the deliverability of the Pohokura gas field. So that's an issue that the market is facing. On a relative basis, we actually think we're in a -- been in a better situation. We had okay inflows in our catchments in the first few months. As I said, we do have a very low contracted sales book now, and we do have contracted gas. So we do the risk-return analysis on that, and we were comfortable taking a bit more fuel risk and supplying the market and therefore, getting some additional sales into that higher pricing. And that's what's driving that $24 million. In terms of renewables, they're down just a tad, but we've replaced that by running off thermal assets a bit higher. So that's why there's $2 million adverse there. Gas availability. It's less of a topic for us now in terms of volume because we have reduced our sales book so much. We actually just need best gas, but you still see the impact of it manifest itself in our numbers because we're having to pay more for gas and indeed for carbon as well, which is that adverse $6 million there. Other income is favorable. That's market making, which is a favorable movement year-on-year. And fixed costs are lower. That's around transmission costs generally. So we've seen the benefit of the lower regulated WACC flowing through here in terms of the price cost. But remember, HVDC pole 1, I think it is now fully recovered so we don't get charged for that anymore. And also, if you cast your mind back to the prior corresponding period, both us and Meridian chipped in a couple of million dollars each to try and -- to the Transpower along to kick off that lower South Island upgrade project, which is clearly a very good mitigation for Tiwai going, not just for us, for the whole of New Zealand, because it gets the electricity out of the lower South Island. That's a nonrecurring cost so our costs go back to normal this year. So that gives you a bit of a rundown on the EBITDAF. The other topics there, you've got depreciation is a bit higher, $4 million. $3 million of that is accelerated depreciation on some Ohaaki assets. That's only a 6-month topic. It then reverts back to normal. Interest continues to fall, and that's because interest rates continue to drop. Tax is obviously proportional to the profit we're making, so that's gone up a little bit. And a small movement in financial instruments there. Across our 3 businesses, the EBITDAF, you've got $25 million up for Wholesale, customer flat at $30 million, and then our corporate costs are flat at $13 million. Good to see some productivity there offsetting cost inflation. So now just to run through our Wholesale business. As said, EBITDAF, up $25 million. The generation costs are up by $2 million. There's 3 components within this. Acquired Generation has -- which is down $1 million year-on-year. We acquired Generation. It's a risk mitigation tool. And if you remember in the prior corresponding period, we were acquiring Generation because we were worried about fuel risk. We were worried we didn't have enough contracted installed natural gas. That has abated somewhat, but it's been replaced by the need to acquire Generation to offset the lost generation because of those planned statutory outages at the geothermal. So that's why we've only seen a $1 million drop year-on-year. Thermal costs are up $10 million. That's 15%. 5% of that is volume, and 10% of that is the cost of natural gas and carbon increasing that we talked about. And transmission costs are down by $7 million that we've already run through. If you just reflect on our actual generation types. Hydro, we've seen quite varied inflows. It actually started off quite wet and then got quite dried towards the summer, complete reversal of what we saw in the prior corresponding period, if you remember. Overall generation for hydro is up 98 gigawatt hours, which is more in line with the mean year performance. We have been constrained, though. We've been constrained about 100 megawatts because of the lower South Island upgrade process that's been going on. That 100 megawatts is about the equivalent to a Clyde unit. So we see our opportunities and we take them. So we couldn't dispatch all of our Clyde units, so we were happy to take one down and actually kick off the process around replacing our transformers and our bushings -- associated bushings with that. So that's very good operational management as far as I'm concerned. We'll get back to a full complement of Clyde units by the 28th of May, which is when the lower South Island becomes unconstrained again because Transpower stopped their work for the winter. In terms of geothermal, that's down by 124 gigawatt hours, and that reflects those outages. And as Mike said, everything worked really well. No health and safety topics, which is always important, but in particular, when you're dealing with such a large outage program. They finished early. We've got 8 gigawatt hours more generation away than we were actually expecting. And the other thing I like about this is the reason why we have such a large program this financial year is because we deferred some because we were worried about fuel risk in FY '20 and so we wanted to keep the geothermal going. So it's great that we actually have the flexibility to be able to do that and then put it off, which is what we've done this year. Thermal is up by 43 gigawatt hours. And Mike mentioned, the story around this is just asset availability. TCC is available -- was available 96% of the time, which has got to be record. And when you've got a market which is facing fuel risk, which we are at the moment, actually having an asset like that that's available and ready to dispatch electricity is so important to the market. As I said, we did use it. We decided to take some fuel risk and dispatch electricity, and that drove some of that $24 million price improvement that I talked about. But we are prudent with how we use our fuel. So we ended the calendar year 2020 with 5P dose gas, exactly the same as we had at the end of 2019. But because our contracted sales base has reduced so much, our risk profile has reduced considerably. On to contracted wholesale revenue. So that's up by $27 million even though we sold 30 gigawatt hours less. And this is all about pricing across our channels. You can see the CFD pricing is up by $13 a megawatt hour. A little bit of mix in there. We had the fourth potline in the prior corresponding period and not in this one, but it's largely around short-term CFDs moving with the ASX curve, which is good to see. Customer. So this is the sales to our customer business, up by $8 a megawatt hour. And as Mike said, the great news here is the Customer business. You'll see it in a couple of slides, flat EBITDAF year-on-year. So it is recovering from the market. That hasn't been the case in the last couple of years, so it's great to actually see that happening now. You can see that low netback of $78 on C&I that I mentioned earlier on the slide. You can also see the fuel risk mitigation that's happening, where you've got roughly 200 gigawatt hours coming out of C&I as we're not recontracted -- contracting it and we're moving it into short-term CFD. So we're keeping that tenor of our contracted customer base as short as possible at the moment to manage that fuel risk. Our C&I load at the beginning of the financial year was about 2 terawatt hours, and we're expecting about 600 of that to roll of this year, with the remainder next year, and that talks to that -- those options that I mentioned. I've mentioned fuel risk a few times. Just another way of actually thinking about this. We sell on an annualized basis, if you take out the co-generation now, about 7.6 terawatt hours of electricity. And remember, in a mean hydro year, we generate 7.2 terawatt hours of renewable generation. So we only have 0.4 terawatt hours of thermal that we need, which, on a gas basis, is under 4 PJs. You add that to the 4 PJs for cogeneration and the 3 PJs for retail gas, that's under 11 PJs of gas, which is what we've got contracted in 2021 from OMV. And I've already outlined, we have other mitigations if it is a bit dry. And that's why I say we do have genuine options around what we do with that C&I load as it rolls off. We see ourselves as being in a fortunate position. There is sort of a feeling out there that some in the marketplace have overcontracted and probably taken on a bit more risk than they used to, and maybe they were doing that because they were looking to mitigate the Tiwai exit. In terms of our trading, EBITDAF flat year-on-year, and this just reflects the fact that we've got a bit more length -- the price on the length is higher, but we have had higher location losses. It's exactly what you'd expect because with the lower South Island being constrained, you've seen some spread between islands, but also the fact that we've had less North Island generation because we've had -- those planned statutory outages of geothermal would feed into that as well. In terms of our Customer business, as I said already, EBITDAF flat year-on-year, which we're very happy with. The gross margin that we're making on electricity is up by $1 million, and it has been able to leverage that regulated network cost reduction to buffer consumers from those higher fuel costs. That's good to see. We have got a tariff increase. You could see it there, our net -- what we call our net revenue brackets cash. It's up by $4 a megawatt hour, the tariff, which is about 2%. And I've signaled a couple of times as we've been presenting previously that this is a long-term channel for us, and we want to buffer consumers from the ups and downs of the electricity price and just get steady sort of long-term CPI type price increases every year to give our customers certainty, which is what they want. So it's actually good to see that now playing out in the numbers. There's a couple of offsetting topics going on here. The value of prompt payment discounts not taken has reduced by $3 million. Again, this is as per our stated intention. We agreed with the Electricity Pricing Review that we would phase customers off PPD plans onto non-PPD plans. So that's good. It reduces regulatory risk. Going the other way there, you can see the favorable impact that incentives paid are about $2 million less. So that's good. I mean I read this as customers are actually looking at this and buying electricity for us, not because we're going to give them free stuff, but because actually, they like our product service offers, they like our digital offerings, they like our services. So I think that's a far more sustainable way of doing business. Gas margins are flat year-on-year. If you go through the appendices, which I know a lot of you do, you will see our SME gas margin or netback is below the market rate, and we've taken an action as a leadership team to sort that out because that's something that's not appropriate, and we'll fix that. And in terms of our broadband margin, it's dropped by $2 million a year, but this is basically a function of our accounting and how successful we have been in growing the number of ICPs there. From an accounting perspective, we have to expense the onetime cost of the modem and the connection costs. If you back that out and actually amortize that over the expected life of the customer, our gross margin would be flat. And we've now hit one of those volume breaks that I think I mentioned 6 months ago with our fulfillment provider, which means our costs come down going forward, which is good. You can see OpEx has continued to drop for our Customer business, which is great to see. And this is around -- if you look at the channels that we use to acquire customers, we've looked at door-to-door knocking. It's a pretty antiquated way of doing business in a digital age. It's also a very expensive way of acquiring customers. So we've stopped that, and you can see the cost-to-serve benefit there on the slide. In terms of overall OpEx, at a headline level, we're up by $2 million, but our underlying inflation-adjusted number is down by $2.3 million. And that's in spite of things like significantly higher insurance costs, which I know it's not just us, the entire industry is facing higher insurance costs. The reason why our headline number is up, though, we've acquired OpEx when we acquired Simply. So that just -- naturally, your OpEx goes up associated with that. The financial performance is a bit better. So we have been accruing more for incentives. And we've actually done a bit of work and invested in refreshing our strategy. So we don't have an Investor Day in the diary yet, but we're looking forward to putting one in so we can then take everyone here through that refreshed strategy. This slide, hopefully, everyone is very familiar with. Our famous $480 million slide. The -- so this is based on our asset portfolio, the sales channels that we expect to sell through and the net price that we make on it. We expect to make $480 million in the mean year, which is equivalent to $246 million at the first half of the year. We're bang in line with that. And that's good because over the last 18 months, we've been below it because we've been redoing our business for fuel risk. So we've now got the business set up to deal with the fuel risk. And hence, we've been able to get back to that number. Shape is a little bit different, lower renewable, and that's because of the statutory outages at geothermal. So there's an adverse $13 million there. We've clearly got less gas than we were assuming we would have a couple of years ago when these assumptions were put in place. So we haven't been able to offset those lower renewables by higher thermal generation. We have more acquired generation and had to step down the sales book. So that's adverse $15 million. But we've offset both those 2 negatives by repricing and optimizing our sales channels and seeing lower fixed costs, and a lot of that's linked to the price path of Transpower. If you roll that forward for the second half of the year, we're not going to have that adverse on renewables because we're receiving mean hydros, we always do, and we don't have any statutory outages at our geothermal. But offsetting that will be the fact that we will have the new Tiwai contract with -- and obviously, we support that through Meridian. So we think those 2 things will offset each other to leave us, as I said, sort of roughly back in line with that $480 million. Cash flow, another strong performance. As a business, we always talk about our ability to translate EBITDAF into operating free cash flow. That's our cash conversion, 64%. I mean if you look back across the industry historically, that is a leading performance. As I always say, it's operating free cash flow that drives dividends and valuations so it's good that we are a leading performer in that. And that's what's driving up our operating free cash flow, up $37 million to $157 million. So higher EBITDAF and positive trade working capital movements. On our balance sheet and our interest. I mentioned our interest costs have come down. So our average interest rates have come down by 29 basis points. Around 30% of our interest book is variable and linked to the 3-month BKBM. And if you look at this period versus the prior corresponding period, there's been a 100 basis point reduction in that, which is huge. So we see the benefit of that. Just a bit about our maturities. They look very high in FY '22. But remember, we took out a $200 million syndicated bank facility as an insurance cover, if you like, for some very extreme liquidity downsides associated with COVID. That hasn't played out so that's not a facility that we actually need to refinance. If you strip that out, our average tenor of our debt is about 3 years. It would be nice to actually get that a little bit higher, and that's something we're working on. Balance sheet. You can see the FY '20 net debt to EBITDAF, 2.4. We normally give you a forecast into -- for the rest of the year. But in light of the next part of the presentation, we thought we'd cover that then. And Mike's mentioned our sustainability-linked loan. So within finance, this is one of the things we're doing to support ESG. I'd like to thank, firstly, Westpac who are the first, and MUFG, who now just entered into a sustainability-linked loan with us. We'll be approaching another 5 banks. We think it's a win-win because, clearly, the banks are also very focused on ESG. And this is putting your money where your mouth is. This means our interest goes up and down based on our score from the RobecoSAM survey, which is the survey that feeds the Dow Jones Sustainability Index. So last, guidance, no change there. We've added -- you can see the half year performance relative to those 2021 -- FY '21 targets, and you can see that we're pretty much on track with everything. So I'll hand it back to Mike. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [4] -------------------------------------------------------------------------------- Okay. And this relates as a nice segue into what we're going to talk about a bit later. You can see climate change and regulatory announcements from the Climate Change Commission last week, where electricity -- renewable electricity was put front, left and center of the transition of the New Zealand economy away from fossil fuels. You see the commitment to net 0 carbon by 2050. I think the important part of last week's announcement was the government announcing net 0 by 2025, which is a commitment which is going to mean they have teeth. Transport policies they've come out with, the Tiwai contract, obviously, from the demand side. Getting security around that is important. And from our own analysis, it puts the smelter well above the halfway mark in terms of competitiveness globally, and it remains some of the highest quality and certainly the greenest aluminum produced in the world. So there's opportunity there. The ban on new gas connections from 2025, which is being floated. There's a whole range there. The phase-out of coal by 2030 was probably something that hasn't been talked about. If you think of the context of today, where we are still very dependent on coal generation to back us from the dry year risk, but -- that going by 2030, that's a significant commitment. The ban on offshore oil and gas exploration means that there will be no replacement. So all this creates an environment for sustained growth in renewable investment -- renewable electricity investment over the next decade. And the key thing to that, let's just be very clear, the regulatory framework has come into place and the support from the CCC is very welcome. To play into that, you need a number of things. You need to actually have a development pipeline. And with the work that's been done over the last decade, Contact has a fantastic development pipeline, which goes over not just to the 1.3 announced today but the 3 terawatt hours. You got to have the capability to develop that pipeline, and we have made an extraordinary effort to retain and grow our capability throughout the company in terms of renewable energy development. And the last thing is you've got to have the balance sheet, and I think that's a topic for the next conversation. So at that point, we'll stop, and we'll take any questions. -------------------------------------------------------------------------------- Matthew Forbes, Contact Energy Limited - IR Manager & GM of Corporate Finance [5] -------------------------------------------------------------------------------- Should we take questions now, Mike, or should we wait to the end of the presentation? -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [6] -------------------------------------------------------------------------------- Oh, wait. Okay. Yes, okay. -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [7] -------------------------------------------------------------------------------- I think most of the questions might be on the next topic anyway. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [8] -------------------------------------------------------------------------------- All right. Investment and capital management. If we go to the disclaimer. This one's 2 pages. Please read it in detail and note that -- the caution around it. Right, let's get into this. It is a strategic opportunity for Contact. It's been a long way in the making. It is -- we're in the start of a journey of transformation in this economy from reliance on fossil fuels to renewable electricity. And as we indicated last week, electricity is going to play front, left and center on that transition. We have a long history of renewable energy development in this company. Te Mihi, Te Huka, to name just a few. And we have a world-class renewable energy resources. Why? We -- this now enables us to increase our geothermal fuel and to enable us to think about how we phase out thermal. We have core experienced team, which we've retained since Te Mihi. The subsurface team is absolutely one of the best. We believe this is the most economic scale generation opportunity for renewable electricity in this country, and we'll talk about that later. It delivers for our stakeholders. It delivers for New Zealand. It delivers economic profit. It helps us build a better New Zealand and supports our aims. It supports the country in driving towards that 2050 ambition. And it's supported by that $400 million equity raise, which we -- and the new distribution policy, which enables us not just to talk about Tauhara, but what is beyond Tauhara. This is a cracking resource, and we are uniquely placed to exploit it. So if we look at the summary of key announcements. Look, number one is we had to get through the turbulence or the hangover that the market had with NZAS from that announcement of the full year deal with Meridian just removes that uncertainty. We've committed to around supplying 100 megawatts of that. It's competitive pricing, but it does give us certainty in that we know when this contract ends, and the choice about how it's renewed is very much with us and Meridian. It does -- in the meantime, that turbulence has thrown up an opportunity, which we didn't really expect, is the interest in that electricity at prices at or above the smelter price has been intense, whether it's for process heat, hydrogen, data centers, renewable ammonia, renewable urea, all these are possibilities -- or general demand growth across the country, which was signaled last week with electric car conversions or the retirement of coal in our schools and hospitals, all those things have come to the surface. And I think what that gives us looking forward is a far more diversified demand offtake picture, which is incredibly important from investment certainty. Number two, second announcement, we're announcing today the geothermal investment's approved. So we're committing to 152.5 megawatts of low-carbon renewable project, $580 million go forward. We expect commission in quarter 2 2023, and it will uplift our EBITDAF, if we expect, around $85 million per annum at a conservative price of $80 a megawatt hour. There's other things in the investment pipeline, the battery. We signaled today the Wairakei, what we call the geo futures project, but the renewal and expansion of that project. It remains a cracking resource, a means of cracking low-carbon resource. We're also signaling we're going to upgrade the 60-year-old runners at Roxburgh. That is a great example of us getting more from what we have already and the decarbonization investment via Dryland Carbon and Simply Energy. We are also announcing the strategic review of how we play in thermal. That doesn't necessarily mean that we're exiting, but it does mean we're going to have a good think about how we play appropriately over the next decade given the criticality of thermal to support renewable generation in the short to medium term, but also the signals we're receiving with higher carbon prices and the fact that gas supply is extremely tight. And the third thing is the performance part of the funding program, which will support the investment program. Equity raising, $325 million placement we talked about this morning and a $75 million retail offer and the new dividend policy so we give certainty to investors. We're targeting between 80% to 100% of the average free operating cash flow. We are targeting this year $0.35 per share. And we are launching a dividend reinvestment plan to provide a cost-effective way for our shareholders to participate in what we think is an incredibly exciting future in renewable energy investment. Some of them, yes, very high-quality. In terms of the market, look, we're where we want to be. NZAS has been retained for 4 years. We're seeing us entering a growth and build phase. And quite frankly, the cost of firming is only expected to go up, whichever way you do it. And having baseload electricity generation to develop, in fact, 1.3 first, but up to 3 terawatt hours of baseload generation to develop, which is renewable and low-carbon, is an incredible asset to have on your box. We have the capital structure to support that growth. We do have an incredibly renewable asset development pipeline in front of us, which we're very proud of. And we do have to support that very resilient and flexible asset base, which, very nicely, our announcement today around our results, our H1 results, have very much supported. Yes? Now handing up to Dorian. -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [9] -------------------------------------------------------------------------------- So I was going to give that update. Thank you, Mike. I'll just expand on what Mike said actually around the market because when you're making a big announcement like we are today, $580 million of go-forward CapEx, plus we're making statements around Wairakei as well. There's a huge amount of work that we put in and take our Board through, as you'd expect, around actually understanding the market context. And we do see this market as being favorable for investing in renewable generation investment, hence, our decision today. If you look at it from a demand-side perspective, we've got more certainty around that Rio contract that we've had for a long, long time, a 4-year contract. We've had previously a 1-year termination clause hanging over us. So that's good. That whole process that Rio has put us through over the last sort of 12 months or so has identified other options for our renewable electricity down there in the lower South Island at a Tiwai price, which we're working through at the moment, and James and his team are well into that. I don't think it's by any means certain that Rio will leave in 2024. If you look at what's going on in the world, you've got a recovery from an unprecedented pandemic as the vaccinations start to kick in. And normally, when you have a recovery, commodity prices go up. And equally, you've got a well, which is doubling down and rightly so on its efforts to combat climate change, and that will be, I suspect, turbocharged by Trump going and Biden coming in. So if you reflect on that and you go, well, actually, a high-quality, high-purity green aluminum smelter might start to have a bigger value within the Rio portfolio over the next few years. We'll wait and see. As Mike said as well, we've got the Climate Change Commission report that's come out, which is very favorable around the role that electricity plays. And there's demand obviously associated with that as the electricity market grows and squeezes out more carbon-intensive energy sources. And then the impact in New Zealand of COVID on industrial and commercial demand has been far less than anyone expected. So all of that stuff sort of packages together and go right. The demand outlook looks reasonably good. From a supply side, though, you've still got that fuel risk uncertainty. We don't think that's going to go away, as I said earlier, around natural gas. So you put the supply and the demand together, and that tells you wholesale electricity prices, at least in the medium term, are going to remain high. And they're certainly going to remain higher, we believe, than the firmed long-run marginal cost of new renewables. So we've entered the build phase. You can see there's been stuff built already with Waipipi. What that's going to mean, though, is you're going to see thermal generation pared back as those renewables come online, but you're still going to need the thermal generation for firming. So it means that those fixed costs of the thermal generation are just going to be spread over less volume. And therefore, you're going to see the cost of firming go up, and that's going to get magnified because you've got high cost of carbon, high cost of natural gas coming through. So if you got intermittent renewables, wind, solar, you're going to see your firming costs going up every year. Now we see batteries will play a role in firming, and there'll be a point where there's an economic substitution of batteries replacing traditional firming, but we see that as being some time away. So all this means is if you've got access to renewable development opportunities, which don't require firming, which is where geothermal comes in because it's baseload, then that's incredibly attractive. So -- and that's why we are very happy today, as Mike has already said, to talk about Tauhara and the role that will play. That's a 96% availability, that 200 -- sorry, that 152.5 megawatt, as opposed to wind, which would be 40% to 50%. If you're lucky in solar, maybe 10% to 20%. And also, Wairakei. So Wairakei, we're talking about and providing some clarity to the capital markets around that. Our base case is now that we will invest -- replace and expand Wairakei up to a 170 megawatt plant, which gives an extra 600 gigawatt hours of generation. But the beauty of Wairakei is the optionality of it. So we don't have to make a final investment decision on Wairakei until 2023. And at which point, we'll see if Tiwai is staying, are they going, what's going on with hydrogen in the lower South Island. Or this process heat conversion linked to the climate change reports, how is that going? Are we seeing the demand coming through? Are EVs taking off and we're seeing significant amount of EV growth. So we'll have a very informed view by that point as to what's happening with the market. And then in terms of how we actually replace Wairakei, we've got so many different options. On the one hand, we could just apply to reconsent to expand, so extend the existing life to 2031, 5 years. That would be a low-capital option. We would need approval for that. And on the other hand, we've got what is our base case, which is the go big to meet the demand, but we can do binary plants in the middle. So we have New Zealand -- what we believe is New Zealand's best quality renewable development resource that we can rightsize to meet the market demand. And that's why today, we're actually talking not just about Tauhara, but actually talking about Wairakei as well. So we want to firstly give the capital market clarity on Wairakei, which hasn't happened historically. But also, we want to send a message to all of our stakeholders out there that we've got the best quality resource in terms of renewable development in New Zealand. We can fund it, and we will build it to meet the market. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [10] -------------------------------------------------------------------------------- Okay. Thanks, Dorian. And just to -- this will very much reiterate or build on what Dorian outlined in terms of market conditions. So why now? Why geothermal? Why Contact? Why Tauhara? Let's go underway. Number one, why now? When I came into this role, I made clear I had a passionate belief that demand growth after a decade of promise was finally going to occur and that the signals we have is it is now very much our time. It's not about one company. It's not about one smelter. It's about a wide variety of users who are looking for growth in renewable electricity, whether it's hydrogen, process heat, data centers. They've all come out of the woodwork in the last week, and we look forward to this developing as we go forward. It allows time with the NZAS exit. 4 years is a good time. It's a good time in terms of giving us time. It's also a good time into keeping the pressure on. We can't be idle. We can't -- this can't stay in the university of thinking about it. Like today, by the end of 4 years, we want to have actually done something about it, and we believe that we are the company to do it. We do see the potential for domestic demand schools, hospitals, EVs for that to grow. And with the lower South Island upgrade in place by May 2022, that opens the opportunity for that -- the market to be able to exploit that. Number two, geothermal resources. This is a graph I love. To the far left, you can see the red is basically Tauhara. It is a world-class renewable resource. And quite frankly, to build the equivalent in wind, you'd have to build -- so Tauhara is 152.5. You'd have to build 300 to 400 megawatts of wind and put a battery and -- of a commensurate size to get anything equivalent. It is a cracking resource. And the -- what it mitigates is firming is going to become more and more expensive as we go forward, whether it's batteries, whether it's coal with the carbon price, whether it's gas, whether it's a number of other options being explored around the industry at the moment. It is going to be expensive. We have -- and this is the thing I'm incredibly proud of. Contact has world-class geothermal capability. The company has taken the care to preserve that capability, to retain that capability. We have a fantastic team of scientists and engineers who have been working on this for a long time. Their understanding of what goes on in geothermal reservoirs is unparalleled. They are a cracking set of individuals, and they're a cracking team. They haven't just thought about it. They've actually done something about it. Te Huka, the bioreactor, Te Mihi. A large number of the team from those times have been here as well as them working on this resource for an extended period. The generation mix, you can see there, increasing the geothermal part of our mix. Contact started out as basically a thermal company with a little bit of hydro and geothermals and experiment over the last 25 years. We had our 25th birthday in November. We have made that transition away from thermal to a hydro, geothermal base, and we will continue that journey. And it's a journey we're very proud of, having made the transition without some of the disruption that international players in thermal have experienced. If we go to the next slide. Look, key facts, $580 million go-forward, 0.05 tonnes of CO2 per megawatt hour. I prefer to say 50 grams per kilowatt hour or 50... -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [11] -------------------------------------------------------------------------------- Kgs. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [12] -------------------------------------------------------------------------------- Kgs per megawatt hour. It rolls off a bit here. Basically, coal's 1,000 -- combined cycle is about 500, Tauhara is 50. And let's be clear on that. 152.5 megawatts, that's what it is. It's above what we've previously seen at the market at 140. Plant capacity factor of 96%. Go-forward cash cost generation, about $15 a megawatt hour, which still compares very well with both hydro and wind, which -- what drives the economics. 65% of the capital for the project will be spent in this country, and it has -- when you look at it, an incredible multiplier effect, not just in Taupo, but the broader Taupo, Aotearoa region and across the country. By time you get to a country, that's almost a 4x multiplier on the investment and the benefit. We've secured 60% of the production already. I come from an oil and gas background. To have 60% of your revenue already developed, we've got 90 megawatts already developed, that's a great place to be, and that's what gives us confidence going forward. The steam really is waiting to come out of the ground. And $678 million of total construction cost for this phase of development. A large chunk has been spent. But again, that gives us the confidence going forward. We know what we're getting into. We have drilled the wells. We have done the detailed design. We have a cracking EPC contract with some fantastic partners ready to go. Tauhara, we have the project well ready. We've already produced from the field from Te Huka. They have a good understanding of the field. We have that 90 megawatt. We have the core experienced team. We have the EPC contract signed with a great counterpart party in Sumitomo. We have the variable contracting structure, which allows us to align the drilling and field facilities to what extracts the most failure for us. And we're engaging in discussions around a baseload PPA to -- both to secure the economics of the project but give us the flexibility and foundation to potentially go further, which is -- that's when we're talking about the 3 terawatt hours. Look, COVID-19. A year ago, if we'd had last night's announcement and the turbulence and our share price that we've had over the last 3 months, we probably would have made a different decision. But the fact is we're confident we have the team to do it. And so we're sitting here today, we're announcing it, and we're pushing on. COVID-19, we're well used to it. We have the mitigation facts. We have a work -- we have a workforce fully capable of working from the office, working from home, working from Wairakei, working internationally, and we're very proud of that. But most importantly, that gives us the confidence going forward. Okay. Dorian? -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [13] -------------------------------------------------------------------------------- Just on the wider investment pipeline that we're sort of talking about feeding into this $1.4 billion of investments over the next 5 to 6 years over and above our stay-in-business CapEx. So you've got Tauhara. We've talked about -- actually, we've talked a bit about Wairakei as well, which is on the $0 to $700 million, and that talks to the optionality that we have around that. Our intention is still to do a battery. The burning platform for doing one, though, has reduced because with the Tiwai extension, remember, the biggest benefit of the battery is the reserves it gives you on the North Island, which allows you to run the HVDC harder and make sure that all of the Tiwai volumes -- as much of the Tiwai volume as possible gets across the Cook Strait. It is still a Tiwai mitigation, so we will do it at some point. But by delaying it, there's a rapid technology curve reduction for batteries, so the economics are getting better every second that we delay it. But it's -- the fact that we can leverage a Tiwai mitigation to get -- build, own an operation experience for the first good scale battery in New Zealand is something that we're quite excited about. We've talked about the Roxburgh runners a few times. It's in there. It's a very good returning project in terms of lower marginal costs. And we continue to work and put capital into Dryland Carbon to support carbon credits for the business going forward. This one just gives a bit more information around the Wairakei and the re-consenting process. On the left-hand side, I won't talk to that because we've talked a bit about it already, but read it at your leisure. And then on the right-hand side, it's an interesting slide. Quite technical. But the key point here is there are so many different income streams you get associated with having a battery so it's worth having a look through that. And obviously, batteries are becoming a bigger thing. You've seen a lot of them being implemented in Australia, in particular. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [14] -------------------------------------------------------------------------------- Wairakei, and this is one of the new things for today that we're certainly -- we're looking hard at the Wairakei and what we call the GEO futures project. It's an opportunity. The consents expire in 2026. It's still a cracking resource. And so the base case that we've got there, given there are a lot of options around it, there's a 167 megawatt power station, which both replaces Wairakei power station, but also increases the output from the field which it's well capable of taking, it would extend the life of the field considerably. It's 1.3 -- it feels like a $1.3 billion investment, the base case at the moment. But as I -- just further growing, as you can see, our output of around 3 terawatt hours at geothermal today to 4.5 terawatt heading towards 5 terawatt hours per annum of geothermal. They will still need to compete for scarce capital. It's not a sand dune, and that's why we're maintaining the options around it, but it's still a highly economic project from everything we can see at the moment. And given we've been working in the field for 60 years, we do understand the field. It is also another very low carbon geothermal resource. Just as Tauhara, it's going to take out 0.5 million tonnes of CO2 from the atmosphere. This would take about another 250,000 tonnes out. So all good, and you can see that in that. And that development pipeline is an ambition to reduce New Zealand's carbon emissions from between 0.5 million to 1 million tonnes per annum, which is a fantastic outcome for the country. If you think of our total carbon emissions of around 75 million to 80 million tons a year, we're doing our bit. Dorian? -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [15] -------------------------------------------------------------------------------- So just how do we fund all this? So the -- just to sort of talk you through this. So when we were thinking about our investment pipeline and how we fund it, there were 4 things that we wanted to consider -- or did consider. The first is we wanted to send a message to our stakeholders that we've got what we believe are the best renewable development resources and that we can fund them. And that's one of the reasons why we're talking about an equity raise today, is because that gives the balance sheet flexibility, which then demonstrates to everyone that we can fund these great investments going forward, which should be built. And as I said, with Wairakei, they will -- it will be built to meet the market demand as required, be that demand growth or thermal substitution. So that was the first topic. The next, we know how important the dividend yield is for our investors. So we wanted to also be able to have an attractive dividend, and we've announced that today as well. I'll get on to that in the next slide. We also wanted to be able to demonstrate to our investor -- sustainability of that dividend through a cycle, which could include Tiwai leaving in 2024. So we've done a lot of stress testing on that and scenarios, recognizing we are in a competitive market so you can't take any outcome for certain. And lastly, we obviously want to maintain our investment-grade credit rating with S&P. So we put all of those things into the mix. And then the funding plan that we came out with was do a modest equity raise, $400 million. It gives us that flexibility that we talked about, sends the messages to stakeholders that we can build these high-quality projects. We will use some hybrids, and we will use conventional debt as well. Hybrids, you obviously leverage the implicit low cost of equity within them. The conventional debt, which is obviously very cheap at the moment. So we'll leverage both of those things. That then ties with our new distribution policy. And as Mike said earlier, I mean, the first point around it is we're talking about having a 35% dividend, targeting that for FY '21. We continue with our 40%-60% split between interim and final. So that would be a $0.14 interim dividend. You can see there on the slide the yield based on the current share price of 5%. So one of the things, as I said, we were looking to do when we came out with our funding plan was ensure we had a quality yield, and you can see that on the slide. The actual policy itself is that our dividend will remain within 80% to 100% of operating free cash flow. That's measured over a 4-year period on average. And the reason why we give the 4 years on average is because recognizing that there is hydrology and also stay-in-business CapEx that can fluctuate. So by looking at a 4-year period, you can normalize those things out. But we wanted to keep that clear linkage between our dividend and our operating free cash flow. So there's a link between dividend and performance, which is particularly important when you're investing $1.4 billion into growth projects that you're maintaining that linkage. So that's the overall policy. Mike mentioned we are going to launch a dividend reinvestment plan. We're launching it today because we thought it would be odd to delay it. We wanted to launch it all together, but we won't implement it until the final dividend for the year. And the reason for doing that is we're recognizing that with the equity launch, there's a lot of documentation that goes out with that. And we didn't want to be sending out further documentation around the dividend reinvestment plan of that -- at the same time. It could cause confusion, but it's also a lot of reading for people to do. So far better to actually just delay the launch, send out the documentation probably with the note around the interim dividend and give our investors a few months to sort of digest it and then make a call before the final dividend. The reason why we're looking at a DRP, it's not to try and get more capital into the company at this stage. It's more around this is a signal for a shift to growth. Customers -- shareholders want to participate in that and this gives them an extra way in which they can invest into it in a seamless way without any transactional cost. And if we do keep a 0% discount on that, at least in the short to medium term, I can't guarantee that into perpetuity, though, obviously, but it means that there's no dilution effects for shareholders that just decide they want to take the cash dividend. And then what that means for our interim dividend that we're declaring today. So as I said, $0.14 a share. It's imputed roughly the same as we've been imputing all of our dividends over the last few years, around 2/3. So a $0.09 IC credits associated with that. And the record date is the 15th of March. There's a bit of extra information on the slide, which I encourage you to read. So a bit about the equity raise. I mean I'm not going to dwell on the details on this. This is an offer document. So I encourage all of our shareholders who are listening to this to read it thoroughly. I should just point out on the split, the $325 million, which is underwritten placement versus the non-underwritten $75 million retail. The reason why that split has been chosen is for fairness. That reflects the split of the nonbrokered resident retail shareholders versus our total shareholder base. So we wanted to ensure to the maximum extent possible that if people want to participate, that they won't be diluted, which is why we've ended up there. In terms of the timings, you can see them laid out there. I mean the key thing I'd point out is the shares get allotted. The placement gets allotted on the 19th of Feb. And the retail offer on the 12th of March, the dividend record date is the 15th of March. So after that. So with that, I'll hand back to Mike, who will just sum it up. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [16] -------------------------------------------------------------------------------- Okay. We believe we've got the best projects with the lowest firmed long-run marginal cost of generation and that it is time to bring these projects to market. Now is the time. It's in the best interest of the company and its shareholders and in the best interest of New Zealand, and I think we'll encounter a strong degree of support for them. And our high-quality projects are expected to enhance and support shareholder return throughout the cycle. New Zealand and Contact specifically have a long history in developing resources, and the team within Contact has a phenomenal amount of experience, which we look forward to developing and growing forward into the future. Wairakei, where we have total flexibility, we can shut, replace, grow it. We have options in between. It's a great opportunity for us. And further -- the Tauhara development provides further opportunity. So one of the terms we've used is growth with off-ramps. If things turn against us, we can always pick another option. We can always put things on hold with respect to Wairakei, just as we could with TCC. We do have confidence in the ability to attract new electricity demand. There's a globe out there that's got serious with the new Biden administration, with Japan's commitment to carbon 0 by 2050, about industrial hydrogen, about decarbonizing the world economy. We understand our existing market. We've been in that for 25 years, and we do -- we are well placed to work with both local and international partners. And Sumitomo is a cracking partner to have on board. And we have a funding strategy as of today, which we're delighted to have and gives us a platform for growth, not just for Tauhara but beyond Tauhara and to continue to provide a steady and reliable dividend to those that choose to invest in us. And on that, Matt, we'll take questions. Thank you. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Matthew Forbes, Contact Energy Limited - IR Manager & GM of Corporate Finance [1] -------------------------------------------------------------------------------- Thank you, Mark. We'll now go to questions. Just to remind everyone, we'll be taking questions via the Q&A chat segment online. But first of all, we'll go to calls online. And the first question comes from Grant Swanepoel from Jarden. -------------------------------------------------------------------------------- Grant Swanepoel, Jarden Limited, Research Division - Research Analyst [2] -------------------------------------------------------------------------------- My question is on Tauhara. You're committed to 152.5. I think you had this thing consented to 250 megawatts. Do you still see a 400-megawatt resource there? Or has that changed? -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [3] -------------------------------------------------------------------------------- Yes, we do with time. But I think what we're doing is classic. We're going down the fairway, we will take the lowest cost -- marginal cost electricity now, and that enables us to build further understanding. But yes, we still see the total resource there. -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [4] -------------------------------------------------------------------------------- Grant, I'll help (inaudible) that point there. Grant, on that, I'm just going to say the -- because the actual consenting is on a fluid basis, and we've got 213,000 tonnes consented. We used about 30,000 already for Te Huka indirectly. This is likely to use about 73,000. So actually, it means the balance left over, if my math is right, is about 110,000. They don't get carried away so that means that we can make a considerably bigger plant than Tauhara that we've announced today because what normally happens is the highest NPP quality steam goes to the first plant, but it does give you a bit of feel that there's a lot of extra left for a second stage. -------------------------------------------------------------------------------- Grant Swanepoel, Jarden Limited, Research Division - Research Analyst [5] -------------------------------------------------------------------------------- Dorian, I'm just confused a little bit in that you're saying 110,000. That only takes you to 350,000 if you (inaudible) to the 400,000. So are you now downgrading this to 100,000? -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [6] -------------------------------------------------------------------------------- No. No. No. -------------------------------------------------------------------------------- Matthew Forbes, Contact Energy Limited - IR Manager & GM of Corporate Finance [7] -------------------------------------------------------------------------------- So Grant, we've got consented. That's what's consented in the field. It's a lot larger quality bid than we thought. If you think about Wairakei, when we started Wairakei, we only had 120,000 tonnes of extraction. We're up to 245,000 now. How consenting works is you need to prove the phases, you need to prove the sustainability of the resource, and we will obviously be able to do that over time so... -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [8] -------------------------------------------------------------------------------- So to use a very trendy phase, you got to follow the science. -------------------------------------------------------------------------------- Grant Swanepoel, Jarden Limited, Research Division - Research Analyst [9] -------------------------------------------------------------------------------- Fantastic. Next question, just on extending this resource for another 5 years. What are the hurdles to overcome to get that resource reconsented another 5 years? And then if you can do that, why not just put this in your rolling those 5 year reconsents instead of going and building another $700 million worth of investments? -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [10] -------------------------------------------------------------------------------- So the simple answer is, yes, we have to go through a reconsenting process, which is well signaled, and that will be a science-based process, which will basically be based on the facts. It depends. The reality is the choice we make will be dependent not just on the resource consent we get, but also what the demand picture is looking like. If demand looks as though it is going to take off, if we have this cracking resource in front of us, at some point, we're going to have to make the decision to build a bigger, better plant and to play into that and make sure that New Zealand gets access to these high-quality resources before they -- other individuals try and build lower quality resources. -------------------------------------------------------------------------------- Grant Swanepoel, Jarden Limited, Research Division - Research Analyst [11] -------------------------------------------------------------------------------- Okay. And then next question on the dividend. So you're trading full year, cash flow is about $0.43. You're paying out $0.35 this year. That's at the bottom end of your range. How do we think about when you move up that range? So 81% for $0.35. How do I get back to 90% payout range? -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [12] -------------------------------------------------------------------------------- Sorry, Grant, say that again? -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [13] -------------------------------------------------------------------------------- How to get back to 90% of payout. -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [14] -------------------------------------------------------------------------------- Yes. We've had a -- it will move up. That's the point. It's linked to performance. So we were very clear that we wanted to make sure that was in because we want shareholders to be able to see that. -------------------------------------------------------------------------------- Grant Swanepoel, Jarden Limited, Research Division - Research Analyst [15] -------------------------------------------------------------------------------- Okay. So do we take that you're already paying out 81% that you expect to put performance this year? -------------------------------------------------------------------------------- Matthew Forbes, Contact Energy Limited - IR Manager & GM of Corporate Finance [16] -------------------------------------------------------------------------------- It's underwriting 4-year average... -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [17] -------------------------------------------------------------------------------- So it's measured over a 4-year average to reflect the fact that you've got hydrology and same-business CapEx. So it will be somewhere between 80% and 100%. -------------------------------------------------------------------------------- Grant Swanepoel, Jarden Limited, Research Division - Research Analyst [18] -------------------------------------------------------------------------------- Okay. And then when you look at -- you mentioned in your formal presentation on the result that the Trustpower retail assets is something you would look at. How are you thinking about the premium that's sitting in there? And why don't you put any of that into your potential capital program in your second presentation? -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [19] -------------------------------------------------------------------------------- Well, look, we're looking at it very notionally. As you said, there's been no announcement about tech. And so we can't we can't waste our time making guesses and judgments about something which isn't in our gift. When they make an announcement about what they're going to do at tech, we'll look at it, but we're not going to put something in our capital program which is very much in the control of others. -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [20] -------------------------------------------------------------------------------- And Grant, as you all know from the due diligence process you have to go through in the cleansing, you have to disclose every potential thought bubble that could lead to something that could be material into the future. And there is a strategic review going on, on that, which means that we are assessing options and what that means to us. So it's basically at that point. We're not saying one way or another whether we're interested. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [21] -------------------------------------------------------------------------------- Yes. Thought bubbles don't get into a capital program, even with me. -------------------------------------------------------------------------------- Grant Swanepoel, Jarden Limited, Research Division - Research Analyst [22] -------------------------------------------------------------------------------- And then my final question to hand over to other people, how does the Onslow pumped hydro affected your NPV calculations? -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [23] -------------------------------------------------------------------------------- We -- look, again, Onslow, the pre-conceptual study hasn't even started. So it is a development -- it is a study of interest. It is a study of the news in battery. And at this stage, given the other technical opportunities there, whether it's for overbuild of wind, which is then used to export hydrogen, whether it's batteries, we look forward to that study being completed with interest. So again, we don't see it as a major hangover on the market. -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [24] -------------------------------------------------------------------------------- And Grant, by the time -- if -- Onslow, what's actually going to happen, by the time they get through the whole process and then build the thing, and then remember, based on historic builds of major infrastructure type things like this in New Zealand, they tend to overrun quite considerably, and then you've got to fill the thing up. By the time you get to the end of that point, I suspect we probably actually got a return and a payback on the project anyway in terms of Tauhara. -------------------------------------------------------------------------------- Matthew Forbes, Contact Energy Limited - IR Manager & GM of Corporate Finance [25] -------------------------------------------------------------------------------- We'll go to any questions in the room. -------------------------------------------------------------------------------- Unidentified Analyst, [26] -------------------------------------------------------------------------------- A couple of questions. First question from me, just around, I guess, different policy and the full process around, I guess, (inaudible). Just the way I look at it, you've got $85 million EBITDA coming in from Tauhara, which will take 4 years to get through to dividend. But equally, I think that the smelter closing has negative impact from that. It'll take 4 years before you actually adjust your dividend down and you'll be equity raising. So I thought about an interesting way to go with that (inaudible)? -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [27] -------------------------------------------------------------------------------- Well, we -- I mean, we did a lot of analysis on this, projecting lots of different scenarios into the future, some quite negative ones versus some upside ones. And when you link the dividend, which is lower than our operating free cash flow, as you can see, and therefore, is a contributor towards the growth capital, plus the equity and the other sources that are available to us, that was the one that actually enabled us to look at it and go, right, we're comfortable that this is a sustainable dividend through a cycle, as I said, which could include a lot of other scenarios. So -- and that's one of the differences, I think, between this dividend and maybe the previous policy, which was because it was set at the 100% market, you've got nowhere for that to go. So hopefully, this one will give our investors more comfort that at this level, it is sustainable into the future. And then through that linkage to performance, it gives some comfort that as the business does improve and deliver on these investments, they'll get to sharing the value of that. -------------------------------------------------------------------------------- Unidentified Analyst, [28] -------------------------------------------------------------------------------- Yes, okay. Next question from me was just around Ohaaki units. It's one of the high carbon geothermal plants (inaudible) geothermal plants in the future. What is your sort of thinking around that? -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [29] -------------------------------------------------------------------------------- So the nice thing about geothermal is that unlike conventional thermal is that carbon capture looks a lot more technically feasible. You have a very hot water stream that's being reinjected at pressure. And that gives an opportunity for carbon capture. And the inert gases, which come off, particularly in the binary plant, are mixed with oxygen. So we see technical opportunity for carbon capture. We're going to investigate that actively. And if we can pull it off, Ohaaki has got a great future in front of it. So we're actually quite optimistic. And all the CCC did was lay down a challenge, and it's up to us to pick up that challenge. So we're optimistic. And you'll see some announcements around trials around carbon capture and how we take that forward. We're quite excited by that opportunity. -------------------------------------------------------------------------------- Unidentified Analyst, [30] -------------------------------------------------------------------------------- Next question, just actually to confirm. I think at the June announcement about Tauhara, you talked about $600 million amount (inaudible) $580 million, so I'm assuming you spent $20 million between now and then. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [31] -------------------------------------------------------------------------------- Yes, $8 million. -------------------------------------------------------------------------------- Unidentified Analyst, [32] -------------------------------------------------------------------------------- $8 million, okay. So it's a $12 million cost of production as well. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [33] -------------------------------------------------------------------------------- The team have not wasted their time in squeezing every last $1 out. -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [34] -------------------------------------------------------------------------------- Yes. And the megawatts are 12 -- 512 . So it's a very productive time period that -- for us. -------------------------------------------------------------------------------- Unidentified Analyst, [35] -------------------------------------------------------------------------------- Very good. Next question I had was just around the $480 million normalized hydrology EBITDA. You've done it this half. I guess (inaudible) do that going forward. So we've got a new smelter contract price. But on the flip side, you see spring pricing C&I is going a little bit (inaudible). Are you able to give us a sort of a seat on where that might be tracking towards? -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [36] -------------------------------------------------------------------------------- We're hopeful we'll continue to track towards that. And the effort that we've put into transformation and rebalancing the book, I think, is well and truly taking care of the smelter. And the rebalancing of the channels going forward with the pricing that you can see gives us some confidence around that. -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [37] -------------------------------------------------------------------------------- I mean you'll see -- I've made the point, Andrew , in the second half of the year, we will revert that to mean renewable generation. And that revision from the first half of the year will offset the impact of the Tiwai deal coming in. So I mean, that's not saying that the -- at the moment, we've been able to reprice and optimize our sales channels, and that has been sufficient to cover the new deal with Tiwai. And as Mike said, we are looking at transformation as well going forward. There's none of that in our numbers at the moment, but that will support as well. -------------------------------------------------------------------------------- Unidentified Analyst, [38] -------------------------------------------------------------------------------- Yes, okay. And a very last question from me was, I guess, we are looking at hydrology slightly low average at the moment. Your gas book is probably (inaudible). So if it does go dry, what is your contingency plan? I might presume you (inaudible). -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [39] -------------------------------------------------------------------------------- Yes. So we've got the swaption, so we've got our -- I think it's 5. -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [40] -------------------------------------------------------------------------------- It's got up 5.4 or something, yes. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [41] -------------------------------------------------------------------------------- 5.4. And then we'll be calling the -- calling swaption around that and then managing C&I book as the contracts roll off. -------------------------------------------------------------------------------- Unidentified Analyst, [42] -------------------------------------------------------------------------------- Yes. And is it sufficient? -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [43] -------------------------------------------------------------------------------- Well, the other thing is, remember, because we are pretty unique within the marketplace that we actually have gas storage. So when there are sellers, and there are often people who are forced sellers, they just need to sell their gas, we just pick it up, and we stick it in storage. So that's another mitigation. That does happen. That will happen. We will get some more gas. It always happens, which we'll stick into the ground. -------------------------------------------------------------------------------- Unidentified Analyst, [44] -------------------------------------------------------------------------------- Are you targeting a particular percentage of opportunity on PPAs to the Tauhara before completion? -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [45] -------------------------------------------------------------------------------- We're working with the wholesale market around PPAs looking -- it obviously reduces price risk and other things for us going forward, and that's happening at the moment. You can see one of the other gentailers is running a bit of a process at the moment that is big, so we're involved with that. We're pretty confident that our -- with our project being the best one in our view, with the lowest long-run marginal cost, that it will be pretty competitive as part of that process. -------------------------------------------------------------------------------- Unidentified Analyst, [46] -------------------------------------------------------------------------------- And for the moment, TCC stays in the fleet right to the way of completion? It might trigger a... -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [47] -------------------------------------------------------------------------------- Well, there's a question on TCC. Two, one gas contract which is through 2024. -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [48] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [49] -------------------------------------------------------------------------------- And the second is the next major refurbishment, which is around 2024 as well. And then we've got a decision point. -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [50] -------------------------------------------------------------------------------- And we've got the strategic review happening, so we'll see what comes out of that. -------------------------------------------------------------------------------- Unidentified Analyst, [51] -------------------------------------------------------------------------------- Just the first one for me. The first one, obviously, the forward curve, you're thinking that looks like it'll stay. It's probably a good indicator if we're -- it looks like until we have this renewable build and bell. Does this mean we should expect to see that both C&I and asset pricing continues to improve, moving average continues? -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [52] -------------------------------------------------------------------------------- It feels like that. I'll never want to predict tomorrow's price. Otherwise, I'd be -- wouldn't be doing this job. I'd be seeing it high. -------------------------------------------------------------------------------- Unidentified Analyst, [53] -------------------------------------------------------------------------------- You do not intend to pull breaks on early to sort of track market and (inaudible)? -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [54] -------------------------------------------------------------------------------- Yes. No, we'll be aligning that. I mean, like I say, the only thing is depending on where we see our own fuel position, we might sort of pull back a little bit and keep our sales shorter. But relative, I think, to the market, we see ourselves into being a pretty good position at the moment. -------------------------------------------------------------------------------- Unidentified Analyst, [55] -------------------------------------------------------------------------------- Next question, just what is your timetable for the review -- the general asset review? -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [56] -------------------------------------------------------------------------------- It's -- well, it's -- we're working through that at the moment to actually try and understand. We've got a high level view as to the different things that we're looking to see from it. But obviously, it involves other parties as well. I mean one of the key things around this is recognizing that New Zealand does need thermal generation in the short to medium-term to firm renewables. And across the industry, there would be a more optimal way of doing that. And I suspect a way that doesn't involve burning coal, which isn't good for a look -- in terms of the industry. So there will be a way, and this is one of the things we probably look at, is a way where we can sort of put stuff together and -- which is going to be more efficient, but also lead to less carbon emissions around firming. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [57] -------------------------------------------------------------------------------- I think the important thing is we keep you guys updated. So we'll update you at H1. Remember, I was involved in the 2014 review of the ranking units that we're going to close by 2021, and we've just announced that we'll just -- they're going to start 3 again. We'll keep you updated on how that progresses. And I think the most important thing on that, as we do the review, is that we get the key drivers of what -- what's pushing our thinking and what's underpinning our thinking. So that will be gas supply, the regulatory framework, carbon pricing, international context, the own quality of our fleet and what other thermal players are doing. And getting those sort of 4 or 5 factors all lined up is going to be a challenge, but we're bent to start on the journey sooner rather than later, and that's what we're signaling today. -------------------------------------------------------------------------------- Matthew Forbes, Contact Energy Limited - IR Manager & GM of Corporate Finance [58] -------------------------------------------------------------------------------- And absolutely, we're receiving a lot of feedback from shareholders on what they want to see in the context of funding so we'll take into consideration, too, as well. -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [59] -------------------------------------------------------------------------------- There's clearly a premium in the marketplace from an investor perspective for being (inaudible) to see that in multiples, not just New Zealand, across the world. So that's another thing that we'll be looking at as well. -------------------------------------------------------------------------------- Unidentified Analyst, [60] -------------------------------------------------------------------------------- So the last question then. Just this all points towards the provision of firming and flexibility is becoming the crux issue for the statement. It's not lack of investment around (inaudible). -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [61] -------------------------------------------------------------------------------- Yes. Yes. -------------------------------------------------------------------------------- Unidentified Analyst, [62] -------------------------------------------------------------------------------- But there are conflicted views out of climate change. You mentioned already the government, which is (inaudible). A question for you is -- 2 parts. One, are you heavy for a contracted provision? For example, you sold the thermal but you bought a swaption. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [63] -------------------------------------------------------------------------------- That is one option, yes. -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [64] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Unidentified Analyst, [65] -------------------------------------------------------------------------------- You're comfortable with (inaudible) there? -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [66] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Unidentified Analyst, [67] -------------------------------------------------------------------------------- And then the other question is the sort of the center, which is what do you think the natural provision then will be in the middle of this decade, by the end of the decade? -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [68] -------------------------------------------------------------------------------- We probably don't want to get into this early stage sort of signaling what we think the best outcome will be because, like I say, if this strategic review is going to be done properly, it does need interaction from other thermal players. But ultimately, it needs -- it does reflect that, in our view, aligned to the Climate Change Commission's view, is that New Zealand does still need to firm thermals, that batteries aren't there yet in terms of the cost of those to offset it. And therefore, we want to make sure that we've got an optimized solution, which is low carbon as possible and as cheap as possible because there are going to be other pressures pushing firming costs up. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [69] -------------------------------------------------------------------------------- I think in terms of firming in the medium to long term, what we don't want to get into is the tribalism that's perhaps characterized the industry in the past, arguing passionately for one solution. The answer will be not A, B and C. It'll be D, all of the above. So it will be about batteries, which we're actively investigating. It will be about demand side industry like hydrogen or ammonia or green urea being able to switch on and off, which we're actively investigating. It will be about the broader market having demand flex, which we already have 11 megawatts. And it could be about some form of pumped hydro, whether that is increased levels on existing hydro developments or further. So we're not going to preempt those outcomes. But what you can see from what I've just said is that we can see all those options, and we're actively investigating and looking to participate, if not having already launched some of those options. So it's all of the above. -------------------------------------------------------------------------------- Matthew Forbes, Contact Energy Limited - IR Manager & GM of Corporate Finance [70] -------------------------------------------------------------------------------- Okay. We'll now go to the Q&A online. We've got a few questions from Cam Parker from Craigs Investment Partners. The first question asks, what is the level of PPAs against Tauhara that you are considering? And what could the length of those PPAs be? -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [71] -------------------------------------------------------------------------------- If we want to, we can contract all of Tauhara. In fact, we could probably contract 2 of Tauhara given the interest we've received. We'll do what's right for shareholders given the right risk-reward and what we see the development pipeline beyond Tauhara really. -------------------------------------------------------------------------------- Matthew Forbes, Contact Energy Limited - IR Manager & GM of Corporate Finance [72] -------------------------------------------------------------------------------- The second question also from Cam is to what level within your CapEx program does retail future or -- further retail acquisitions to be considered? -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [73] -------------------------------------------------------------------------------- Always. But we see retail -- look, where we see retail is helping New Zealanders -- ordinary New Zealanders decarbonize their homes, winning the hearts and minds of Kiwis and going on the journey with them, and Tauhara is part of that. It may seem a little remote and hard to relate to, but we see retailers helping bring ordinary Kiwis on that journey. So that might mean -- that means we may look at some capital investment in retail. It means continuing to broaden the products in the home that help Kiwis decarbonize. In that regard -- and when I talk about those solutions or on the demand side, demand flex, you can't do that without having an internet connection into people's homes, which very much plays with that broadband play. It's about the smart -- it's about smart technology and Kiwis doing things smarter. It's just not about the crude solutions of the past. -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [74] -------------------------------------------------------------------------------- And on the M&A stuff, as we said, we're always interested in looking at topics that might be value accretive to us, and industry consolidation across retail has been talked about for a long, long time because there's a lot of duplication and a lot of fixed cost relative to the profitability of the business. So that will be something that we have a look at, but that's not saying we're going to do it or not. -------------------------------------------------------------------------------- Matthew Forbes, Contact Energy Limited - IR Manager & GM of Corporate Finance [75] -------------------------------------------------------------------------------- The next questions are around the thermal strategic review, talking about timing or the possibilities of plant before 2025, expectedly the Tiwai exit date and how value is going to be traded long term. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [76] -------------------------------------------------------------------------------- Well -- so we will give an update to the market at full year results. That's how long it takes to do. I'm not going to pretend that we're going to have the full answer by then, but we will have some good insight that we'll be able to give you. 2025, TCC is obviously a critical decision that's looming as it runs out of hours, and that will be a first signal to the market about what we intend to do. -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [77] -------------------------------------------------------------------------------- And we've talked about TCC. Peakers, Whirinaki, incredibly value -- valuable assets in the marketplace around firming. And also, the gas storage facility, which is unique, and that has to play a role as well. -------------------------------------------------------------------------------- Matthew Forbes, Contact Energy Limited - IR Manager & GM of Corporate Finance [78] -------------------------------------------------------------------------------- We have a question from Jason Familton at ACC. You touched on it briefly, but how have you factored in border restrictions due to COVID into time frames and cost in relation to Tauhara? Is there anything in the contractual relationships that we should be aware of? -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [79] -------------------------------------------------------------------------------- No. I think those are fully disclosed. We believe we've got the COVID restrictions -- the guys have already got, over the last 12 months, have got a lot of experience in managing getting critical expertise through the border. -------------------------------------------------------------------------------- Matthew Forbes, Contact Energy Limited - IR Manager & GM of Corporate Finance [80] -------------------------------------------------------------------------------- Okay. Any further questions in the room? -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [81] -------------------------------------------------------------------------------- One minute over. Very well managed, Matt. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [82] -------------------------------------------------------------------------------- On a mission. -------------------------------------------------------------------------------- Matthew Forbes, Contact Energy Limited - IR Manager & GM of Corporate Finance [83] -------------------------------------------------------------------------------- Thanks. Thanks all. Thanks, everybody. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [84] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Dorian Kevin Thomas Devers, Contact Energy Limited - CFO [85] -------------------------------------------------------------------------------- Thank you, everyone. -------------------------------------------------------------------------------- Michael Fuge, Contact Energy Limited - CEO [86] -------------------------------------------------------------------------------- Okay. Thank you.