Contact Energy Limited (CEN) Earnings Call Transcript & Summary

Good morning everyone. Welcome to Contact's Half Year Results for FY '22. We're here with our CEO, Mike Fuge, who will be taking us through a presentation today and our CFO, Dorian Devers. Over to you, Mike.

Thanks, Matt, and obviously, a very strong result to report today and following up on last week a couple of insights on market, but also to take underneath where the company is on the very strategic mission on play. So let's get right into it with the presentation. The usual disclaimer, just know that and we'll, moving onto next page. So look, I'll give you the performance update and Dorian will take you a bit deeper into financials, and will look ahead and then we will come out and invite questions. So despite the very volatile market conditions, you'll see the headline number there with our EBITDAF up above NZD 322 million for the half year, up 31% and obviously, profit up as well. The operating cash flow, Dorian will deal with the both, but that's not due to anything finance, due to some prudent investment in working capital. It's a bit of a one-off. How does the market characterize by those 6 months? Obviously, we also had a lot of growth capital, with Harvy getting underway. The project actually on the ground, it's been now 35%, 40% complete, but the Green campaign having wrapped up or is about to wrap up after a, what -- kind of strike at the Sunnyvale contract coming in [indiscernible]. The operating conditions, obviously, we had a strong inflows in the Clutha. We did have the improved deliverability outlook for Maui [indiscernible] stands. We have seen real increases to gas and carbon costs, and I'll talk about that a little later because that's quite important. And you see the elevated electricity futures as obviously Tiwai teams to firm up, but also input thermal cost for both Comgas and carbon price have all gone up. So look, we had a diverse portfolio of assets. We are investing, investing heavily in renewable generation. We have a great development pipeline, both in geothermal, but also it's growing in wind and other technologies and we have very deliberately been sprouting these long-term offtake agreements, which we see as fundamental as the market moves from a commodity market to more of a subscription-based market to pay for these very heavy capital investments, which will be required in the long term. So on to the next one. We set-out our strategy last year. For those of you who are able to join us in late May, we had developed a number of strategic themes. As a CEO, it's always a delight that when you see a lot of hard work go over 12 months, but you will also see some real green shoots coming from the implementation of that strategy, which did fundamentally change the direction of the company. So on growing demand, obviously, there is our own 10-megawatt client data center, there is other data centers or in test data centers that have been announced, delighted with the progress on green hydrogen that we've done in conjunction with Meridian, with the shortlist now developed and what we can do in terms of dryer feasibility and those long-term PPAs being agreed both with other parties who want to decarbonize, but also industrials who intend to stay here for the long-term and focus on very fundamental to order key lease in the daily lives. Renewable development, again, been idle, Tauhara underway, resource consenting for the extension of -- for the redevelopment of Wairakei and Dorian talked about last week about how that gives us more bang for buck, some of that off taken but far more efficiently in terms of the megawatts delivered. We also apply with large applications for a further 50-megawatt geothermal development at Te Huka taking advantage of both additional resource there, land that we have and connection and transmission capacity that's available as now. And we've secured land access rights for 600 megawatts of wind projects across New Zealand, not in the Lower North Island, all other wind projects tend to be at the moment. That's some very high-quality type 2 sites in both North and South and that we're looking at very actively. Decarbonization, look, with the investment in afforestation has been very successful to-date, but looking at how we can grow that further. ThermalCo, we released the study, which basically did give some pointers for the market and we'll continue to develop that because now the focus is on what then should we do with our assets and our own gas supply contracts, and we see some real opportunity there for providing surety to the market over the longer term as we all invest in less consistent wind and solar projects in particular. And in that regard, the assessment of the battery project continues and we are targeting a investment decision within this financial year. Customer, great success story. You've seen the relaunch of the brand underpinning that. In the half, customer business, we are operating a SAP system with S4HANA that will enable further diversification of products and further operational efficiency gains. You can see that on the Brand Trust, we've moved from being very middle of the pack to being in the range 1 to 3 and our Net Promoter Score is up again. Connections have grown both in broadband, it remains as tongue twister. New Zealand's leading broad brand in terms of growth, say that quickly. But also what we were delighted with was the launch of Good Nights, which was edgy in terms of its innovation. We're delighted with the results, both in terms of the customer uptake, but we hope to have the results out soon on being able to say whether the customers have actually fundamentally changed their behavior and shifted load. And if that's the case, if we found a way to engage ordinary kiwis and this decarbonization journey are flattening the road and moving load away from the peaks that gives a great opportunity for the future, and that should all come together once we have [indiscernible] launch more of those products, there's more and more people buy EVs and look to smart homes to save on energy. Underpinning that, the progress made on ESG, the green capital bonds at the end of last year, which you can highlight. Obviously, our scope on emissions did reduce on the back of improvement in production with a reduction of what 346,000 tonnes of CO2. We more than outstripped our promises on the number of native plants we planted and the pests we caught. And all that resulted in us really coming up in terms of the scores we achieved on the DJ side. We didn't quite make the index. We were 2 percentage points off but this year, getting our story right on that. And this is in green-washing. This is trying to actively reflect the hard money that goes on this company, both every day and both and also for a very, very long time and getting that accurately reflected and valued by both our shareholders but also stakeholders. Operational excellence, look, I've personally been delighted on this, both in customer generation. TCC, its availability was up at 100%. The team are working on getting stated capacity up from 330 to 360 just through optimizing the plant, running it better. We've seen the real benefits. We've got a cracking optimization team better than geothermal, which has delivered some cracking games, 6 megawatts, but basically, again, extracting more infill for a set tonnage of team and have done a cracking job. You've also seen it in the customer space where our investment in digital over the last 2 years has allowed us to grow the best part of 60,000 customers for no additional opens. So that gain, those gains in broadband and those gains in customers and core electricity have not come at any significant additional OpEx cost, and that's been the investment in digital that automation behind the scenes and we're delighted with how across the business operationally excellent investment in digital is repaying it further. Transformative ways of working. Look, obviously, no one's going to pretend the elephant in the room has been COVID. That was a trigger for us to actually get after this sooner rather than later. I'm delighted with the way the company has responded to COVID. It doesn't stop there in terms of transformative working. The launch of Contact University, bringing all our in-company training courses into one place and then growing them. So we continue to grow the capability of our people. We are rightsizing tenancies both at Wellington and Auckland offices. Auckland office, I think is [indiscernible] taking place right now to visit the new office, which is delightful and we look forward to that. Wellington will redevelop these 2 floors. There's going to be a question about what we do in our other locations, on top of what actually is turning into a real Center of Excellence. Looking forward to doing something very special there and we've committed to becoming founding partner of the well-being team. Well-being for employees has become a recurring issue over these last 2 years. I think it's time we move from just a focus on worksite safety to a more holistic focus on the well-being of our staff is they increasingly work both from the office and at home. Look just around the markets and what we're seeing some insights So electricity demand was lower than 1H21. Obviously we see COVID having a significant impact there in the -- there is 4 month lockdown in Auckland. And we still see that underlying trend of growth 1% year-on-year. It is there. We expect that to continue to grow. Obviously Norske Skog closing dropped 0.2 terawatt hours and obviously SMA demand dropped, but residential demand is up with increased working from home. And obviously lower allocation, but the trends underneath is positive as people convert to electricity as the fuel of choice, particularly with 85% to 90% renewable. Hydrology. Yes, it was a good year for hydro and numbers here 12.9%, it was a good year geothermal, the optimization, if it's the team put and have lifted us above our usual. We were well above the average for hydrology and obviously January took care of that. I suspect the last few days reversed the position again, that's one of the delights of operating in this New Zealand market with the significant penetration of renewals and particular, hydro, watch the space. But overall the trend reduced reliance on gas and coal. Now [indiscernible] this one, because I have seen some commentary in the market and we've shown this graph before particularly this diagram is just focusing on this diagram. And straight I want to focus your attention on people, coal, aluminum and methanol prices. Yes, they're up, but they are not a significant trend that we've seen over the last 6 months. Coal has gone up by 122% to the point where we suspect on a marginal basis coal is now above gas in terms of marginal dispatch, but both the increase in international coal prices and the increase in carbon prices. So the dynamic of the market is fundamentally shifted and basically if you drive in south and you see steam coming out of those 100, means prices are up around NZD 180 and NZD 190. You have seen the demand response which is -- obviously COVID has impacted but we see that long-term growth the positive sounds coming out of Tiwai indicates the demand of anything will go up and with the entry of data centers and the process heat conversions that are taking place that is a very positive trend and gas and carbon prices are only going in one direction I think as today [indiscernible] if you think we were at NZD 2.50 to NZD 5.00 best phenomenal. It is driving the right outcomes, it is driving investment in energy and it's driving and accelerating those investments. That means the interim is a bit painful, but you see the market responding and our own response to that. You've seen the wholesale and futures prices go up and you obviously saw them temper off very quickly over December as a dry spell sequence came in the wholesale market they wretched it up again, but the long term ASX prices have shown a steady increase, reflecting both higher thermal input costs at the margins in particular coal prices. Our competition remains intense. Delighted to be growing in this space, delighted to be engaging with ordering [indiscernible] homes. We have held back on the tariff increases just in terms of not exposing retail customers and given everything else that's going on at the moment with COVID probably enough that gave home set to deal with. That doesn't make that we won't be putting through moderate increases over the near to medium term. But no one needs to be exposed to volatility people have seen in the wholesale market. We've been delighted with the growth we've been delighted that the team have been able to maintain the profitability in the face of some pretty strong headwinds. We are delighted with the operating cost performance, being able to grow those connections, virtually now it's for OpEx. Again it's a tough one. Electricity prices will rise over the medium term steadily. The inflationary environment that's out there at the moment can't ignore, but we've done our very best and we continue to do our very best to shield our retail customers from the worst of their. On regulatory, the wholesale market volatility. Gas availability in the low water levels through 2021, that has created a lot of noise in the spot and hedge market and the electricity authority obviously has published a number of studies. Now let's be clear what number one, how to respond to that. We are investing, we are investing in renewable electricity, we deliberately altered the dividend policy last year, [indiscernible] equity raise with a view to investing in the crack in geothermal, in particular we have but also giving up to one. We have offered long-term PPA with a very, very reasonable prices to those counterparties, industrial counterparties who share the same question was asked about the long-term renewable energy future of New Zealand and have the commercial acumen to engage in those conversations. We continue to submit to the Electricity Authority, but my thesis says the market is working. The market is working well. Those price signals are attracting new investment exactly as they should and we look to forward to accelerated renewable investment over the coming years. Climate Change Commission obviously offered up its report last year. We engaged in that. We support the recommended direction of the Commission report. We continue to guide very closely with government. That was the whole purpose of both the investment in the -- to upbring hydrogen studies and thermal coal. It was very much directed towards providing some thought leadership with credible external parties to help obviously all the future direction of energy in this country. I think it's a dividedly all duty of care to engage actively in. And I would also put it in there. We also engage very heavily with the Climate Change Commission on the value of geothermal the go forward. I think New Zealand is blessed with low carbon intensity geothermal as a base-load which we talked about last week in terms of the opportunity we have. I think it's been hidden for market to you. I think we need to raise a conversation out because it's something that this country has been blessed with it. I mean we don't have to consider things like nuclear power opportunity that gas is a renewable energy source you have. We can actually develop it well and we should see set opportunity. Regulatory matters, the Battery project. Look, there is a question out there. I think we have to keep our minds open as to what the answer is. It may not be A, B or C, it might be D or all of the above. We just ask that everything's given a bit shape of the trade. We do ask that the market and investment signals are enabled to make sure we end up with the right solution and we put thermal coal the study out there as part of that discussion to stimulate [indiscernible] will continue to actively engage with all stakeholders on the Battery project. Energy hardship, as I said, we've done our best to protect the retail outlet of our business and customers making sure they have not been exposed to the volatility, the same to the escalation of both gas and baseload thermal coal prices have been phenomenal and we are very proud of the offerings that we had. We are a company that prepay. We believe it's not a product, it's a service that people that engage for instance with us and say we want to prepay we can still say, it is a full range of products we offer, prepaid. It just happens to be the way you choose to pay for those products. I think that's an awesome outcome and we continue to work through in errands brands with the stakeholders around ensuring that energy quality becomes thing of the past in this country. Dorian, over to you.

Thanks, Mike. Just highlight few key things which will bring for some of the things Mike said actually. So obviously lots of renewable generation which who does translate into strong financial performance. However actually offer that sort of strong renewables. We did align by closely to that expected normalized guidance we gave for FY22, which we'll talk about it as we go through the path. Obviously in light of both renewables and that we are in the linear weather patterns, which generally means dry conditions in South Island, we've been prudent with how we've used our fuel, which is important. As Mike said, obviously with the ex-renewable, our carbon emissions have come down significantly, but you would have known that now actually because of the extra ESG reporting that they now doing the operating stats, so I did appreciate that. I mean, it does show how seriously you can take ESG, but how embedded is becoming now with all sort of business performance, KPIs. Next topic is we appear to have a more positive view on the demand outlook including Tiwai's tag or some form or maybe some others in the marketplace who wants to select to mitigate the Tiwai exit, that reflected in all sales strategy, it's also reflected in our approach to fundings. We've got a little bit early with our capital bond that we would go on-site 9 months ago and that reflects that we are now seeing the demand outlook sort of reflecting more of that upside case that we talked about at our Capital Markets Day in May 2021, so we are looking ready. Regarding that linked to this, we were looking to get back into the C&I market as well fuel position has improved. However, it's been super competitive that's actually see more value selling through the ASX and I'll talk a little bit about that later on. The only exception to that is where we see C&I has been strategic, so we've decogged opportunity, it is still up demand flex or intelligent flex and then we take that opportunity we can. Like C&I retail has been to capacity as well. If you actually look at the price, it is on power switch that is sort of top quartile and lowest price when calculated net back. It is interest of new call actually service that business of the ASX or through thermal generation, so clearly other channels are offering more value in the short term. You might therefore have asked for why have we grown our retail market share during this period and this is what Mike was talking about. I'll [indiscernible] which is 3 hours of power between 9:00 PM midnight is about testing different commercial constructs with customers to see if we can influence their usage patterns. Mike also mentioned, align to our strategy that we want to sign customers on long-term PPAs. One is that sort of facilitate an orderly transition to a more renewable energy system. We had 3 announcements in peak days [indiscernible] 0.7 terawatt hours per year of base-load electricity. We don't disclose the specifics around the price but it's around the marginal cost firmed number of -- cost of building new wins. From our perspective, it's very, it's great. It's inflation protected which especially in today's environment is super important and it's about half the load of Tauhara; so it derisks that investment from a market and a price perspective. Last sort of topic is we've reclassified some interim cost that we had sitting in OpEx. We have moved them up into gross margin, which reflects the nature of the matter, but we also think it reflects [indiscernible] report as well which should aid comparability across the industry. So with that onto the financial performance. So profit at NZD 134 million, up by NZD 56 million. We've got the usual waterfall on the right hand side that explains why the EBITDAF is up by NZD 76 billion. The first thing I'll start with though we had a record July of NZD 81 million, which is the highest Contact has made from a gas perspective ever and that builds on that topic that I've talked about in the full-year results, because we have been now right now our sales position because we got very strong risk management in place there and we have access to other fuels that does put us in a relatively good position to service other market participants by the wholesale market and that's actually quite a valuable position to be in terms of the market and that's baked into some of that profit growth you can see. From a renewable perspective, it wasn't just about hydro. It is like geothermal also grew year-on-year that we had that statutory outage of Te Mihi in the current prior corresponding numbers and that allow this delta thermal generation of say NZD 43 million of cost debt, but also reduce carbon emissions. We have seen a lot of cost inflation around gas and carbon, NZD 18 million to be precise. We are buffered from this a little bit because we've obviously got a contract in place with [indiscernible] which has just got fixed price with escalations already built in. But even so you can see it's quite compared to inflation. The fixed price variable volume channel saw just NZD 6 million of price increase, so this is mass-market and alike. So as Mike said, largely from the increases in the wholesale market. That translates to just 2% increase, and we do continue to see value in studying short-term through the wholesale market to other market participants to cover their own positions around C&I and retail. We saw EBITDAF, up by NZD 34 million a year is a largely short-term CFDs. I think as you look at the futures market, it moved up quite considerably year-on-year, reflecting the risk around how the quarter deliverability, but also the higher cost of thermal which is of obviously the insurance if they hydro and wind keep calling it a risk around how actually it's probably risk because the volumes have dropped it's actually year. So they were reflected in those numbers. In terms of other, NZD 11 million favorable biggest component of that. I'm very happy to say this is broadband NZD 6 billion of additional margin growth year-on-year. In terms of our depreciation, it is up by NZD 15 million. So we have said we most likely now going to build a big pop-up to meeting with quality of the steel is better. So some of those assets down were actually become redundant. Also our upgrade project for S4HANA, some of the components of the existing SAP system won't be required in the new ones again grew aligning while depreciation behind that. Interest cost is coming in lower by NZD 7 million, capitalized interest is NZD 4 million and that's just as you get further 3 build process with Tauhara, the construction progress goes up and therefore your capitalized investors. Underlying interest dropped by NZD 3 million and that reflects the cash that we got in with our equity raise at the beginning of 2021. Tax is higher, the entire profits and the fair value of financial instruments was favorable NZD 9 million. Remember, this is our ineffective part of our hedging wanted to be more responsible, for us it is relatively smaller than a non-cash item. On to the performance across our 3 segments from an EBITDAF perspective whole set up NZD 86 million reflects increased renewables reflects repricing channels, reflects that active channel management. The retail business is down by NZD 40 million, so very tight margins in electricity. You're seeing increases in network cost, you are seeing increases in electricity costs but the tariffs aren't going up past that through. That's a combination obviously there's lot regulatory focus [indiscernible] but also it is very competitive as well. In terms of our corporate costs that come down by NZD 3 million, we have had a one-time benefit which I think you won't be pretty aware of with Meticulous winning that appeal case, well done to them. It means we can release our Holidays Act Provisions and that's for us at NZD 6.8 billion. I think going the other way we got some inflation there. Biggest component of that is insurance. So on to the Wholesale business, so the cost have dropped by NZD 25 million year-on-year [indiscernible] on the left hand side about that we produce the required the states that year-on-year. So that does demonstrate just the favorable info of hydro in terms of financial performance. If you look at what's driving that cost down is clearly double cost, if you look at cost of natural gas, natural gas storage, carbon and diesel that's NZD 24 million reduction, but interestingly thermal generation dropped by 56%, the difference between those 2 numbers is cost inflation, but it's also part efficiency. We only ran TCC for one month in the period. TCC as you will know is our most efficient plant and that made the overall heat rate went from 8.9 from thermal 10.9 for the prior corresponding period up to 10.6, that's a 19% cost efficiencies. We were comfortable with that, it was deliberate because, yes, we were running bit more flexible that enabled us to dispatch into higher prices and then turn them down when prices dropped below the short run marginal cost of those assets and importantly to conserve fuel. In terms of geothermal, great performance, obviously, some we've just naturally because we didn't have the outage but as Mike mentioned the most positive thing was the specific energy which define what energy means for everyone but that was up by 4%, so we are able to get 4% more generation of the same fluid type, which is all the great work that's going on with that team around steam field optimization, so great job there by the team. Hydro, obviously volumes up considerably 20% up in need and then 407 gigs up on the prior year, but actually the really key thing here is we were down 5 that because we had the transport replacement program happening, lost 25% of all capacity down there, but the team has done a fantastic job building that actually still has been kept down to an absolute minimum and the way that is done that's when they have to do maintenance in the growth they kicked into a shorter period as possible, which has allowed them to then leverage the flexibility in the head counts to the voice spill, so great job there by the team. We also finished the period with 260 gigawatt hours of stored water in hardware, which is getting on to sort of max capacity for that time of the year which is pretty useful as you'd expect in the dry sequence that we're seeing in January. And last but not least, thermal generation obviously wasn't needed as much with all of the water couple of fixed costs. As you might actually already TCC we got up to 150 megawatts have been kept out of the 330 due to the vibration issue and that's very important because the marginal heat on that extra 30 megawatts is very low, it's very efficient from both cost perspective, but also from thermal assets from a coal perspective as well. [indiscernible] we lost the peak at the end of 2021 accelerated wear and tear on some [indiscernible] it is covered under where it will fixed, they are trying to get to the bottom from this, something probably to do with natural frequency residents. I would like to get into detail around that. So I'll pick. But we are likely to get it back by April, which is in times of winter, which is obviously important. In terms of our contracted wholesale revenue, up NZD 89 million reflects the repricing and the FP channel management between C&I and CFDs. So all CFDs, we've got a largely short-term less than 12 months and if you look at the futures I've gone pricing. They've gone up considerably linked, as I said earlier, although risk for reality and higher thermal fuel costs and that's reflected in that channel pricing. We're still up by NZD 43 a megawatt hour. We also been shifting volume as it comes off contract as C&I into CFD. And then a couple of interesting thoughts here. C&I markets have been very competitive. Each one competitor is looking to really grow market share in that channel. So we've seen more value in selling through the ASX. You actually get same tenure selling through the ASX now as you can through a C&I contract and the value comes from unbelievable price, but also shape a lot, so we can shape our sales positions better aligned to renewable generation portfolio which means we have less needs to turn off thermal generation in the winter which saves some carbon emission which is [indiscernible]. The other topic is we are seeing more value in shorter term sales than the medium term view. In our view, the market is underpricing few risks into the future and that is reflected in our sales strategy. Just to balance our overall portfolio, we have got our strategic fixed price channel where we sell to customers 5 to 10 year contracts. These are customers that want to manage their own risks by having ourselves fixed interest price. It is inflation affected as a channel with the exception of Tiwai which again is something this industry hasn't been very good at historically, getting inflation protection. So we want to do more of that and we see this channel growing. Those PPAs been associated with how we go through this channel. And as said at our Capital Markets Day, we actually see the industry moving to more robust position that as new generation is build, PPAs are announced alongside those, say you eliminate [indiscernible] over under-supply issues because the demand and generation have been brought concurrently. There is an effect on our contractual revenue of the [indiscernible] deal and obviously the new contract we have with Meridian, associated with it and that is contracted revenue dropped by NZD 10 million year-on-year and then the last is we have minimal price risk in second half of the year because of our CMDs are contracted. We have got really price opportunity because we have got about 200 gigawatt hours to C&I contract. Wholesale trading merchant income, as expected, this is down NZD 28 million, gone up because obviously, you've got a lot more have generation on the South Island and you turn to more fine and thermal generation down, but also because of the high carbon prices pushing up the cost of thermal generation and actually the cost of option as well, you have less opportunities to actually run merchant then can actually make a margin on that, which is why merchant value is down as well. In terms of our greenhouse gas emissions, as Mike said, Scope 1 emissions down considerably, reflecting the renewables and less thermal generation. Scope 3 emissions are up, and that reflects the building of Tauhara, the embedded emissions within that. We use the standard using a construction and emission factor as we get more into this, we'll start be bespoke it for the project itself. In terms of our retail business, the electricity gross tariff is up by 1.6%. Now that was diluted down to 1.6% by that [indiscernible] it was a relatively cheap product within the marketplace, which is why our collections went up by 4%, electricity collections went up by 4%. However, this was the trial and because we see value coming from shifting customers low as Mike outlined, also getting the cost of connection down and also through adjacencies. That's where we see value coming from this business, which is why we're doing this trial. Clearly, the consumers saw some value in it, because in response, we just need to make sure we're getting some value out of it as well. I'm sure we will into the future. Here's a couple of sort of key externalities which impact this business which we need to insist out as well. Obviously the increases of the same in the inflationary environment that also people have been expecting Tiwai to leave and therefore the cost of energy into retailers since you dropping and retail margins widening it all view that Tiwai is leading and therefore it would seem that retail margins going to remain up longer, so we need to reflect on those to [indiscernible] to check we have got the right settings to deal with. Just on to adjacencies and broadband, in particular. I said, gross margin is up by NZD 6 million, EBITDA was NZD 2 million, because although other additional cost to grow and we've got some like volatility going on in the back office, which offset that. Number of connections, up 73% on an average basis, up to 58,000. And in terms of our cost to serve, we've obviously restated these numbers for last year to those metering cost, so you're looking at like-for-like, but it's come down by NZD 10 and cost to serve connection year is now down. It's a NZD 122, NZD 10 lower than the prior corresponding period and we do think that is a standout performance within the industry, which is quite a strategic point of difference for us. If you actually want to locate in another way, if you just the absolute operating cost for the business, NZD 33 billion starting fixed year-on-year even though across all 3 of our products, we've actually got 46,000 more questions. We've got inflation to deal with. And we've also invested NZD 1.9 million more in our brand in this business. Well, that just goes to show that productivity we have going on in our retail across the sale. The overall OpEx from a Contact total perspective, on an adjusted basis, it's up by just NZD 0.8 billion, which is 1%. Some of the things driving that we've obviously got a impact of the Western Energy acquisitions, there is some OpEx obviously with those businesses. We didn't have a full 6 months of those businesses that are numbers in the prior corresponding period. We had some one-timers. I mentioned the NZD 6.8 million reduction in provision associated with the Holidays Act, but we've had some models. You've got the other like NZD 1.4 million of assets we've had to write off associated with that accounting change for Software as a Service. We touched a relatively small number compared to some others. And we have also written-off NZD 1.5 billion of consenting associated with building a second peak at Stratford, which now looks less slightly to happen. Staff incentives are expecting to be lower year-on-year. We had obviously an outstanding performance in the prior year. Financial performance this year was looking obviously good too, but it does show that our bonuses are tied up on [indiscernible] and just financials, which is important. When you get to the underlying performance, we still got some high quality, cost savings coming through year largely from digital, which has been focused on the retail area. We talked about end to end journeys of customers and automating those while producing back-office cost. We are actually get to point our digital team at our Generation and Trading business going forward, because that's really exciting opportunities there. However, these cost savings have been offset by the inflation environment, which everyone will be familiar with, sort of general inflation is looking at about 6%. Insurance, you're looking at 10%. Wages and salaries, which is obviously the biggest component of our OpEx is only 3%, but that's based on historic increases. We do see pressure on that going forward. And I'm just calling out that we have invested in our brand, extra NZD 1.9 million. We have typically invested less than the industry norm, which is reflected in our strong cost to serve. But in light of the role that we're going to play in decarbonizing New Zealand and the fact that the brand transcends the whole business, it's not a retail, just a retail thing, we think it's important to get the message out there about what Contact is about and the time is right. In terms of growth, we're still investing for growth. We've got money going into the Southern Green Hydrogen project. Mike mentioned that we've got land access agreements for 600-megawatts of wind, so there's cost associated with that. And there's a continued cost of growing our broadband business. Whilst there's cost efficiencies coming into the previous topic, that's offset by the volume growth. And we've got other adjacencies that we're looking at in that retail business too. I won't dwell on this slide in terms of the reconciliation between our expected and normalized versus actual. You can see the [ Woodford ] on the right-hand side that most topics, the variances are quite small. The one where the variance is small is obviously the 435 extra gigs of renewable generation, which allowed thermal to be turned down, saved NZD 52 million there. I will spend a bit more time actually on this slide than I normally do in terms of our cash flow performance, because normally, you would expect NZD 322 million of EBITDA to translate to a higher amount of operating free cash flow than just NZD 131 million. That's a cash conversion of 41% and the reason why it has it is because we've invested trade working capital, you can see there on a cash flow, trade working capital movements has gone up, trade working capital by NZD 69 million. So we've invested NZD 14 million in carbon units and fuel for natural gas, which is obviously to mitigate fuel risk going forward, but it's also to mitigate carbon price risk. We've got 0.5 million more carbon units that we purchased than our liability in the period and we've got 2 PJs of additional gas stored in AGS. So those are very deliberate and will serve us well in the future regarding managing fuel risk. The other sort of more major topic is with the strong financial performance in the prior year. We paid a bonus in the first half of this year, which was [ NZD 3 million ]. So that obviously has been paid too. So what I hope you understand is the reduction in our cash conversion was very deliberate. And in terms of managing future risks. And I think this sets up well. In terms of the performance or cash conversion in the second half of the year, we expect it to revert back to normal and then end at about 60% for the full year. In terms of our balance sheet, I guess, no, no coincidence the 2 gentailers most impacted by [ TYX ] here, got the strongest balance sheet. We obviously think TY is not going anywhere. So we see this being a positive because in a positive demand outlook, we've got the capability to build. And I'm very happy about how our balance sheet evolved over the last couple of years. We've got net debt-to-EBITDAF down at 1.5 on a spot basis. And you now got to the situation where the company that's got the highest quality undeveloped renewable resource now has one of the strongest balance sheets and therefore, the ability to build as someone requires And as Mike said, with that demand outlook now looking more favorable, we think that's going to be required sooner rather than later. You can see the impact of the equity raise. It had -- and I did signal this when we did it. It pushed our interest rate up 50 basis points and that's because some short-term capital inefficiency that we have to pay off our flexible debt, which tends to be the cheaper. So our floating debt has gone from 27% to 13% of our portfolio. That's going to be short-lived, obviously because we're building through Tauhara, will be taking out more variable debt. From an ESG perspective, on our balance sheet, at least we're doing everything we can. We've got sustainability-linked loans with all of our banks. All of our borrowings are certified green against our geothermal investments that we've done historically. We're looking to certify our hydro assets green, which is going to give us even more green borrowing potential. And just looking at any innovations, green innovations within the debt capital markets that we can look to into the future. I noticed that over in Australia, where farmers invest in sustainability-linked bond recently. So we might look at innovations like that too. In terms of our dividend, it shouldn't be a surprise. We've guided to NZD 0.35 for the full year, and that's where we have sort of stood at. Remember that in terms of our dividend policy, which is to pay out 80% to 100% of our average operating free cash flow for the previous 4 years. So that's FY '18, '19, '20 and '21, we're sitting at 83% level. So in the range. Interim dividend for us is 14% of the full. So that's NZD 0.14 a share and it's going to be imputed by 71%. We'll continue to move our dividend reinvestment plan, continuing not to discount it, which means we don't participate, you're not disadvantaged. Obviously, we're keen for all people to participate. It's an easy way to increase through exposure to Contact but to avoid transactional costs. If you haven't applied already, application has been [indiscernible] 14th of March. The price for the share will be set based on the VWAP between the 10th of March and the 16th of March, and we announced on the 17th of March. In terms of guidance, not a great deal here. We've reduced our operating cost guidance and that's by NZD 13 million. While this reflects that's the impact of the reclassification of those metering costs out of OpEx and into gross margin. And then what happens, you obviously got that holiday provision release of NZD 6.8 million, but that's offset by the Software-as-a-Service and the peaker consenting costs that we've written off. And it's also offset by the investments that we're putting into our brands that I mentioned, which we expect to be about NZD 4 million for the full year. That wasn't in our previous guidance. We've also guided the Australian business CapEx as well. We spent a lot less than the first half of the year. As you expect, the people at our critical sites, they were focused on making sure that we're operating in bubbles to manage Omicron. And therefore, what that meant is they're able to do the maintenance and most time business CapEx. We are expecting to catch that up in the second half of the year, but not fully. These are important capital projects. However, I made my personal opinion is this chart we might even undershoot that number as well. And that's it Mike, who will discuss strategy.

Yes. And just to remind people on the strategy, I think it's always good as a CEO when you see the strategy both implemented but also delivering real tangible results. We believe the strategy as it stands, we put in place last year. It is the right focus. And it's certainly, we can see those. So growing demand. We'll continue to put our efforts into how we can help industrial New Zealand convert through Simply Energy as a primary vehicle for that, but also in terms of the broader narrative. Renewable development, you saw last week and again this week, I'll talk around the one potential we have in geothermal to almost double over the next decade. The amount of electricity we'll produce from our geothermal resource, but also the efforts we're putting in wind and other renewable technologies. Decarbonization, we're not being idle in the space. We certainly are continuing to work. The way our thermal with the team, we have produced the market thought these, the thermal [indiscernible] which we released last year. They got broad support. Now the question is how then does Contact play in that space. Those are the questions we will be addressing over the next half or so. And the customer experience, we're seeing wonderful engagement with ordinary Kiwis, both broadband and electricity products. We will continue to grow both the product base and our connection with ordinary Kiwis in helping them decarbonize their homes. And those enablers underneath, we will continue the journey. We fundamentally believe that ESG, operational excellence and the way -- transforming the way we work, particularly in this post COVID world, we wish it was post-CVOID world is critical. And with that, I look forward to your questions.

Brilliant. Thanks, Mike and Dorian. We'll go to questions through our various channels. We'll start on the phones today. Then we will go into the -- those of you that are in the building, and then we'll go through the Q&A chat function. So please take advantage of this opportunity that's been provided today. First of all, we'll go to online and we've got Grant Swanepoel from Jarden. Grant, if you're ready, go for it.

Can you hear me?

Yes.

We can, Grant.

Just on the forward curve, it seems a bit elevated. I know you did talk through that coal could be having some sort of impact on that. But my question is really about Contact's behavior in this. Why are you not buying wholesale gas, which is sitting in the low-10s and filling up or -- and then selling into this forward curve more aggressively to bring it back down to something that works for you and bring back to TCC?

We're looking at -- Grant, we've been looking at all those options. I mean, the way, I thought the way the team responded, we were obviously concerned about the dry sequence, which led us in January to run our thermal plant what we expected. But certainly, in the go forward, those are options that we're looking at. Dorian, you want to comment further?

Yes. I mean, I thought there was an article in the DT and Herald and that was reflected on that. I mean, why prices are so high, which we've sort of talked a bit about there already around the thermal fuel costs going up a lot. I mean, I've been looking at some of these things, carbon prices are up by 228% over the last 3 years, natural gas, 67%, coal 250% and petrol is up by 50%. So that's all feeding through to not just for insurance, but also in winter, thermal still makes up 35% of the baseload. I am thinking there may be an element of swaption in this as well because swaption expires at the end of this year. So the people involved with that, I don't know whether or they have a risk mitigation around swaption after that. And obviously, Genesis don't know whether they could be running their plants through merchant as well. So that's, that's probably having a bit of an impact on this. In terms of our position, we -- sorry, the other thing I would say on this topic is with insurance cost, like thermal being so high as well, it actually impacts people's risk management tests. We are -- we have a limit to how much exposure we can take for dry years. And that calculation is done by saying if it is a dry year, what's the cost of the mitigation, i.e., swaption, using the gas or buying of the wholesale market or running [ Wairakei ]. With those costs of thermal going up considerably, it means that, that insurance or those risk tests are being hit quicker, which means we can't sell as much into the future as we would have been able to do. Under previous scenarios, we had cheap thermal generation. I don't know how others operate within the industry, but I suspect they've got similar tests as well, which might be stopping people selling as much into the future which they have done historically. I mean the other thing I'll just you reflect on, there's also parts of the market who now won't be selling into the forward because they can't. If you're -- like I said, if your business is backed by thermal generation, you can't make a spread on selling at the futures prices into the future. So ironically, they need to be higher, so that those people can participate and actually make some money out of it. So lots of things going on there. And I think there's all just human nature around this stuff. There has been a lot of volatility in the last few years. So probably, the risk premium is a bit higher than it has been historically to reflect that as well.

So in context to you, this can be explained if the EA or the government did decide to look at why wholesale prices are so elevated over the next 9 months?

Absolutely. I think the elevated price that you see with the combination of people assessing the TY, but also the input cost for thermal have risen dramatically. And even though we are very comfortable that the gas book that we negotiated with counterparties 2 years ago, the reality is gas is not in abundant supply. There isn't a lot of surplus gas in New Zealand around particularly with those external commodity prices for methanol. So yes, I think they're very explainable, particularly that 122% jump in thermal costs. If you combine that with the carbon cost and if coal expected to be in the market, you're looking at 180, 190.

And second question, just on the resource consenting that you guys are busy with. The Wairakei extension beyond 2026, is that for your futures upgrades? Or is it just to try and keep the dirty part continue running for a few more years?

No, no, no. So the application we submitted is for the replacement of Wairakei, which is on the river with a Te Mihi type plant, which will likely going to be bigger than to me, bite me. Now that's for investing to get a far more efficient extraction of energy from the Wairakei resource.

And my final question is just on your dividend. I know you have guided to NZD 0.35. But this year, you're making NZD 60-plus million extra cash. Is there any chance you could potentially take the 83% that you are indicating as a payout of 4-year trailing up a little bit to reward investors for sticking it out?

Grant, I'm looking at Andrew, he probably had the same question. I think, look, at the moment, look, our -- the reason we introduced the dividend policy we did was to give certainty and balance. And the reality is we have -- yes, we recognize the improved operational performance, which is fantastic, but we've also recognized that there is a high chance we're bringing our future forward in terms of investment in geothermal and potential wind and it's balancing those opportunities and the idea of bringing in this dividend policy structure was to give everyone absolute clarity and certainty about what -- the way we would behave. So we're not jumping around as we might have done in the past. Dorian?

And the other thing I'd say is whilst the operational performance has been very good, [indiscernible]. The other side of that growth capital is up more because of the COVID environment and the borders being shut, tight labor markets, all that stuff that we outlined last week, which -- so the non-capacity part, the increase in Tauhara was all unexpected and to do with changes in the environment as well. And that does offset a lot of the extra cash that's coming in due to the operational performance. It doesn't mean it's not a fantastic investment, it is, but we do need to take things that into account as well.

We'll go to the room now. Any questions from the room?

A couple of questions, if I may. So first question for me, just around that NZD 520 million is the normalized hydro EBITDA number. And obviously, you've gone well above that in the first half, because hydro has been so great. I guess the question is, given what -- how your business is structured at the moment, is an asymmetric upside to more water business needs water, or is it more of a normal case? So if you get a similar amount of water in this dry period, do you end up with NZD 70 million less or I'm assuming, I'm hoping the answer is going to be that the risk management. We do actually [indiscernible].

Reasonably. Yes, it's asymmetric, because obviously, you've got the thermal that's required a hard stop. On the downside, we're pretty comfortable about that. So that's why we shifted that [indiscernible]. Comment Dorian?

It is. As you say, you've got the -- in a downside scenario where hydrology drops, you've got basically just cost of energy goes up. And then you've got upside potential if the scenario arises where you end up with more fuel than others. And therefore, you can call swaption, run your generation and get some lengths into those higher prices, which is actually what we have been seeing historically, which is supported our financial performance. So the NZD 520 million is, pretty assume a great deal of that because that's a normal scenario.

Second question for me was just around, I guess, inflation. And I guess what we're seeing at the moment in this first half hasn't been much inflation come through and in terms of guidance, obviously you're not really seeing a huge amount hitting FY '22. So I guess the question is really sort of beyond that. What should we be thinking? I know you've alluded to a few things on labor costs and those sorts of things. But what's your sort of initial thinking at the moment?

Actually, Dorian and the team have done quite a bit of work on that. Obviously, there's 2 sides to that. Obviously, getting the inflation on the PPAs is critical and also looking at contracts that we have in place, which have inflation links in them and then you've got salary costs. It's fair to say the 2 we regard as balancing over, but Dorian do you want to comment further?

It's where we've got inflation linking to our costs. I mean you've got things like the network costs coming through, which in theory, should get be able to passed through to the retail sector. But we know as an industry, pass-through is difficult in that area. We've obviously got inflation or escalation moved into our gas contracts. Carbon, in respect could go up. I mean that should be possible to the wholesale market. We don't actually have an explicit contract. We built in escalations on insurance, but [indiscernible].

It seems to be going more than inflation.

Going one way, but we are looking at stuff, we don't have captive, others in the industry have a captive. So we're looking at things like that also. I think gas already is well, it's got an escalation to build into it as well, which that's probably not quite like gas and carbon in terms of the ability to recover that from the wholesale market. But I think the big one that's a bit unknown at the moment is sort of wages and salaries, but that's a pretty big chunk of our OpEx and where that's going to go into the future with CPI to get 5.9%. But as I said, we're doing a good job here in trying to get to more inflation protection into our business than the industry has had historically through the PPAs that we are signing and not just some of the PPAs, the -- within that strategic fixed price channel that we've got, there's other stuff in there as well, which is fixed price contracts with escalation built into them too. So this is a very hot topic for us actually. And what we'd like to do is actually get ourselves to a position when the business evolves so that we adopt some good quality inflation protected in there, which means we're sort of protected through a cycle.

I think the other one, Andrew, this is where the operational excellence is the whole idea of operational excellence is you're actively and physically investing in productivity improvements across the whole business that counteracts that salary pressure. And so the examples we gave both in generation, but also in customer, we were able to grow the connections by 10% holding OpEx growth. We're not stopping on that journey. We'll continue to look for those productivity improvements across the board. We're relatively confident that we can offset those inflationary increases we have demonstrated that in the past and we'll continue to do so.

And just last question for me. You mentioned investment in here in carbon afforestation. I'd just be interested to get a rough idea of what is the current development cost going down that route? Clearly, carbon costs are [indiscernible] I'm hoping the answer is obvious than that.

Significantly less than that yesteryears. We can't give a precise number because it's still not signed, still limited, but it will be obviously significantly below the multi price carbon.

It does come down to -- I mean, obviously, [indiscernible] land and their view for view of carbon prices as well. Eventually when it was an absolute if you're in a clarity on where carbon prices will hit it, all the value can be captured in the land. So we've got a couple of years where they're sort of still uncertainty and volatility before they translate into land prices. So we do believe that this is significantly above where project retains a percentage but significantly.

And if you assume you're going into imminent forest areas as supposed to…

Yes.

3 for me as well. Just to start off with I'm interested, what was the size of your Good Nights trial? And what do you think its initial status will be?

So we acquired about 20,000 customers, 20,000 people signed up to it. Just about [ 5% ] of our total customer base. We obviously -- as we went through it, we modified the pricing was in market and the customer is continuing to sign up to it, which was fantastic. And it's a question now of sitting down and doing the analysis. Because where we see it, it's not -- it wasn't an end. It was, well, can we shift life, what does that mean for EV applications? What does it mean for smart homes when you ship the times when your refrigerator, air conditioning, the water heating is operating, can we automate that. There's a whole range of things now and products that we can now cascade on to that if we can get that people want with the right signal, they will shift their load, it's a fairly dramatic signal, but #2 is what needs.

And you will then tell us how large do you think that would be? Is that still to be determined?

Look, in terms of your market metrics, we hope all Kiwis engage in the decarbonization journey and load shifting is a key part of that. If you think of the volatility. We have wind, but also baseload geothermal. We can't sort of -- the most efficient outcome is that everyone doesn't come in at 6 o'clock in night and turn on heating and the electricity and the lights that we are able to shift those loads. So but the reality is that at this stage of the market development, as with EVs, you've got the innovators, the fast adopters, as we call them. Typically, I think market is 10%, 15% of mass markets, always put in that market capability. They want to get on board, they are always the first ones to buy their latest iPhone. They're always need to take on the tech. And so we're looking at that segment of market at the moment.

In terms how we think about that, that might be a lower [indiscernible] channel, but with [indiscernible] channel.

That's exactly the one.

There's an increased value they bring there.

Second question, what kind of engagement have you had now from thermal coal? And I guess the key players would be interested in Genesis and the government.

Well, no, look, it's across the industry. Remember, thermal in this country is based on both what we renewable operators need as thermal, but also what those who don't have thermal assets to back their increasing investment renewable generation. And it's fair to say across the market without going into too many details we've had good engagement. Some of us haven't engaged quite enthusiastically. I think there's a very public comment on that, but that doesn't mean other stakeholders haven't gone actually led them slightly down that idea because there's only one direction the industry is going. That's increasing amounts of volatile wind and we have to find a collective solution to that, which thermalizing for a very long time underpinned. It will be in smaller and smaller amounts. But all that means is that thermal transitions from actively in the market every day to pay as an insurance policy sitting behind what is increasingly a 90%, 95%, 99% renewable [indiscernible].

Just one thing on -- if you actually look at the market, and I mentioned in my presentation, you can't back at the current price of carbon and fuel, you can't back C&I or retail sales by running thermal generation. So that entire part of the market, you can't probably back through thermal generation in current market prices. You might be able to continue with it if you've got legacy prices. But I mean, you could argue what you've been extracting the value separately from that, right? You can sell cheap carbon, make money on that. And so that's -- I think what's happened now with the market, people are -- you're going to see thermal assets are just going to be actually sitting their idle because they can't be dispatched into and make new money. So that's I think will start forcing, I think the last 6 months will start forcing people to logically look at thermal assets. They're not just dispatched at all from a baseload perspective. We part back our retail business or our C&I business, what are we going to do. And I think that's probably going to force structural change around thermal [indiscernible] later.

So no change in timing for thermal decision that's right into this calendar year or…

Yes.

Last question for me is just to scratch a little bit more on sort of the market prices. And I guess, the question in my mind is why as you observe coal prices have gone up, a lot of carbon potential that lifts the marginal cost for [indiscernible] much higher. Why have not we seen the gas market -- spot gas market prices rise, they've actually fallen since -- quite considerably since the middle of last year. So they're now that's sort of [indiscernible] space, why have they been fitted out? Could you explain it?

Again, what's happened and the interesting thing is our gas market isn't as connected with international LNG prices as say other markets are whether it is our coal prices, there's direct input by [indiscernible]. So there is a connection with international prices. I think what you've seen within the domestic gas market, there's probably a stronger linkage back to Methanex, which you saw on that slide showed a lower percentage to increase in international price of methanol. So that's the -- where you can't put your gas, that's where it ends up. You've seen an improvement in the domestic supply situation with both type drilling and the very successful intervention by OMV on Mali, which they've extended to Mali B but they've now got the jackup on Mali B and we'll do that low [indiscernible], so you've seen an improvement on the short-term outlook for gas, which is unique to the domestic market here whereas coal they're very much connected to those international markets. But the gas connection has methanol, as probably to the guidance.

So we should expect to see more gas generation and of the generators this year?

Subject to water, as we depends on…

On a normalized basis.

On a normalized basis, you'd expect to see more generation from gas, but we're expecting the supply side to be at…

Thanks, Neai. And into Q&A through the chat. First one is from Cam Parker from Craigs Investment Partners. What's the potential for demand growth [indiscernible]? And at what stage do you expect to pass through costs to customers? Any thoughts on your strategy around reseller pricing appreciated.

So the trick with retail is always that any price increases that you're going to put through [indiscernible] well, that obviously you do this steadily and that you don't expose customers to the volatility. So we expect our retail prices to increase gradually at or below inflation over in the short to medium term. And what we then see is that even with TY staying, you still see a flattening of the ASX, which should bring the situations, relative situations that we see today back into good order. But there is a challenge in the retail market on and that what prices have risen significantly. And consumers have to life degree being protected from that. And so we are going to have to address that as on go-forward [indiscernible].

That's the reason why I highlighted if you need to look at the settings we've got aligned to that. But as I said it is very competitive. If you look at power switch, you've got lots of Tier 2s, all up there, low prices. We're still making money as well. So if you want to continue with a certain amount of volume going through that channel, you have to be able to compete to offset the net draw that the natural level of churn and no matter how big you are, and you need to offset that. So if you want to maintain a set of [indiscernible] the channel, then that's just what we have to do. But as we said, I don't think we're highlighting that our prices are going to be going up with CPI, hate to look at CPI is at that moment, but we do need to look at things like this in terms of what's going on with the extended environment.

What we want to avoid is what happened in the C&I market, where prices were suppressed for a very long time. Margin, that was intensely competitive margins went to 1%, 1.5%. And as large-scale entities came out of that, they just hit dramatically increased prices, which has created a lot of noise in the market. Now benefit of hindsight, they got a hedge better, they would have signed up for long contracts, all those good things, but that's the reality of what happened in C&I. And I'm on that to happen in the mass market retail, I think prudent debt stepping towards the increased prices. But just as in C&I, our efficacy is that large-scale C&I users move into more of a subscription with very long-term deals that will finance these incredible new renewable assets that everyone needs to get on and build, I think that's the same proposition that could be very successful in the retail space.

Second question from Cam. Do you see any regulatory impact on retail price tariff changes, retentions?

We always and obviously, our engagement with government, we have a very positive engagement with government stakeholders. And that's again why our own behavior and the market is so important that there is a very steady calm response to different change in market conditions. Then the regulatory response is more measured. And it's important, our own role on that is so important. There has been obviously a lot more noise in the C&I space. Again, all I can point to is our own behavior is signing up versus long-term PPAs. But it's something we keep an eye on. It's something we actively manage. We fundamentally believe the market is working well with the right price signals are coming through for significant investment in renewable energy. That's a great outcome. We don't want to see an own goal in terms of tipping up market settings tipping them up upside down and you completely ruin the regulatory settings, you add a whole lot to the interest rates, you pay on these projects in terms of sovereign risk, that would be really unfortunate outcome is that what's important is the market now responds with new investment.

Next question is a series of questions from Stephen Hudson from Macquarie. Do you view your net price assumptions and normalized EBITDA [indiscernible] as conservative given exit rates in 1H and '20? Second question, how staff retention engagement looking over the first half of the financial year? And the third one is why [indiscernible] is still so aggressive?

Right. I'll leave the first one to Dorian, and then I'll comment on the second.

I think the -- well, I think the, we said when we've analyzed our actual performance against the normalized guidance we gave with the exception of the renewables, we've come in largely aligned to that. I think some of our contracting pricing is coming in a little bit lower as we've been shifting or contracting C&I from pushing the equity price up, volume through CSDs for example, we've seen retail pricing coming in a little bit lower than dilution effect of Good Night. So in terms of the sort of the channels, we finished there or thereabouts. That was remember, the guidance for FY '22, and we need to reassess at the end of FY '22, whether some of that needs to change for FY '23 because you'll have to continue repricing of C&I because we've got some negative stuff in there that will need to effect for the next financial year.

So question 2 and 3. And so actually, thank you for that question. It's not something we've made fuss off. So our staff engagement over the last 2 years has risen steadily and consistently through COVID and everything. So our -- the actual score itself has risen by about 10%. It's now sitting over 8.1%. And remember, that's in for us, for the way we measure engagement, we use a moving average, not a snapshot in time. So that's but also resolved, and we've just done that. We regularly monitor and the E&PS deployed the Promoter Score has come up almost 18 points over that same period. So we're delighted with the staff engagement and we see that playing out and the retention stats. And to be fair, when you've got such a strong growth story across the business in both the retail arms of the business and the acquisitions we've got in the [indiscernible] and the core generation arm, but also in the development and project arm, who wouldn't be enthused by their story, who wouldn't want to come on board and who wouldn't want to stay on board. It's a great story. So yes, we're delighted with the staff engagement but as an energy company who very unusually for this time has set out a journey of growth, I think it's under statistical. And now the last one is why are the Tier 2s aren't so active. Well, they're there to compete. So good on them they are competing. If you're running a Tier 2 and you've had some escalation in your input costs in the wholesale market, you have no choice, you have to compete, you have to innovate, and that's what you're seeing in the Tier 2 market, which is, I think, a very healthy for all of us.

Last set of questions comes from Jeremy Kincaid from UBS. First of all, all he asks, Intesa has indicated they may be able to provide demand response. Do you expect that to change in discussions around portfolio flexibility, in particular discussions regarding this option. And the second one is when should we expect a decision on thermal coal?

So we've already signaled it sounds like the thermal coal continue to be a work-in-progress over the full August calendar year, and we'll keep people updated on where we're beginning to with that. And that relates in a way into the first part of Jeremy's question is, obviously, what ends this can provide in terms of demand flexibility. It's a play on effect to what the insurance cover is needed to provide by remaining thermal assets in the market over the long term. And so there's going to be a bit of an interplay, the degree to which we can get flexibility in the short term reminds us in the medium term investments in hydrogen and process heat demand fleets remember alliance that sort of deal in place that, that in turn, if you will leave a residual part of the market will -- it may not even be thermal plant of runs, but providing that insurance product, the rest of market will be then become increasingly important. So he's right, there's a very dynamic interplay that goes that will need to go on. So it's going to be a very interesting 12 months ahead.

Just one other thing I'll add on the thing [indiscernible]. It also depends whether dry cover or signal cover, that has quite a big impact. The -- I mean, my preference would be seasonal cover [indiscernible] something down in the winter every year to free up generation or disperse them. So that obviously has quite a big impact on the need for option and things like that as well. Obviously, the [indiscernible] product completely. So that obviously predict the bottomed out as and when discussions begin.

Cool. Well, thanks, everyone, for joining us today, and we look forward to catching you on the road.

Thank you.