Contact Energy Limited (CEN) Earnings Call Transcript & Summary

Kia ora everyone, welcome to the presentation of Contact's FY '26 results. Delighted to have you all here. Put simply, FY '26 was a year of delivery. We completed the acquisition of Manawa Energy and welcomed its people and the assets into Contact. We delivered renewable energy growth with renewable output up 37%. Contact was 98% renewable in this last year, up from 88% last year and just 81% in FY '21. We took strong and pragmatic steps to support security of supply and the resilience of the electricity sector. We contracted with others, the HFO at Huntly, to ensure a strategic coal reserve for dry years. We brought our first battery online at Glenbrook and confirmed our investment in the second 200 megawatts, and we secured gas to support essential community services through the all of government contract. Meanwhile, we continue to work closely to support our customers. This includes supplying discounted or off-peak free electricity to now around 165,000 households, supporting customers and communities most in need through the $5 million The Good Initiative. The FY '26 results reflect this delivery across the board with EBITDAF of $1 billion, up 31% last year, a step up in our average return on invested capital of over 100 basis points. Given this, the board has declared a final dividend of $0.24 per share, taking the total final dividend for the year up to $0.40 per share, up 3% on last year, delivering as promised to our shareholders. Go to the next slide. Market conditions in this last financial year '26 were a significant contrast to those in FY '25. The market was 93% renewable, the highest rate achieved since the market was introduced in the 1990s. And yes, this reflected higher than average hydro inflows, 180% above mean this year. It also reflected the investment the sector has been making in building new renewable generation, bringing around 4 terawatt-hours online in the last 5 years alone, pushing out baseload thermal. Another 3 terawatt-hours is committed and expected to come online by the end of 2027. This is a cheaper supply of electricity, it builds resilience and economic independence for the nation. This investment is now being reflected in longer-term ASX future prices, up nearly 30% since the start of the year. These have settled at the lower end of our long-term wholesale price expectations, reflect the market moving back into a supply and demand balance. Demand is tracking up about 1% when you normalize for the fact that NZAS demand response was deployed last year. The market will need to be disciplined, bring forward new renewable electricity projects backed by new demand sources. And alongside that we'll have to show both capital and cost discipline. Only the best projects will get through. Pricing for winter '26 has also come down sharply since the start of the year, with market confidence backed by high energy storage across each of hydro, gas and coal. Recent market trends continue, like the ongoing decline in gas production, with 2P reserve forecast now 24%. We continue to address this strong headwind. However, what is clear is that the market has learnt from the challenge it faced in winter 2024, has come through in a much stronger position to support Aotearoa's changing energy needs. The market has already adapted for the energy transition. Sector investment has continued at a pace. Market settings have evolved at the same time. We have now a fast-track consenting regime in operation and further planning reforms expected to pass by the end of the year. Industry is delivering the highest rate of new renewable investment in the nation's history. We have moved as an industry to put in place dry year support across a range of mechanisms. Demand response of large industrials, the HFO with the strategic coal reserve, stored gas and AGS, and changes in the way we use hydro. And yes, there may still be a role to play for right-sized, a right-specced LNG facility to support those remaining gas customers who are finding it difficult to convert off gas and to provide for the nation a diversity of energy supply. We also expect extended HFOs and diesel storage to play part in this resilience story. Remember, it's always been a matter of all of the above, not just one magic bullet. We have already moved the dial on this as a sector to mitigate dry year risk and deliver energy security for all. Market and regulatory settings have evolved in step and are now very clear with non-discrimination obligations now in place and the super peak product and the associated market-making obligations both now implemented. We continue to innovate for our customers as they electrify their own energy use with tools like shaped electricity supply contracts and demand flex, making conversions to electricity all the more possible. We remain focused on energy wellbeing for those most challenged by energy prices, consumer cares, and reducing barriers to access. This year, the Contact Good Initiative alone provided $5 million of customer and community support. We expect it to grow to $7.5 million in the coming year. We're advocating for a market-wide obligation to connect, to lift energy wellbeing outcomes, no matter your circumstance. We continue to deliver on our very strong renewable investment program. We have had a continuous build program on the go since 2021, with Tauhara, Te Huka 3, and our first battery all now online, and Kowhai Park Solar now in commissioning. This investment has directly contributed to the supply-demand balance that you can now see in the broader market. Coming back to the market, early works are now also underway on Glorit Solar, which together with Kowhai Park, will help support committed dairy electrification load, the conversion of dairy off gas and coal. Construction also got underway on our second battery at Glenbrook in March, which will ultimately take our battery capacity at that site to around 300 megawatts, helping us to free up natural gas used in peak periods and supply this to customers. It's worth noting that the role that batteries have played in these last few weeks in keeping the country safe through those morning and evening demand spikes, which were at record levels with significant amount of conventional generation offline, and yet as a nation, we got through that. Construction has well progressed on our Te Mihi Stage 2 geothermal project, with the steam field separator, heat exchangers, and turbines for the first unit already installed. Te Mihi 2 is scheduled to be online in quarter 3 next year and will replace Wairakei to a degree, which has been running since the 1950s. We have an extremely experienced team there on the ground, continuing to demonstrate that project delivery and geothermal development expertise is so core to our value proposition as a company. With Manawa, it's been a transformational year for Contact. Having completed the acquisition of Manawa on the 11th of July last year, welcoming Manawa's people and the 26th generation sites into the Contact fold. It has truly been a merger of 2 great companies. We're delighted to have already delivered the benefits of the integration. One of the pleasant surprises has been the quality of the development options acquired, including the Huriwaka and Kaihiku wind projects and Argyle Solar. These have been actively advanced, enhancing the optionality within Contact's already high-quality pipeline. Cost synergies have already been secured at 100% of the upper end of the range we signaled. That's $28 million on a run rate basis. Together with the net repricing benefits that have already been confirmed going into FY '27, we have secured an $84 million uplift for FY '27, up 35% on the long-run benefit announced at the acquisition. This is before the expected value from long-run generation normalization, with the Highbank and Coleridge upgrades ongoing and expected to come online in the coming year, and hydrology varying year-on-year. The delivery of Manawa has just, however, been one part of the story this year. FY '26 has seen an impressive delivery of our in-year strategic targets across the board. As we closed out the Contact26 strategy, which was, remember, to lead New Zealand's decarbonization, we decommissioned our final base load gas plant, TCC, after 30 years of service to the nation. We met both our run rate and in-year Scope 1 and Scope 2 emission targets that we committed very publicly years ago. We beat our contract demand targets. Importantly, almost all new demand contracted in-year had a favorable shape, being summer-weighted. Our CO2 commercialization project hasn't quite met the project time frames we set, but we continue to see this as an important part of the future of the Auahi geothermal field. The project remains under development with a pilot-scale test planned for Auahi later this year. I've covered our renewable investment activity in detail. Again, a very good result against the ambition set at the start of the year here. Noting that Kowhai Park is now in commissioning, with the energy to the grid later this month. In fact, in the coming weeks. In retail, we've over-delivered on our multi-product customer and net price targets. We're broadly in line with our cost to serve targets. Finally, we've met all of the targets, as I outlined above, that we set ourselves for Manawa delivery. On that note, I'll hand over to Matt now to take us through the financial results.

Thank you very much, Mike, and kia ora everyone. I'm Matt Forbes, Contact CFO. Before I talk about the numbers, it's just worth remembering they're a product of thousands of decisions made every day across Contact, and we're enabled by the 1,400-plus people who operate our assets, serve our customers, and deliver change across the business. It's our job to turn those efforts into long-term strategic value for shareholders, FY '26 is the year the strategic choices made through Contact26 and the Manawa acquisition have clearly translated into strong financial performance. FY '25 tested Contact's resilience through dry hydrology, fuel constraints, and high replacement energy costs, FY '26 shows what the expanded portfolio can deliver in a more balanced market. There are 3 key takeaways from the result. The business has performed through very different conditions. Manawa and recent investments are now delivering measurable financial benefits. The resulting cash generation and balance sheet capacity support our forward investment program and give us confidence in further dividend growth. The headline for FY '26 is that earnings growth came through more renewable generation and the additional sales it supported, not higher average electricity prices. EBITDAF was $1.011 billion, up 31% on underlying FY '25, and operating free cash flow increased 49% to $648 million. FY '26 return on invested capital reached 7.5%, lifting the 4-year average from 4.9% to 5.9% as returns from Manawa and recent renewable investments began to flow through. The bridge on the right nets to a $237 million increase in underlying EBITDAF, with 2 interconnected movements explaining most of the change. Renewable generation added $225 million, reflecting Manawa's hydro, the first full year of Te Huka III, and improved inflows. That additional generation supported more contracted sales while materially reducing our reliance on gas-fired generation. Pricing moved the other way, creating a $53 million headwind. The average price across contracted sales reduced from $157 to approximately $140 per megawatt hour, reflecting the move away from FY '25 stress conditions and the greater proportion of generation sold through longer dated contracts. This illustrates the 2 sides of hydrological volatility. Sector earnings have rebounded as conditions move from very dry in FY '25 to wet in FY '26. The distinction for Contact is that our portfolio delivered through both. Lower gas, carbon, and acquired generation prices added a further $40 million, reflecting the reduced costs of replacement energy in the year. While other income improved by $51 million, reflecting new income streams acquired with Manawa, and the absence of losses incurred on excess gas from Methanex sales in FY '25. Fixed costs increased principally through the Manawa cost base and transaction integration expenditure, partly offset by the synergies and productivity benefits delivered during FY '26. Turning to profit. Underlying profit increased 62% from $261 million to $423 million. Importantly, it also increased on a per share basis. Underlying profit per share rose 27% from $0.327 per share to $0.415 after allowing for the shares issued during the year. That per share outcome matters. The capital we raise must translate into stronger earnings and value for each share, and not simply to deliver a larger company. Below EBITDAF, high depreciation and interest reflect the larger asset base and our approach to acquisition funding, while tax includes the benefits of the government's investment boost settings. One item worth explaining is the unrealized movement within the change in fair value of financial instruments. Around $39 million of the year-over-year improvement relates to commercial contracts that are not eligible for hedge accounting. They relate to future periods, are non-cash in the current period, and do not reflect current period operating performance. That's why reported profit should be considered alongside EBITDAF and operating free cash flow per share, and most importantly, delivering improving return on invested capital. The segment view shows where the EBITDAF was generated. I'll keep this brief and return to the details in the slides that follow. Wholesale EBITDAF increased by $250 million to $1.145 billion, reflecting the scale in renewable generation drivers already described. Retail EBITDAF improved from a loss of $49 million to a loss of $41 million. That's despite $130 million increase in electricity and network input costs. Corporate and other allocated costs increased from $73 million to $93 million. That includes $24 million of Manawa transaction and integration costs, compared with $18 million in the prior period. The remaining increase reflecting the acquired Manawa cost base, inflation, and investment supporting the development of our new Contact31+ strategy. On to our wholesale business. FY '26, the generation from renewable sources was 98%, up from 81% when Contact26 began in FY '21. That shift has changed not only our emissions profile, but also our cost base and the resilience and quality of our earnings. Manawa has added 2.4 terawatt hours of hydro generation and contracted renewable PPAs. Combined with geothermal storage, flexible thermal capacity, and access to markets, that has created greater geographic and technology diversity, and gives us materially more ways to manage volume and price risk. The value lies in using all of those resources together. Let me bring that to life with a practical example from FY '26. The year included planned outages at Tauhara and Te Huka III, unplanned disruption, and some assets taking longer to return than expected. We did not respond by replacing every one of those lost megawatt hours at any cost. When Te Mihi and Poihipi experienced an unplanned 5-day outage and geothermal generation was approximately 20 gigawatt hours below our forecasts, increased hydro and thermal generation largely offset that shortfall. That's exactly what resilience looks like in practice. It doesn't mean avoiding every disruption. It just means having those portfolio options to manage the financial and customer outcomes and consequences when that disruption invariably occurs. Thermal generation fell to 229 gigawatt hours, its lowest ever recorded level. High inflows contributed, but so did the expanded renewables portfolio. Thermal remains valuable in dry periods and during major outages, but is now just one option within a broader mix. The Contact and Manawa assets are already being managed commercially as one portfolio. The next source of value is integrating the support systems, data and decision processes. On wholesale contract revenue, the larger renewable portfolio also allowed us to increase contracted revenue by $281 million to $1.666 billion. The largest movement was in strategic fixed price sales, where revenue increased from $146 million to $361 million and volumes increased by 2.2 terawatt hours. That reflects the Mercury contract acquired with Manawa, a full year of Tauhara backed PPAs, higher INSUS volumes, and the commencement of the New Zealand Steel agreement. This is our channel management flywheel in action. Durable customer demand supports renewable investment, and our generation and customer commitments are managed together through our trading team. Long-term contracts are important. They provide earning certainty and help underpin new generation. The trade-off is that they can underperform merchant exposure in tight markets, but become particularly valuable when supply increases and near-term prices fall. The wholesale price conditions in FY '26 demonstrated that value, and the allocation across each of these channels is deliberate. Each carries different price, shape, location, duration, and risk characteristics, and no channel is always superior. For example, in retail, that meant preserving the long-term value of a customer franchise rather than materially reducing volumes over the last 6 years, when input costs were higher and it was tempting to do so. In wholesale, it meant retaining a balance between long-term contracts and shorter-dated market-linked channels like C&I and CFDs, rather than concentrating the portfolio for one market outcome. That balance preserves options as the conditions change to deliver that purposeful alignment between customer demand, renewable investment and the risks that Contact chooses to retain. That contracted book provides the foundation of how we set up the business, and our trading business manages the residual position as the conditions change from those starting assumptions. '26 began with fuel scarcity, planned outages and the risk of constrained gas delivery. By the second half of the year, high hydro inflows and wind generation had driven those spot and short-term dated prices materially lower. In-year, we continually reoptimize the portfolio rather than operating to a fixed annual plan. The clearest example in FY '26 was our move fuel strategy. Through autumn and early winter, the team increased market purchases when electricity was inexpensive and retained our valuable hydro storage for periods when winter prices are expected to be higher. In June alone, that meant buying an additional 22 gigawatt hours when spot prices at Ohaaki averaged $41 per megawatt hour. Viewed asset by asset, buying electricity when water is available can appear counter-intuitive, but when viewed across the portfolio, it can be economically the right decision when the expected future value of the water exceeds the current purchase price. We had similar examples within our gas portfolio. Lower electricity prices and that limited thermal generation created a risk that Ahuroa gas storage could reach capacity. The team therefore sold the gas, including at a standalone loss for that gas, to preserve the flexibility across the wider portfolio rather than potentially face forced sales later. I guess those are the decisions that bring the Manawa thesis to life. We've got greater hydro and geographic diversity. That just doesn't reduce the risk, though. It gives us more ways to respond as conditions change. Now to the performance of our retail business. Retail price increases, they're never comfortable decisions, and average electricity tariffs increased by around 12% as we sought to recover the $130 million increase in electricity and network costs, while recognizing the pressure on household affordability and the importance of protecting customer trust. Even after that significant increase, pricing did not fully recover the additional input costs and electricity gross margin was approximately $5 million lower. In deciding how far and how quickly to move, we modeled, we debated the expected effect on customers, churn, calls, and acquisition. Customer response was more resilient than expected, supporting our judgment that we'd struck a reasonable balance between cost recovery and customer trust. Network and metering costs are third party costs that must be recovered, energy recovery requires more judgments because customer demand is weighted towards winter and peak periods, while retail prices adjust less frequently than our wholesale market channels. There'll always be channels and choices about the pace, timing, and extent of price changes. The most significant progress in the business came through multi-product growth. Total connections increased by around 50,000 to 692,000, including 24,000 in telco and 26,000 across energy. Gas and telco margins increased by $15 million and $4 million respectively and were the main contributors to the improvement in retail EBITDAF. Retail operating expenses increased by only $4 million, while opex per connection remained broadly stable at $117. That demonstrates the value of a more diversified customer and margin base. Our next phase of retail growth is not simply adding more customers to our current operating model. It's simplifying the processes and products, modernizing our platform, and converting the customer growth into stronger margins through improved operating leverage rather than price. Reported other operating costs increased from $295 million to $387 million, principally reflecting the acquired Manawa cost base and integration expenditure. Manawa added $93 million of operating costs. Inflation and other headwinds added $11 million, while a further $4 million was associated with growth, including the full-year operating costs of Te Huka 3 and investment supporting retail connection growth. Against those increases, we delivered $24 million of synergies and productivity benefits during FY '26, $22 million from Manawa, and $2 million from continued improvements in retail cost to serve. As Mike mentioned, that full $28 million Manawa run rate synergy target has now been secured. Delivering the transaction synergies was important, but it didn't impact or determine the integration sequence. The integration was deliberately sequenced around operational continuity first and foremost, control and clear accountability. We transferred operating knowledge and established ownership before redesigning processes or going on to those duplicated costs. That allowed us to secure the full synergy target while maintaining stable operation of the combined portfolio. A word on discipline. We only recognize the synergy once the action is complete. Finance has independently validated the value, the saving is embedded in the receiving business unit's budget. The $28 million is therefore a reduction in the future cost base, not simply a piece of information on the PowerPoint or an opportunity identified within the acquisition case. For FY '27, we expect BAU OPEX of approximately $360 million, broadly flat on FY '26, despite around $11 million of inflation and $4 million of growth. Those pressures are offset by a further $15 million -- $16 million of synergies and productivity. Reported FY '27 costs are expected to also include approximately $7 million of remaining integration expenditure and $12 million of time bound SaaS implementation expenditure, principally related to the potential future retail platform, which remains subject to final investment approval. Accounting standards require those SaaS implementation costs to be expensed with the equivalent investment removed from forward SIB capital guidance. Across FY '26 delivery and the FY '27 outlook, the cost bridge incorporates approximately $40 million of in-year synergy and productivity benefits. The most important outcome is that the enlarged business is expected to absorb inflation and growth while holding BAU operating costs broadly flat. That represents a meaningful reset of our operating cost base and provides evidence that the wider productivity program is beginning to deliver. Earnings converted strongly into cash. Operating free cash flow increased 49% from $434 million to $648 million, and the cash conversion improved from 55% to 64% of EBITDAF. That is the cash generated after SIB CapEx and is available to support dividends, improve balance sheet strength, and drive disciplined growth. Higher EBITDAF was the principal driver, while working capital improved by $55 million, largely as a result of lower fuel and carbon inventories, more than offsetting the higher cash, tax, interest and standard business capital expenditure. Standard business capital expenditure was $145 million, below guidance of $170 million to $185 million. Within that, BAU expenditure was $82 million, also below the $115 million to $125 million guidance range. The balance relates to identifiable time bound programs, including the final year of the accelerated asset program launched in 2021, the Waiotake extension, Manawa hydro enhancements, and the first payment on the spare Tauhara rotor and the integration activity. That distinction is really important. The underlying expenditure that's required to maintain reliable operations remain well controlled. While the higher total reflects those deliberate programs to extend asset lives, complete prior commitments, and integrate the expanded portfolio. Some of the FY '26 underspend reflects timing, with delayed activity moving into FY '27. Operating free cash flow increased by 18%, from $0.544 to $0.64, despite the issued shares during the year. Together with the equity raise, DRP retention, and appropriate use of debt, that cash funded the Manawa acquisition, $375 million of growth capital, and the $387 million of declared dividends. That's consistent with the capital allocation hierarchy that we set out at our Investor Day in November. One, maintain the assets. Two, preserve investment grade strength. Three, support reliable dividends. Four, commit growth capital only when the return is justified. The February equity raise and the consolidation of acquisition financing leaves us with a strong and more flexible balance sheet. Net debt was $2.2 billion at 30 June, and S&P adjusted net debt to EBITDAF reduced from 2.3x to 2.1x. That's a strong outcome following the Manawa acquisition and continued renewable investment. It reflects the equity raise, the stronger earnings, and improved cash generation, and the equity credit treatment of our capital bonds. The balance sheet is also simpler and more diversified. The EUR 500 million EMTN termed out the acquisition funding and extended our maturity profile while we repaid the more administratively complex U.S. private placement facilities. Average tenor is now 7.2 years, and the weighted average gross interest rate reduced from 5.8% to 5.2%, matching our efforts in the low interest rate periods earlier this decade. This gives us the capacity to complete the Contact31 program, plus the additional growth where customer demand and project economics support it while continuing to support reliable dividend growth and remain resilient through changing market conditions. Capacity to invest does not lower our return thresholds. For projects not yet committed, the depth of our pipeline over 11 terawatt hours gives us the choice over timing, sequencing, and funding. It allows us to prioritize the projects that best meet our customer return and risk requirements rather than creating an obligation to commit to every project. That combination of cash generation and balance sheet capacity supports the dividend, and the board has declared a final dividend of $0.24 per share, taking the FY '26 total to $0.40 per share. That's a 3% increase on FY '25 and delivers the guidance provided at the beginning of the year. The dividend represents 65% of FY '26 operating free cash flow and is well supported by the cash generated during the year. Against the formal policy measure, the dividend represents 114% of average free cash flow over the preceding 4 years, and that reflects a temporary timing mismatch following Manawa, as the enlarged share base is included immediately in the dividend, while Manawa's FY '26 cash contribution only begins to enter the rolling average from FY '27. The board has therefore applied the discretion previously communicated for the initial post-acquisition years. Contact expects the FY '27 dividend to increase to $0.42 per share, a further 5% increase at the top end of the range previously indicated. That reflects confidence in the forecast operating free cash flow, the secured Manawa synergies, and balance sheet capacity. As always, each dividend remains subject to board approval and business and market conditions at the time it is declared. We also retain the 2% DRP discount as part of the Contact31 funding framework. For FY '27, we expect normalized EBITDAF of approximately $1.045 billion based on mean hydro and wind conditions. That outlook is stronger than the headline comparison suggests. It includes $19 million of remaining integration and platform investment. Before those items, the expected underlying operating result is approximately $1.064 billion. The outlook also absorbs a substantial planned reduction in geothermal output during the Wairakei extension and Te Mihi 2 transition. The Wairakei generation output is expected to be reduced by approximately 428 gigawatt hours, partially offset by Te Mihi 2 commissioning later in the year. The outlook also includes a planned 10-day Tauhara outage. The principal sources that give us confidence in earnings visibility are the full year contribution from the combined portfolio, those secured Manawa synergies, and our contracted revenue position. Approximately 97% of FY '27 repricing is confirmed, materially limiting the near-term effect of ASX futures on FY '27 earnings guidance. Retail net price is expected to reduce by approximately 2%, from $174 to $171 per megawatt hour. That reflects moderating wholesale energy input costs and deliberate pricing simplification and retention choices ahead of a potential future retail platform investment decision. Importantly, the FY '27 outlook doesn't rely on further increases in retail net price. We expect that energy component of customer pricing to reduce year on year, with customers beginning to benefit from increased renewable supply and moderating wholesale input costs. That benefit that's under our control will be partly offset in total customer bills by continuing increases in regulated network charges. The acquired Manawa and Mercury arrangements provide a net FY '27 repricing benefit of approximately $56 million. Together with the secured $28 million of cost synergies, that provides approximately $84 million of uplift over FY '25 before generation normalization and demonstrates the acquisition economics we outlined. The outlook also includes renewable generation from Kowhai Park and a full year contribution from Glenbrook Battery One. To conclude, FY '26 delivered that step change we promised through Manawa and our renewable investment program, and we converted that delivery into stronger cash flow per share, improving returns, and increased dividends. FY '27 is supported by largely confirmed pricing, Mercury repricing, and the secured synergies within our expanded portfolio. Together, those outcomes provide the financial platform for the next phase of Contact31. I'll now hand back to Mike.

Thank you, Matt. Look, building on the success of Contact26, November last year, we launched the Contact31 strategy, which many of you were present for, to lead New Zealand's renewable energy future. The basics of this are we will extend our advantage as New Zealand's geothermal leader. We will scale on high-quality existing fields, exploring new options and continuing to improve on our cost leadership position. We will lead on new flexibility in this country through batteries, hydro, and gas flex, and smart portfolio optimization, which Matt expanded on. We will deliver lowest cost, diversified wind and rapidly deployed solar, all backed by long-term industrial partnerships. We will lead the energy transition at home, empowering our customers to shift their energy use to the times of lower cost and demand. All of this will be enabled by empowering our people, maintaining trusted relationships with our key stakeholders, establishing an edge in data and AI, and maintaining discipline and growing productivity as we grow in bulk. We never lose sight of the fact that it is our ongoing focus on operational excellence and underlying performance that allows us the privilege to keep growing. I do want to make it very clear that the Contact31 strategy is anchored on building renewables backed by long-term partnerships. This is not a build it and they will come strategy. We've talked about the 3 terawatt hours of new demand sources that are known and committed across dairy, metals, data centers, and residential. Just today, we saw New Zealand Steel's electric arc furnace come online in reality, and we have the contract to convert the Whareroa dairy factory. This is clear demonstration of this commitment to grow demand and supply at the same time. Beyond these committed projects, we can see up to an additional 8 terawatt hours of live potential across the same 3 sectors. The potential restart of Potline 4 at Tiwai is a great example. Some of these are large projects and are potentially binary in their outcome, i.e., they're going to happen or they won't. However, even partial conversion of this potential would act as a step change for the demand picture, unlocking renewable development pipelines across the board. This is particularly true with large data center projects. Leaning into these opportunities, Contact is able to draw on its experience as a developer and operator of renewable energy sites around the country. We have long-term community and stakeholder relationships. We have the experience in planning, consenting, and environmental management. We have that track record of bringing innovative solutions to our customers to help them manage and contract their energy needs into the future. All of this, we will continue to bring to the table to work alongside our existing and potential new customers to unlock future electricity demand opportunities and, more broadly, the economic growth of Aotearoa. We are well prepared to take hold of this opportunity. We have over 4 terawatt hours of priority development options across New Zealand that we plan to build to meet customer needs as they materialize. We have a diversity of options here across the technologies and geographic locations, with many either fully or partially consented, putting us in a unique competitive position. We are prepared to accelerate high-quality options from our wider 11 terawatt hour pipeline as the market continues to evolve. Turning briefly to Southland Wind. This is a really good example of how we're working closely with our customers to build renewable energy online hand-in-hand with that new demand. We were granted consent in April this year and immediately kicked off an RFI process to look for a strategic wind partner. We're now engaging with a shortlist of very credible parties and are close to bringing our partnership plans to life. We intend to bring to wind what we have already successfully done in solar. Not only can a partner bring additional expertise, but an off-balance sheet structure will help to share risk and reduce costs. On the customer side, we have signed a non-binding letter of intent with Rio Tinto for a PPA to support the restart of the idle Potline 4 at Tiwai Point. Potline 4 has been idle since 2020. Its restart would require 50 megawatts of additional electricity or around 400 gigawatt hours per annum and would deliver increased production and export earnings for the nation. Having a credible baseload partner such as Rio Tinto is critical for bringing new renewable generation online. The letter of intent helps underpin our Southland Wind Farm and shows how industry and renewable energy can work hand-in-hand to deliver long-term benefits for Aotearoa. You'll have seen our announcement today that Contact has partnered with CDC to explore data center development at Stratford. This will give new life to the site of our decommissioned baseload gas plant, TCC. It represents a significant step forward in Contact's strategy to lead New Zealand's renewable energy future. Our approach is based on the principles of additionality and support for broader electricity system resilience. Contact has more than 11 terawatt hours of uncommitted renewable generation projects across its development pipeline. Long-term contracted demand, like the proposed Stratford Data Center, will underpin our ability to bring more of those projects forward. 6 years ago, I would've said the Stratford site was likely heading for total closure, aligned with the impact of the decline in the downstream gas market. Now, we're making plans to leverage the unique combination of the site's resources, unlock the development of more renewable energy, and support growth in the Taranaki region with investment across multiple technologies. We have been at Stratford for over 50 years. These opportunities across multiple state-of-the-art technologies could well secure it for the next century. Stratford has existing high-capacity fiber connections, transmission capacity, onsite firming, and a wonderfully skilled workforce. It has all the ingredients for success. We have 500 megawatts of consented battery development and a large-scale solar hybrid battery development currently in the consenting process, and we have an existing footprint with adjacent land under option. We have chosen to partner with CDC, one of Australasia's largest data center developers and operators. They bring incredible expertise in data center development, construction operations, and customer connectivity and capability. They also bring their proprietary closed-loop cooling system that enables exceptionally low ongoing water consumption. They have strong ties already to this country, both through their operations and through local ownership by Infratil. I do want to be clear that no decision has been made to construct the facility, and no material capital commitment has been made. The project remains in early stage and is subject to customer commitments, consenting, project-level financing arrangements, and final investment decisions. Looking at the year ahead, where you will see Contact already making strides, big strides, on its Contact31 strategy. We will deliver on the initial milestones laid out when we released the strategy last November, and we will continue to work with customers to advance our active data center and electrification opportunities, accelerating the strategy and bringing forward more renewable generation for this country. I have huge aspirations for this country and the part that the renewable energy economy can and must play in creating jobs for our children and grandchildren, in building regional communities, powering manufacturing, attracting new industry and technologies, and growing the country's export earnings and therefore its wealth. We have a clear strategy, a strong balance sheet, and proven execution capability to see us lead New Zealand's renewable energy future. With that, I am delighted to take questions.

[Operator Instructions] With that, we'll go to our first question from Vignesh Nair at UBS.

Thank you for the very thorough presentation. First, a couple of questions, I suppose, on the data center deal, and I understand it's early days, but keen for a pretty high-level read from you guys at this stage. Just probably to begin with, do you have a view on what it could cost to build out a DC of this scale in New Zealand? If you look at CDC's assets in Australia, the average cost is around about AUD 15 million a megawatt. I think a few industry people have mentioned that New Zealand has a slight premium against that given the seismic considerations. Wondering what style of cost we can expect from an asset of this size.

Matt, maybe you want to?

Yes, those international benchmarks sound about right. Because this is a regional facility in New Zealand, we haven't built data centers before. You could expect a slight premium on that cost. Going the other way, New Zealand has got other features, including cooling costs and renewable energy costs, which are lower than international jurisdictions, and that's what makes it such an appealing proposition.

Okay. Extending that a little bit further, if you do take the Australian benchmark at 250 megawatts, you kind of get to a potential CapEx of close to $4.5 billion to $5 billion worth of overall spend. I know you sort of mentioned in footnote 4 on page 2 of the release that you might be contributing equity towards it in an off-balance sheet sort of project finance structure. Just keen to know if there's a potential upper limit in terms of the equity investment that you guys are willing to contribute to the project.

Yes, Vignesh. The upper limit would be 50-50 from our perspective because we would require this to be financed at the project level. We have a range of scenarios which we've tested with our credit rating agencies to see whether we could support an investment up to that scale on our balance sheet. Clearly, any decision around any equity investments would be highly dependent on the economics of the project, the certainty around the CapEx, the customer credit quality, which is incredibly important not only from a data center payment perspective, but also to give us the confidence to invest in more renewable growth. We've run to ground many different scenarios, and we're confident that as we step through the details and the risk allocation, that we're well-placed.

Okay. Just finally on the data center piece, any color on, I suppose, timing? That's kind of obviously been absent from the release. Is it fair to assume it's this decade?

This decade is not a bad assumption. Obviously, there's a lot of mahi still to come. We have to get a resource consent. We have to get a customer. We have to complete the concept and detail design. There's a bit of hard mahi to go, so that's not a bad assumption.

That's very clear. I suppose just on a couple of other things, I think, that battery from Glenbrook 1 sort of began operations earlier this year. Just any specific learnings to comment on there? Understandably probably a less than ideal wholesale price environment from an arbitrage perspective. But sort of what are your observations?

We're learning every day and adjusting the models every day. You saw the value of that battery last week, where the combination of batteries in the market got the market through a record high demand with almost 1,000 megawatts of conventional generation out of the market with TCC, E3P, and Huntly unit former not in the market. So one, it's valuable. We're learning every day about how to integrate the operation of the battery with our existing peaking plant in particular. We're delighted with the operation of the battery and particularly these last 2 weeks.

Okay. Last one before I pass it on. I think Matt mentioned 420 gigawatt hours worth of lost load from Wairakei. I think you've got 320 gigawatt hours net on slide 43 there. What's the timing of that turnaround? Does that begin in 1H or is it entirely 2H skewed?

Yes, predominantly 2H activity there, Vignesh. Obviously dependent on a number of different moving pieces, including the, you know, Te Mihi 2 project, the Wairakei extension project, as well as market conditions at the time. Yes, we're optimizing all those 3 sort of topics. As you would've seen, we're already highly contracted, the key swing for this year will be hydrology and the management of those outages.

We'll now move to Andrew Harvey-Green from Forsyth Barr.

A couple of questions from me. First of all, just following on the CDC side of things, is this, at this stage, very much a project-specific relationship, or you're looking at potentially a longer-term relationship here?

The answer is all of the above. Obviously, the clear and incisive focus is on getting that initial project off the ground. If that leads to a longer-term relationship, that's a wonderful outcome, but let's keep the focus on the game in front of us.

Okay. All good. Okay. Next question I just had was, I guess thinking about the impacts of the lower ASX futures prices, that's probably the sort of the biggest talking point in some ways over the last 6 months. First of all, are you able to sort of talk to a little bit what sort of impact we might expect for FY '28, FY '29? Noting there isn't a huge impact in FY '27, as things reprice, we would expect a bit of a headwind. Are you able to give us a bit of color on that?

Obviously, the sort of impacts of ASX pricing on FY '28 and FY '29 are highly dependent on how those ASX prices hold up or not over the next few years. Obviously, when you think about the 12 terawatt-hours of generation that we contract, we only have around 4 terawatt-hours that is linked to ASX or those short-term channels, including C&I, sort of roll off on those is probably a third a year. It's probably not as impactful as you can imagine, I guess talks to that strategy that we've had around terming out our book.

Then thinking about the FY '31 goals that you had in the November strategy day, that was $1.2 billion to $1.3 billion, with a run rate $100 million higher than that at the end of that. You still feel comfortable with those particular targets given the drop we've seen?

Absolutely.

Absolutely. Just to echo Mike, I guess, our targets were always based on a reversion to 120-130 real from the ASX, and the ASX is broadly tracking in line with that. The key sort of swing factor on us achieving those targets, Andrew, is really on the demand side. If we continue to be as successful as we have been on initiating new demand into the market, then we're very confident on those targets. If we can get this Stratford data center site up and running, I think that would be enhancement on that FY '31 set of targets.

Yes. That makes sense. Just lastly from me, just around the gas situation and looking at your gas book, noting you still have reasonable volumes coming from Pohokura, how confident are you of those volumes actually being delivered over the next 5 years or so?

I think we've all learned our lesson. We've built resilience into our gas supply book. We are reasonably confident that both the volumes from Pohokura and the contracted gas volumes that we acquired from Greymouth have good, robust operating performance to back them. Yes, we're reasonably confident in that.

Of the 10 PJs approximately, only 30% or so is from Pohokura, which is the variable pay as delivered. Greymouth is a flat contract.

We'll move now to Grant Swanepoel from Jarden.

First question just on hydro. You guys did just over 5,000 gigawatt hours in FY '26. You had set yourself a target of 5,750 gigawatt hours. Everybody else beat their average, while you guys didn't. Is that something to do with the way you dispatched Manawa? How do we have confidence that you're going to do the 5,850 normalized into FY '27?

Yes. Great question, Grant. I'll give you the 2-second summary. On the Contact assets, obviously, our assets are further down to the bottom of the South Island, so when we had those mega inflows over spring and summer, prices were $0 anyway. We couldn't have actually got any more generation out. Meridian sort of stepped into the fold there. There was quite a significant amount of spill through that period. I think from memory, Otahuhu prices for January were $2, so it wasn't really something that sort of impacted performance but did impact the volume numbers. On Manawa, there was less generated at Manawa throughout this year. Two factors there. Firstly, wholesale prices have been very low coming into winter, so we're coming into FY '27 with higher storage lakes. The second point, as Mike mentioned, a couple of the larger Manawa assets had extended outages over this period. That's most notably Coleridge and Highbank. Once we can get those assets back into service, you'll see an improved hydro output. Clearly, this year hasn't been impactful because of the fuel situation, but clearly getting up to those capacity factors is incredibly important, even more so as those big geothermal outages come into view.

Next question just on pricing through your channels, following on from Andrew's question. Your CFD book is more shorter term, and you've got almost 20%, 25% of your channel through the shorter term CFD. Are you comfortable with that sort of position going into '28, '29, particularly with the forward curve and the potential overbuild relative to lack of demand in the short term?

Yes, it's there or thereabouts. As I said, I think 25% to 35% of the total book more leveraged to those shorter term channels. Remember, analysts were asking us why we went to 110% leverage to those short-term channels when prices were high. Also just a key point to note in our CFD channels is a large proportion of that is the Mercury CFD sold as part of the Trustpower retail acquisition, which reprices over a 2-year period and is more heavily weighted to winter pricing when those prices are still robust. It's the summer pricing, as we've mentioned previously, where the sort of key impacts and changes and challenges are.

That's helpful, Matt. Then on data centers, your 50-50 maximum exposure to equity in that business just surprises me. Your decision to potentially go into data center equity ownership, is that driven by CDC wanting you to have skin in the game, or is that your board saying, "Actually, I want to be in data centers"?

No. It's the value that's inherent in that Stratford site with you have a very high capacity connection available, you actually have a 400 MVA transformer available. You have land available, you have the electrical infrastructure available, in order that that package delivers value to our shareholders, that's where we landed. It's a very unique site, it also has wonderful fiber connectivity. It's about getting the value out of that site.

In effect, what you're saying, you want a discounted entry into a big data center.

There would be no payment, Grant. This would be a sort of organic growth into the data center site. It's the Stratford site and the speed to market that is unique to Contact and CDC to deliver those projects within the time frames that customers are currently searching for. It's an undersupplied market in the data centers, this is a unique opportunity for Contact, because power and speed to market is the most crucial thing that we're hearing.

Sorry, I need to get to the bottom of this. As a Contact investor, I don't have to worry too much that you're going to be taking on too much data center risk.....

Absolutely.

We can actually get that exposure elsewhere if we wanted to.

Yes. No, absolutely.

Correct, Grant. That's why sort of all partnership and investment options on the table. We'd want to understand the relative economics, what the customer is going to deliver to the project from a credit perspective, how long they're going to be around for, and we want to sort of be molding into that decision.

My final question, excellent news on the Potline 4 that you guys have more or less got the front running on that. What worries me, you got 1.2 TWh in the wind project and only 400 gigawatt hours in this sort of load side. How can we be sure that you will stick to your word that you'll make sure you've got backing before you go and build a big wind farm like that?