Genesis Energy Limited (GNE) Earnings Call Transcript & Summary

I'm Barbara Chapman, Chair of the Board of Genesis Energy Limited. On behalf of my fellow directors, our Chief Executive and his team, and all Genesis employees around New Zealand, welcome to our 2023 Annual Shareholder Meeting. We continue to hold this meeting in hybrid form and thank those shareholders who have made the effort to be here today. Our online streaming facility is available for those unable to attend in person, and we thank you for taking the time to be present virtually. Just some quick housekeeping for those present before we start, the bathrooms and fire exits are behind you. If we hear a fire alarm and a request to evacuate, security will help us exit down the stairs and assemble across the Road on Reimers Ave. For those joining us online, today’s meeting is held via the Computershare online meetings portal. This enables you to read the company documents associated with the meeting and ask questions through the platform. For those online, if you have a question to submit during the meeting, please select the Q&A tab on the right half of your screen at any time. Type your question into the field and press send. Your question will be immediately Submitted. Should you require any assistance, You can type your query and one of the Computershare team will assist you through the chat function. Alternatively, you can call Computershare on 0800-650-034. Please note that while you can submit questions from now on, I will not address them until the relevant time in the meeting. Please also note that your questions may be moderated or if we receive multiple questions on one topic, amalgamated. Due to time constraints, we may run out of time to answer all your questions, if this happens, we will answer them in due course via e-mail. For those of you present in person, during question time, simply raise your hand, and one of the attendants will bring a microphone to you. There are no resolutions as no directors require reelection this year under the NZX director rotation rules. With us today are members of our executive team, including our Chief Corporate Affairs Officer, Matthew Osborne, who will fulfill the role of secretary for the shares meeting. Bryce Henderson is with us today, representing our external auditor, Deloitte. This is Bryce's final outing as our audit partner over a number of years, and we thank him for his service. Notice of the meeting has been duly given to shareholders and we have the required quorum. I now declare the 2023 Annual Shareholder Meeting of Genesis Energy Limited officially open. Thank you all for joining us today. I will quickly run through the agenda for this morning. Firstly, I will provide a brief overview of the Board's key highlights for the year. Chief Executive, Malcolm Johns, will then provide you with a more detailed overview of our company performance and priorities. There will then be an opportunity for you to ask questions of the Board and the executive arising from the 2 presentations. You will then be provided with an opportunity to raise any items of general business that may lawfully be put to the meeting. If there are additional discussion points that you feel haven't been covered in today's meeting, please reach out to our Investor Relations team with an e-mail to investor.relations@genesisenergy.co.nz. To begin, let me introduce your Board of Directors. Hinerangi Raumati-Tu'ua. Hinerangi joined the Board in March 2022. She is a member of the Audit and Risk Committee. Hinerangi is Chair of Tainui Group Holdings and brings extensive governance experience having chaired and served on Iwi boards and those in varied sectors, including water, fisheries and local government. In addition to her strong commercial investment and corporate governance background, Hinerangi was named Maori Businesswomen Leader of the Year in 2016 and served on the Cullen Tax Working Group in 2019. Thank you, Hinerangi. Warwick Hunt. We welcomed Warwick to our Board in 2022. He is a member of the Audit and Risk Committee. Warwick brings over 30-years leadership and governance experience to our Board. As a partner and then managing partner of PwC New Zealand, Europe, Middle East, Africa and U.K., Warwick has worked across a range of sectors, including energy, professional services, financial services, Agri business and aviation. He is a fellow of Chartered Accountants Australia and New Zealand and an executive fellow of King's College London. Warwick is also a member of the New Zealand Order of Merit for services to business. Thank you, Warwick. Tim Miles. Tim joined our Board in 2016, coming to us from his previous role as Chief Executive of Spark Digital. He is Chairman of the Human Resources and Remuneration Committee and a member of the Nominations Committee. Tim has had a long career in customer and technology-focused roles at the most senior levels, both in New Zealand and internationally, and applies that insight and scrutiny to all the Board's work. Thank you, Tim. Paul Zealand. Paul joined our Board in 2016. He is a member of the company's Human Resources and Remuneration Committee and the Nominations Committee. Paul has over 40 years' experience in the oil and gas sector including senior executive and chief executive roles at Shell and Origin Energy. In particular, he brings strong expertise around health, safety and environmental management and advice around operational risk. Thank you, Paul. Catherine Drayton, Catherine joined the Genesis Board in March 2019 and is the Chair of the company's Audit and Risk Committee. Catherine is a former senior partner at PwC, specializing in mergers and acquisitions, culminating in her leading the Assurance and Advisory divisions in Central and Eastern Europe. Her extensive cross-sector governance experience includes multiple directorships across the healthcare, infrastructure and energy sectors. Thank you, Catherine. James Moulder. James joined the Board in 2018 and is a member of the company's Audit and Risk Committee. James has strong governance experience, having held a number of non-executive board and advisory board positions in the electricity sector. James brings strong industry experience in carbon and energy asset management and data analysis experience to our Board. His background advising the electricity industry's regulatory bodies also strengthens our governance. Thank you for joining us, James. Joining me in this presentation is Genesis Chief Executive Malcolm Johns, who will speak shortly. This is Malcolm's first presentation to you after taking over as Chief Executive in March this year from his former role as Chief Executive of Christchurch Airport. Malcolm has quickly come up to speed on New Zealand's energy sector and the opportunities for Genesis and established a refreshed executive team with the required skills and experience to propel our growth. He will introduce his team later. I would like to thank Tracey Hickman, who generously agreed to be interim Chief Executive between the departure of our Former CE, Mark England last October, and Malcolm joining us. Tracey did a fantastic job maintaining the company's steady course and then handing over to Malcolm. We're pleased she's now taken on the new executive role of Chief Wholesale Officer. My presentation will touch on a number of matters that Malcolm will discuss in more detail. You will have the opportunity to ask questions towards the latter part of the meeting. Behind me is an image of our Board skills matrix, a summary of the skills necessary for the company's success and an assessment of the skills held by directors. The matrix shows an excellent spread of expertise and secondary skills among our directors. This year, we enhanced the skills metrics to draw out sustainability as a key skill in its own right, recognizing the importance of experience in this area for good governance. A reflection of that was the launch of our first fully integrated annual report in which environmental, social and governance metrics are integrated with financial and performance updates. The resulting suite of documents can be found in the Investor Center on our website. They include the FY '23 integrated report, climate-related disclosures and our sustainable finance report. We are determined to be transparent about our opportunities, targets, strategy and progress and also about our challenges, the impacts we have and how we're addressing those. Our reporting strives to present a balanced view of how we create value over the short, medium and long term. This marks a new era in reporting. Transparency is now both required by regulation and desirable in an environment in which we are accountable to multiple stakeholders. The importance of good governance was also highlighted by the successful appointment and induction of Malcolm. Finding and establishing a good working relationship with the company's Chief Executive is one of the Board's most important roles. It's pleasing to see the progress Malcolm has made in developing a refreshed strategy and structuring an executive team to support its execution. The Board looks forward to working with him overseeing the direction of the company in the coming years. I am proud to lead a strong and capable Board of Directors who provide their extensive experience and specialist skills for the benefit of the company, our staff, our stakeholders and the wider community. Genesis is committed to helping secure a future of renewable energy for New Zealand. We work with our customers to inspire sustainable choices and with the sector and government to be an active enabler of New Zealand's energy transition. To achieve all this, we need to be a top-performing company. This year, our EBITDA was $524 million, an increase on last year's $440 million. Net profit after tax was $196 million, a reduction on $222 million, following a substantial fair value gain recorded in FY '22. Our full year dividend remained strong at $0.176 per share. This was 56% of free cash flow for the year which is lower than we have historically paid out. The Board was mindful of the exceptionally strong performance in FY '23, which was impacted by very favorable hydro conditions. With a significant capital expenditure program planned in FY '24, the Board chose to keep the payout level in dollar terms to support planned projects and build resilience in the balance sheet for future investment opportunities. Looking ahead, our FY '24 EBITDAF is expected to be around $430 million, a decrease on this year's figure as we return to more normal hydro conditions and take account of the impact of the Unit 5 outage, inflation in costs and investment in our assets, renewable generation and people capability. The financial impact of the forced outage of Unit 5 at Huntly Power Station on 30 June has been mitigated by alternative plant availability and earlier in the year, wholesale electricity market conditions. Our team is working hard on the units repair, and it's pleasing that its return to service has been brought forward 4-months to late January. The past year was marked by record rainfall in many regions, including our hydro catchments. While the Genesis team worked tirelessly to responsibly manage hydro lake levels within their consented range, we acknowledge that for many communities, the excessive rainfall brought challenges and, in some places, devastation. We are proud of our teams who helped the communities near our power station while keeping our assets operating. Our financial performance was complemented by our ability to maintain high customer loyalty and support. The launch of a New Zealand first energy roaming product for EV drivers everywhere exceeded its targets and has been key in differentiating us in the market and acquiring new customers. Overall, our customer numbers increased, churn reduced, and we had a fantastic response to our Power Shout gifting campaign in which our customers donated their free hours of power to other customers in need. Our Manaaki- O-Kenehi team established in 2020 to look after our most vulnerable customers, ensured those in real hardship received personalized support and payment options. This year, we also introduced FreshStart, a program for the increasing number of customers experiencing atypical payment difficulties due to a rising household costs. FreshStart provides breathing space and practical support, helping retain these customers for the longer term. Our new partnership with Habitat for Humanity Healthy Homes program in Auckland and Northland, as well as our ongoing work with Curtain banks in Wellington and Christchurch saw us supporting warm homes for more of our communities. When you work at Genesis, you're part of a culture of caring and one that values knowledge and expertise. Those were two of the main findings from a research project we undertook this year to help understand our workplace culture. With the help from an independent agency, we ran surveys and focus groups seeking feedback from around 1,000 participants. Across all our different sites and projects, and across employee demographics, the feedback was overwhelmingly positive. Respondents use phrases like inspiring, adding value and exciting to describe how they feel about their work at Genesis. Overall, 85% of respondents felt positive about the culture at Genesis. A diverse and inclusive workplace where everyone feels valued leads to an enhanced ability to recruit and retain good people, increased employee engagement, boosted productivity and better connection with our customers and our communities. We're proud of the RainbowTick accreditation we received in FY '22. In this year, we received reaccreditation of the YWCA GenderTick, and we continue to work on increasing the gender diversity of our senior leadership group to 50-50. The Board is focused on enhancing workplace safety. So it's pleasing that most of our safety and well-being metrics are showing positive trends. The reduction in the number and severity of injuries across the business resulted in a 57% reduction in lost time or restricted work days this year. This decrease is likely due to a combination of increased hazard awareness, continued focus on rejecting unsafe LPG delivery locations, safety leadership training, early injury notification and intervention and preventative physio programs. The well-being hub on our internal intranet also holds an updated drug and alcohol program safety inductions, health monitoring and injury management. By continuing this work, we hope to see injury rates fall even further over time. In conclusion, along with my fellow directors and our Genesis Energy team, I would like to thank you for your support of our company over the past year. The coming decade will be one of the most dynamic in the history of New Zealand's energy sector. We will continue to engage constructively with regulators to help ensure a workable pathway for new renewable generation, while helping ensure security of electricity supply and affordability for households. I have every confidence that your Board overseeing our strong executive team led by Malcolm will maintain the company's position as an essential and profitable part of New Zealand's energy future, while at the same time, living up to the company's purpose and vision. It's now my pleasure to invite your Chief Executive, Malcolm Johns to make his first speech to our shareholders. Welcome, Malcolm.

[Foreign Language] It's an absolute pleasure to be here, and thank you, Barbara, for the very kind introduction and for providing an overview of some of the challenges and the opportunities the company has faced in what has been ultimately a successful year. It's a pleasure to be speaking to you, our shareholders for the first time and I wanted to join Genesis for the unique opportunity of being at the center of the country's energy transition. In my first 6 months as Chief Executive, I've enjoyed a warm welcome and dedicated my time to learning about the company, the sector and the many stakeholders critical to our success. We've also been thinking hard about our strategy over the next 5 to 10 years. We're now well advanced in this discussion, and we'll have more to say in detail on the 30th of November. Our strategy will play out over what we see as broadly 3 phases: firstly, getting match fit; secondly, accelerating our transition; and thirdly, moving into our future state. We have begun the first phase with our decision to move the business into 6 business units, led by a smaller executive team which is here with us today and includes existing and new members. The new members are, and if I could ask them to stand as I read them out, The new members are Claire Walker as Chief People Officer; Stephen England-Hall as Chief Retail Officer; Ed Hyde, as Chief Transformation and Technology Officer. Claire is a deeply experienced people and cultural executive. You can sit down now, guys. Who understands how structures best serve strategy and how to build high-performing cultures. Stephen is a market strategy specialist and understands value creating brand strategy, customer loyalty, proactive channel management and high-value, low-cost customer services models. Ed has deep experience in introducing technology platforms, data and AI into businesses to drive productivity growth. They form part of a revised executive structure, which I announced last month. I was delighted that Tracey Hickman , you can stand now, Tracey, accepted the role of Chief Wholesale Officer; overseeing our wholesale operations and trading businesses. As many of you are aware, Tracey has been with Genesis for many years and has extensive experience in the wholesale area. Chief Financial Officer, James Spence; and Chief Corporate Affairs Officer, Matt Osborne, complete the revised team. We will sadly farewell Chief Operating Officer, Rebecca Larking, and Chief Trading Officer, Pauline Martin, whose roles were disestablished as part of moving to the smaller team. They have performed admirably over a long period of time, and we recognize their service and contribution, and we wish them all the best for their future endeavors. I am delighted with the energy I see in the smaller executive team. Together with their senior leadership teams, they will be critical in activating our new strategy with intent and impact. Turning now to the year that's been with some more detail on Genesis' financial success and our achievements in operations, sustainability and the support of our communities. Our 19% increase in EBITDAF to $524 million was an excellent result driven by strong performances across our hydro schemes and our trading team. Rainfall and our hydro schemes catchments enabled us to generate record highs from hydro and conversely to turn down thermal generation to record lows, saving both fuel costs and emissions. With a wet autumn across most of New Zealand, we continue to make the most of our hydro generation assets to meet the demand we had, while continuing our fuel and emission savings at Huntly Power Station. High hydro outcomes in other catchments also allowed us to purchase electricity from other hydro operators, further improving our fuel flexibility and ability to reduce our thermal generation. Net profit was down slightly due to the adjustment and valuation gains relative to the previous year. We continue to pay a strong dividend, holding at level with that paid in FY '22. As Barbara mentioned, we have taken this decision on the basis that FY '23 results have benefited from above normal hydrology and are mindful of the need to preserve balance sheet flexibility for future investment requirements. These include our four solar farms and continued upgrades to our hydro stations. Customer growth was encouraging across both our Genesis and Frank Energy brands, increasing by over 12,000 customers during the year. EVs present a strong growth opportunity with the average EV customer consuming 40% more kilowatt hours per year than our other customers do. The launch of our EVerywhere product for EV owners has been well received, and we've seen customers on our EV plan doubled to more than 4,000. We expect this number to accelerate as EV uptake gathers pace. Our renewables program continued to progress with 3 new sites secured for solar farms to add to Lauriston in Canterbury, which we announced earlier this year. Together, these sites will produce around 450 megawatts, enough to power roughly 100,000 homes. We opened a customer service hub in Tokaanu Power Station to support our main service center in Hamilton, creating 12 real full-time jobs in regional New Zealand. Our Nga Ara creating pathways program offered 32 apprenticeships, internships and work experience opportunities to rangatahi Maori near our generation sites. We supported our customers' energy well-being through our Power Shout gifting program, supplying more than 300,000 free hours of power to those in need. Our guidance for FY '24, EBITDAF is around $430 million. The reduction on this year's EBITDAF takes into account the $25 million impact of unplanned outage of Unit 5 at Huntly, net of insurance. It's pleasing that we now expect to return this unit to service at the end of January, roughly 4 months earlier than the original estimates. Operating expenditure is expected to be around $375 million, including additional technology spend of around $25 million. This is focused on simplifying our existing operating models and driving customer operations and productivity growth. There will also be increased spend on strategic growth initiatives, which I'll speak more about in November. Capital expenditure in FY '24 is expected to be around $165 million. This includes our previously announced investment in the Kupe KS9 well of $65 million to maximize its gas reserves. The completion of the Tuai generator upgrades and commencement of the Rangipo turbine and generator overhauls complete the list. For a detailed breakdown of our FY '23 performance, please visit the Genesis website Investor Center to view our FY '23 investor presentation. In that presentation, our Chief Financial Officer, James Spence and I talk in detail about the company's financial performance as well as the broader and underlying themes I'm touching on today. The weather events of 2023 underline the need to move as quickly as we can to a low carbon future, while retaining energy security for peaks and dry years. We're proud to announce our first solar development with our joint venture partner, FRV Australia at Lauriston in Canterbury is close to a final investment decision. Our desire is for this 52-megawatt project, to begin generating in 2024. We are on target to build up to 500 megawatts of grid scale solar and have secured 3 other North Island development sites that will have capacity of around 400 megawatts collectively. In total, our solar program will power nearly 100,000 homes. Combined with our power purchase agreements for wind farms and a geothermal plant, Genesis' proportion of generation -- renewable generation is targeted to move at least 68% by 2025 and 81% by 2030. These initiatives support our science-based targets tied to the country's commitment to limit global warming to 1.5 degrees. Verified by the internationally recognized science-based target initiative. Our targets will see us remove at least 1.2 million tonnes of annual carbon emissions by FY '25 based on an FY '20 year, including reducing generation emissions by 36%. Our progress towards these targets during FY '23 saw a reduction in carbon emissions of 2.5 million tonnes from the FY '20 base. While it appears we have exceeded our target, our emissions reductions will not be a straight line, but a trend over time New Zealand's electricity grid is driven by weather, and as we've seen weather has cycles. We also know the most impactful thing that Kiwis can do to mitigate climate change is electrify more of their lives. Confidence in the availability of electricity is critical to businesses and households doing exactly that. New Zealand will continue to need thermal generation to step in from time to time when the wind doesn't blow, the sun doesn't shine and the hydro lakes are low. Our contribution to grid security means our emissions reduction may fluctuate from year-to-year. But overall, our missions trend is heading in the right direction. Looking to the future, the context for updating our strategy begins with the Zero Carbon 2050 Act, which was almost unanimously passed into law by all major parties. Achieving that goal means the sector's growth and destination is no longer a point of debate. It is baked into law. We are now in a long-term partnership with government and business to deliver New Zealand to Net Zero by 2050. This is exciting because there appears universal agreement that the best way to achieve this is to electrify as much of our lives and economy as we can over the next quarter century. To my mind, asset transition must lead the energy transition. New Zealand faces the largest asset transition challenge in our history at both a household and a business level. New Zealand must proactively move away from assets that operate solely on fossil fuels and towards assets that operate primarily on electricity. This means the demand side dynamics will drive the supply side dynamics of this transition. And this reflects one of my early observations of the sector. During the transition, strategic value accrues to the demand side, while financial value accrues to the supply side. Pleasingly, Genesis has a strong demand side position and multiple options for growth on the supply side. As a sector, we need to develop real muscle in managing our long-term partnership with government. We should expect over the next 25-years, different governments will apply different weightings to market and nonmarket tools to drive New Zealand towards Net Zero 2050. The long-term macro risk is a transition that runs behind or ahead of the country's carbon budgets. Running behind risks unhelpful policy intervention and running ahead risks unhelpful commercial outcomes. These challenges make this sector an incredibly exciting place to be. They also make clear the key value streams for Genesis during the transition. The next quarter century is about when, how and where we bring the right mix of new renewable generation into play to support our customers and grow value for our shareholders. Genesis has some very strong foundations to build on as we look to drive enhanced shareholder returns. Our updated strategy will focus on fewer but more impactful initiatives that can clearly demonstrate support of the energy transition and building shareholder value at the same time. The strategy will be supported by a simplified operating structure of 6 business units with a smaller executive team as outlined earlier. As mentioned, the demand side is the source of strategic value for Genesis. We have a large customer base of almost 0.5 million customers. We have a premium brand, customer loyalty is high and we have a highly skilled workforce with a great culture who are up for the transition challenge. We see three key value streams to build shareholder value over the next decade. Firstly, electrify more of our customers' lives; secondly, build more renewable generation; and thirdly, maximize flexibility and security on both the demand and the supply side. Our 0.5 million customers want to play their role in delivering New Zealand to Net Zero 2050. And this provides us with the strategic leverage for actioning the other 2 value streams. Currently, our share of customers in the market is around 23%, while our share of generation is around 16%. Our opportunity to develop options to build new renewable generation is strong and doing so ourselves or in partnership with others is the key long-term option to grow value. We have already demonstrated our ability to form strategic development partnerships through our solar joint venture with FRV. Genesis has, for some time, played a key role in peaking and firming the grid for New Zealand and has done well in periods of price volatility. Genesis has more opportunity than most to create value from flexibility due to the variety of fuels and assets in our generation fleet. We will be looking to optimize value from that flexibility over the coming years. The addition of solar and more wind generation to the National Grid will bring with it more intermittent generation than we've seen before. Firming and peaking this plus covering dry years will mean New Zealand will need generation that can step in across an hour, a day, a week, a month or an entire dry year. We won't be going into detail on Genesis' role in this today, however, I look forward to explaining more when we release our updated strategy in late November. This brings me to Huntly Power Station, which celebrated its 40th anniversary this year, originally built to use the nearby coal supply. Today, most of the station's electricity is generated from gas, around 66% over the last 5 years and 95% over the last financial year. Coal is now used only during extreme dry hydro years and very high winter peaks. And we expect to continue to reduce its use as a fuel. As it enters its fifth decade, Huntly Power Station has a new and critical role to play backing up the expansion of New Zealand's renewable generation system to meet increasing demand as the economy electrifies. Wind and solar farms will form the backbone of the new system required to power electric vehicles and our industries, which are switching from fossil fuels to electricity. But this type of renewable generation is intermittent. Huntly Power Station will continue to play its important role in providing the extra generation needed to hold the electricity system secure and steady as New Zealand moves through our energy transition. Huntly's location in the Golden Triangle growth engine between the population centers of Auckland, Hamilton and Tauranga, with material direct connection to the national grid and a skilled local workforce reinforces its strategic importance in terms of energy security. Its North Island location provides resilience to the national grid in the event of an alpine fault disruption or disruption for the inter-island HVDC cable. We're excited about the site's potential to transition to a lower carbon energy hub with the addition of emerging technologies and lower carbon fuels. Fuels are the critical ingredient for Huntly over the next decade. Our existing and future fuels need to be carbon reducing, cost-effective and convenient to procure. In February, we successfully trialed running a Rankine unit on biomass, and this gave us two proof points. Firstly, we can operationally run biomass through the Rankines at scale. Secondly, we have a sense of the energy output from doing so. Around 1.5 million tonnes of biomass will produce 3 terawatt hours with around half the carbon emissions of coal. We remain active in discussions around biomass supply and supply contracts. During the year, we also had initial discussions on the possibility of using a hydrogen blend or full hydrogen to power Unit 5. The 400-megawatt combined cycle gas turbine at Huntly Power Station. Unit 5 is New Zealand's largest generation unit and can support around 400,000 households with electricity. The manufacturers are active in the use of hydrogen for these units and could help us adapt Unit 5 for this fuel. We're monitoring hydrogen production in New Zealand with a view out to the 2030s. We also completed engineering reviews for large grid scale batteries on the Huntly site, and are reviewing the potential interplay between batteries and our existing and future generation assets. None of the achievements Barbara and I have outlined today would be possible without our people, led by a strong and capable leadership team. Genesis has a strong culture driven by committed people. This was illustrated brilliantly by the team at Waikaremoana during Cyclone Gabrielle. With the storm raging, communications cut and water flooding the generation rooms, the team arrived at the site around 3:00 a.m. and worked tirelessly that day and for the weeks afterwards, to ensure the East Coast and Hawkes Bay had electricity and were reconnected to a grid isolated from the rest of the country. We should all be proud of the people we have working for Genesis, and it's been a pleasure to get to know the team members at our sites throughout the country. I and the team are ambitious for what we can do over the coming decade to electrify more of our customers' lives, build shareholder value and remain a critical player in New Zealand's journey to Net Zero 2050. Thank you for your support during my first 6 months. I'll now hand back to Barbara.

Thank you, Malcolm. We now have an opportunity to take questions on the presentations. Questions from the floor are now open. If you have a question, indicate by raising your hand, and please remember that this meeting is being webcast. You need to be heard by a remote audience. So please wait for the microphone to be passed to you before speaking. Those shareholders attending online may also submit questions, and I will address those after we have addressed questions from the floor. Before asking your question, please state your name, and if you are a shareholder, proxy holder or a shareholder representative.

Good morning, John White, shareholder representative of Century Group. I was wondering if you could give some color on the operating costs for the 2024 financial year. I understand the guidance was quite a big leap to $375 million. And I think, if I recall, there was about $25 million of that related to a technology project. And of course, there's a lot of investors in this room come out a cold sweat when you talk about a technology project, because they tend to have massive cost overruns. So would you like to comment on that, please?

I'll pass to Malcolm to comment on that. But yes, we are in the midst of a technology rewrite of our billing system, and it's a project that has got enormous attention from the Board. As you will imagine, these large-scale projects. We all know what the experience around the table, particularly Tim with his experience in the technology sector need very close scrutiny to get right, and I can assure you that it's getting the attention it deserves and the priority it deserves because it is critical for our future. But I'll pass to Malcolm.

Thank you, Barbara. Look, it's a really good question. The technology spend is made up of 3 large systems that need to be updated within the business in a number of smaller systems. The majority of this year's focus is on the discovery process. So we haven't commenced investment in the technology directly at this point in time. So the risk of overrun is very low on that basis. We'll have more to say on the 30th of November in terms of that technology plan, but also what the OpEx of the business looks like going forward. But it's -- we won't be investing in technology that doesn't deliver productivity gains as a result of that deployment. And so we would expect any investment in technology to have a corresponding productivity gain and OpEx.

Any other questions from the floor? Just wait for a microphone to pop up, please.

Arun Rao, a shareholder. I have a technological question, basically on solar power investment. Now, it has shown that you have already got 4 sites and you're developing a huge solar power plants there. But if you see around Auckland right now, a lot of houses have got solar panels on the roof head. Now if you generate power in -- solar power in remote place, and then you have to take it to the consumer, there will be a lot of losses. The power losses will be there because of transmission costs. And will it be in the future? Because if you see New Zealand has got a lot of rainy days in the past few years, I mean, it has been increasing. So it's all because of climate change and a lot of other factors. And we are -- geographically, it's a very small island among huge oceans. So the number of sunny days would be limited or rather reducing in the future years. So in this scenario, is it advisable to invest huge amounts of money on solar farms?

I think Malcolm covered a bit of this in his speech, but thank you for the question. I think the future for New Zealand is going to be a mix of types of renewable energy, types of fuels. And we believe the role of solar in amongst that is an important one. But obviously, it can't be the only source of power because as you say and as Malcolm pointed out, there are days where the sun doesn't shine and the wind doesn't blow and we need an electricity system that's backed up by a lot of different inputs and a lot of different fuels. But Malcolm, is there anything in particular you want to add on solar?

There's a couple of things. Barbara is absolutely right that it's part of a mix. It's not a single solution on its own. But New Zealand does have a customer base that maps solar generation very closely. And if solar can take care of that customer base, then that frees hydro and wind up for other things. And so that's the importance of the mix as we have a mix of customers. We need a mix of generation type as well to map to those customers.

John Lundell, a shareholder. Not mentioned today anywhere is our share price. If you go back over the last 12 months, Mercury, Meridian, Contact have all had a very strong appreciation in the share price. People appreciate the dividend utility nature. Genesis share process has tanked, to be polite, minus 10%. And one starts to wonder about this and the reasons. The asset base hasn't changed. I mean the presentation we just had indicates nothing new. Would you like to comment on why this huge disparity between our 3 largest competitors and the Genesis share price, please?

Look, thank you for that question. And certainly, we are in frequent conversations with large investors and understand their position on Genesis. With our asset mix, which includes thermal and includes, obviously, the Kupe field, there are funds and partners who will not invest in Genesis, and that impacts on our share price. What I would ask you to think about is the strategy that Malcolm is going to be talking about in November. We're very cognizant of how do we get our share price into the position that we all want it to be. But there are macro factors on the Genesis share price that our competitors do not have. And they are largely around the appetite of some investors for fossil fuel and for upstream oil and gas, and that's impacting on the price. Malcolm, do you want to add anything?

I think what I'd add there is we're in the early stages of a transition and the investor community is evolving their understanding of what the transition looks like. And if I look at Meridian's annual results presentation, the call from their Chief Executive was for somebody to build some more thermal peaking capacity in the system so that Meridian could build more wind farms. Just 2 weeks ago, we saw Mercury in the media calling for exactly the same things. Now you can take a position that you'll only invest in those that have transitioned, but what those 2 companies are telling us is that New Zealand requires a mix, and ultimately, we have to look at that transition through a collective lens, different companies play different roles. And I think as Barbara said, we have a pretty good understanding of where the touch points are that we need to speak to. And we'll have more to say about that in November.

Any other questions from the floor? Yes. Sorry, we'll come to you next.

Chris [indiscernible]. Can I have the slide back on Huntly, please. Have you ever thought of plastering that roof with the solar panels? And would it be a first in the world?

Thank you.

Thank you. My name is Linda, I'm a shareholder. I'm interested to know you talked about you have a certain customer base of people that can't afford their electricity. What sort of percentage of customers would that be in your portfolio? And could you tell me, please, what do you do to help the relief of their payment?

Thank you, Linda. Thanks for the question. I'll pass to Malcolm in a minute. But certainly, one of the metrics that the Board is well across are the credit metrics in the business and the extent to which customers default on payments and things like that. You would expect, given the economic cycle that New Zealand is in that these numbers are growing slightly, and they are growing slightly, not just across our business, but they'll be growing slightly everywhere. What I see and with my ex banking head on, there is nothing to be alarmed about. We are in a part of a cycle where some customers feel the pinch more than others, and the team worked really well with the tools that we have to help our customers through these cycles because there's previously brilliantly paying customers who suddenly find themselves in a situation where they are having difficulty. And we believe our role is to help those customers through that and retain them as customers for the long term because they're good customers, and that could happen to anyone.

We have -- and I'll ask Stephen to give you the figure in a minute, but we have a program called Manaaki Kenehi, which is dedicated to looking at those customers that are showing signs of distress and intervening earlier rather than later. We do so in a couple of ways. One is the things that we can do as a business. The second is the partners that we can bring into the conversation whether that's our government agencies or budgeting providers, et cetera, or finance partners. So it is something that we proactively look at. We don't wait for people to get into trouble. We're much more on the front foot than that. But in terms of the percentage of customers -- but in terms of the percentage of customers, Stephen -- much smaller than 10, so it's less than 10%.

Thank you. Any questions from the floor?

Cameroon Stuart, shareholder. Just like some transparency on Unit 5 at Huntly, the engineering failure of the circuit breaker and the time to get it replaced and the cost, I believe it's $30 million that we're all going to lose, we'll lose as shareholders, you will lose your job as say Board of Director. It hasn't been addressed. So please, some transparency.

Okay. Malcolm?

Sure. So Unit 5 is a generation unit, and it has a transformer, and it has 3-phase connection between the 2, 3 cables between the 2. Each one of those cables has a manufactured switch box, which is just like your fuse in your house that's designed to trip and protect the unit from a power surge. It is not on the list of parts required by the manufacturer to carry as spares because those switches are designed to last for life. This is the first one in the world that the manufacturer has ever had failed, and the time related to replacing it is due to the fact that it has ceramic components in it. Those ceramic components require manufacturing, which means you have to get into a manufacturing queue to have them manufactured and then they have to sit for 3 months to queue it before you can ship them to New Zealand and put them in place. So we didn't carry spares for the switches because it wasn't on the list of parts the manufacturer expected to fail. As to the root cause of that, the root cause analysis is being undertaken at the moment. We don't have the results of that back at this point in time. And in terms of the position around the net $25 million impact. That is part of our risk management process. We carry business interruption insurance and that sits within the tolerance of acceptance for a failure like that for the business. So it's unfortunate. I mean that unit has run at 99.9% reliability for 17 years, and it's had a component failure that neither the manufacturer nor us expected. And as a result of that, we've had to work through replacing that. And the net impact of that is $25 million, Yes.

That is covered by insurance?

The $25 million is not covered by insurance.