Manawa Energy Limited (MNW) Earnings Call Transcript & Summary

Okay. Well, good morning, everyone, and welcome to Trustpower's investor presentation for the year ended March 31, 2020. My name is David Prentice. I'm the Chief Executive of Trustpower. And also on the call is Paul Ridley-Smith, who's the Chair of Trustpower; and Kevin Palmer, our Chief Financial Officer. Now as in prior years -- forgive me for a minute. I should have control of the slide. Kevin, you might need to help me. Excuse me, everyone. We just need to pause to restart that.

Yes, what have you done? Okay...

It's that camaraderie and support, Kev. Thanks.

Thank you.

So we'll just get the slide up and running. But look, as Kevin does that, just to let you know, just as in prior years, we've got a presentation that, look, we will go through, which should take around 30, maybe 40 minutes, and then we'll open up for questions after that. [Operator Instructions] The presentation will include a governance overview and COVID-19 update, which Paul will initially cover off. I'll then provide some more commentary from more of a strategic perspective. And finally, Kevin will finish off with an operational and financial review. So look, without any further ado, I'll hand over to Paul now to kick start the presentation. Paul, over to you.

Thank you, David. Yes. So we're just running this a little differently this year. I mean we're all aware of the extraordinary circumstances we're in with the COVID-19 and the economic consequences. So we thought it was important to give some insight into how we have governed Trustpower and the oversight we've applied to the business over the last 8 or so weeks. There are 3 or 4 things that I'd like to focus on. First of all, is the move to lockdown and how the business -- how resilient the business was and how quickly we were able to get our staff into a work-from-home mode. The issues really then became, could we answer the phones? Could we reply to the mails? Could we reply to the digital communications? Could we meter? Could we bill? Could we operate our hydro generation plant safely? Could we dispatch? Could we reconcile? And all of those operational things became critically important in the opening week or so of the lockdown. I'm really pleased to confirm that the Trustpower management team and the staff did that extremely well. And we had very few interruptions in our ability to maintain our services. We've all got these BCPs, and you hope that you never have to actually implement them, but it was certainly pleasing that we did do that successfully. The focus was also on our customers. It's critical to keep engaged with them to meet their needs and to service them. Obviously, there is a much high degree of anxiety out there. I mean our customers represent the population as a whole across all of the deciles. And as our -- we've done a lot of outbound calling. We've done a lot of welfare checks on people to make sure they're okay, to make sure their services are meeting their expectations and to the extent they're getting -- they're under some financial stress, working through solutions for them and helping them in that. Thirdly, I just want to talk about how COVID has got broad effects. Trustpower, relatively unaffected compared to many other businesses and the positions of many other people. But we see ourselves as really essential parts of the community, and it's important for us to not only support our customers but to stay engaged with the community and support it. So I'm sort of pleased to let people know that the directors and the senior management have agreed to take broadly a 10% reduction in their earnings for FY '21 and to contribute that to a community fund, which would -- which we will apply widely and as generously as we can. I think it's really important for companies like Trustpower in these circumstances not to retreat. It's important to stay engaged and continue to do [ inverse ]. And although the numbers are not significant, we think it gives the right message about the type of culture we've got and the role we want to play broadly in society. Then moving on to chief executive changes. Of course, you all know that Vince finished with us in January and has taken up an equivalent role at Mercury, and we want to thank him for his 10-year service, which was a time of great change and advancement for Trustpower. But we're equally pleased that David Prentice, who stepped in at relatively short notice, January, has agreed to stay on as Chief Executive through to at least December 2021. That's very good for us and very good for the company as a whole, and we're confident that he -- after somewhat of a baptism of fire, I might say -- not the easiest chief executive role to assume. And David might make some comments about that later on. But he's -- look, he's done extremely well, and he's had great support from our team, and the team itself has worked really well. And finally, I just want to deal with some changes to the Board after -- well, I think, since 2007, I think, both Sam Knowles and Geoff Swier joined the Board, and they've been great contributors. But Sam -- they're coming off this year. Sam won't stand for reelection in the July meeting. And Geoff will come off once we get a second replacement. So I really just want to say how grateful we are for their contribution over an extended period of time. And we look forward to Board rejuvenation towards the middle and third calendar quarter of this year. So that's all I wanted to cover on those governance issues. Most of you, of course, are going to be interested in how we've performed in FY '20 and what the prospects are going forward. And David and Kevin will take you through that. David, over to you.

Okay. Thank you very much, Paul. So just moving on, the slide that you're looking at now actually provides a little bit more detail on our response to COVID-19. And Paul has already covered some of this at a relatively high level. And so I won't comment on each individual point in detail, but I do just want to make a couple of observations here. Now as Paul has mentioned, our staff have showed some incredible hard work and dedication to support our customers during lockdown, I guess, not only to ensure that most services went uninterrupted but also to significantly increase our proactive engagement and, in particular, to support our vulnerable and elderly customers, all the while, need I remind you, having to deal with the impacts and the challenges that -- the lockdown themselves, which, as we all know, was certainly very challenging. And so I just want to take a little bit of time to reiterate Paul's comments and thank all of our people for their ongoing hard work and commitment, particularly over the last couple of months. And that takes me on to a second point around the question of leadership. And at the time, I guess, when the usual tenets of leadership, particularly being able to walk the talk and leading from the front and really having a visible leadership have been challenged due to the environment in which we've had to operate, the need to rely on a distributed leadership model has never been more important. And coming into this role, as Paul mentioned just then, I have been incredibly impressed at the level of leadership capability at all levels we have in this organization. And I know that this is something that we've been working on and developing for a number of years. And I think it's that model which has really helped us successfully navigate our response over the last couple of months. And with that, hopefully, takes us onto the next slide. Now we are having some problems here. Kevin, I can't -- yes. Thus, going on to the next slide -- sorry. My apology. We're having -- I'm having some problems just controlling the presentation at present. But what you can see there is that this next slide shows the current senior leadership team in Trustpower, which comprises of the SLT and Board members. Now Paul has already mentioned that Geoff and Sam will be stepping down this year. And of course, last year, we also had another 2 long-standing directors, Richard Aitken and Alan Bickers, also step down from the Board. They are replaced by myself and, of course, someone who probably needs very little introduction to most people on this call, Dr. Keith Turner. And earlier this year, as Paul mentioned, Vince Hawksworth also resigned as CEO of Trustpower. And again, just want to take a moment to acknowledge his leadership and the influence that he's had in the organization. I don't think there's any doubt in any of our minds that it is a very different place than when Vince started as CEO around 10 years ago, and we have him to thank for that. I'd also like to acknowledge and thank Simon Clarke, our GM Technology and Delivery, who's leaving the company after 9 years to explore new opportunities, and we wish them the very best in that. And so onto some high-level results for the 2020 financial year. And there is no doubt that it was a very challenging one for us but, I think, for the sector in general. So reduced customer demand for electricity due to the mild autumn and winter coupled with below-average generation due to lower rainfall in the North Island contributed to a 16% reduction in EBITDA over prior year. Now this was not helped by an unfortunate material unplanned outage at our Highbank scheme, and the albeit planned and successful sale of our meter asset business, which by the by resulted in a $16 million gain on sale reflected in our increased NPAT. We also continued to invest in building capability right across the organization, which led to increased costs. On the positive side, however, we saw continued growth in our telco customers, where we passed the 100,000 customer milestone in October last year and successfully launched our wireless broadband service. So Kevin will talk in a lot more detail about our financial and operational performance later as I mentioned earlier. But I just want to switch tack slightly and talk about some of the more macro environmental factors and provide more of a strategic update. And this slide shows 5 areas that I'll provide commentary on regarding some of these factors and how they played a part in our performance this year. Now the first point I want to talk about is on the weather. And what this graph shows is the generation revenue over the last 14 years. And where you can see that kick up in FY '17, that's where we acquired the assets of King Country Energy. But what this really highlights is that while there is always an inherent risk and volatility in earnings exposed to volume in the spot market, we actively manage this through hedging of approximately 80% of our generation volume to the retail market, and the remaining roughly 20% is then sold onto the spot market. And to put that in perspective, this means that there's an approximately 90% probability that earnings will be within plus or minus $20 million in any given year from weather volatility, of course. And of course, this is important as it means that we are then able to maintain stable dividends on an annual basis, again, all things being considered, despite this level of volatility in underlying earnings, as can be seen in the graphs on the slide that you're looking at now. And I just want to move on and talk about -- make some comments about electricity supply and demand. And this slide shows a couple of really interesting graphs, which I'm sure many of you will have seen before or at least variants of these. And while there is no doubt that the current COVID-19 pandemic will continue to impact demand in the short to medium term, in our view, this will have minimal impact on New Zealand's stated goal of net 0 emissions by 2050. As some of you may know, I was actually lucky enough to have been involved with the Interim Climate Change Committee over the last 18 months. And on our report and many others like it all indicate that for New Zealand to achieve this goal, it will require us to transition to a low emissions future, particularly in the wider energy sector and particularly the transportation and process heat subsectors. Now to do that, to effectively accelerate electrification of these sectors will require approximately 50% increase in installed capacity over the next 15 years. And the current pandemic has only intensified this goal in my view as it has shown dramatic reductions in greenhouse gas emissions globally during the lockdown over the last couple of months. And at this key point, it is absolutely critical that the right decisions are made to prioritize investment as part of the rebuild of our economy, and it's something that I hope the government are very, very carefully considering. So what this means is that over the last 10 years, where supply has outstripped demand, we are now almost at the point of equilibrium, and that's what the graph on the right shows, and likely to move into a period where demand will start to exceed supply, again, which means a lot of new generation is going to have to be built to keep up. And of course, that will have implications on the retail market. So in times where supply exceeds demand, if we assume that retail churn is driven by generators looking to place surplus generation, we should always -- we should also assume the corollary that in a situation of growing demand, churn will reduce helping to remove cost from the industry, which, of course, is better for consumers and reducing competition. So at Trustpower, we're actively pursuing new generation opportunities that align to the core strength of owning and operating small-scale localized generation. Our current geographically diverse portfolio of hydro generation is well placed to optimize revenue under periods of high volatility, and this means both our electricity only and our bundled retail business will benefit if the current very high churn levels drop to more longer-term sustainable levels. So moving on to another major macro environmental factor that has only just been intensified again over the last couple of months. And that, of course, is the demand for data and digital interactions. And I'm sure all of you will be well used to seeing graphs such as this, where we're seeing almost exponential growth in broadband data consumption and fiber connections. And of course, the recently announced proposed development of, I think, 3 new data centers here in New Zealand further illustrates the growth in this area. And I have to say, looking at that comment on the bottom left-hand side of the slide, I have to say I'm slightly embarrassed to admit that I am one of the 54% who still has a landline connection at home, which is really now just an unused relic sitting in the corner of the kitchen. So this demand for data is something that we recognized a few years back and since then have invested in and developed a carrier-grade ISP network and capability. We now have nationwide network with presence in all major cities supported by dedicated leased fiber networks. And why is this important? Well, it is critical as customers demand ever-increasing levels of service and flexibility, we need that flexibility and capability to manage their experience on our behalf. And in parallel to the increased demand for data, we're also seeing a significant rise in demand for digital services and digital interactions in terms of how we are engaging with our customers and in one of the earlier slides highlighted the fact that there was a material increase in customer interactions through digital channels during the recent level 3 and level 4 lockdown. And it was actually up from roughly 77% pre lockdown to 97% in the first week of level 4, which is a dramatic increase. But through an investment into creating channels of choice for customer interaction over the last few years, this marked increase or shift over the last few weeks was handled seamlessly. And as these charts highlight, the transition that we have been seeing and, indeed, helping to drive over the last 3 or 4 years is not only positive for consumers in terms of providing them flexibility with channel of choice, but of course, the increased automation is helping us drive down -- is helping us drive opportunity for efficiency gains. So again, what does this all mean for telco retail and Trustpower? Well, quite simply, the demand for more and more data and fiber rollout will continue to drive change and opportunity. And to provide high customer service and, thus, minimize churn, you need a good-quality network and a service offering that attracts our target market customers and provides those options to them. And finally, with the continuing trend of conversions from copper to fiber, which is happening regardless, this creates opportunities for us to acquire new customers and on value rather than a pure price basis. So the last area I want to touch on is on the continued changes in regulatory and social expectation. And there -- look, there are a couple of areas here that I would like to draw to your attention. While, as I said earlier, we are completely aligned in support of New Zealand's transition towards a low-carbon future. We need to ensure that this is a just transition that is based on principles that are fair and principles that are balanced. And in that vein, we will continue to argue that differential treatment of hydroelectric schemes based solely on the river on which they operate is both unfair and is contrary to our climate goals as is currently proposed in the freshwater reform process. I'd also highlight that the Electricity Authority's proposed changes to the transmission pricing methodology is also unbalanced and, indeed, based on analysis where fundamental errors remain uncorrected despite these having been pointed out many times previously. So just to finish off, this slide really just shows our current strategy, which is centered around our 4 strategic pillars that you can see at the top of the diagram there. However, the main reason for sharing this with you is really just to highlight the fact that like many companies right now, we are currently reviewing this -- reviewing our strategy in light of the COVID-19 pandemic as there is certainly no doubt in my mind that the post-COVID environment will present many challenges but will present significant opportunities for us. So we are taking the time to review and reenergize our strategy, look for those efficiencies that are already becoming evident and refocus our attention accordingly. So to summarize, what does all this mean for Trustpower? This slide really just tries to draw on some of the key points I've made over the last 10 minutes. And I won't go through any of these in detail other than to reiterate that despite the challenging result this year and the ongoing impact of COVID-19, we are all, I believe, very well positioned, supported by a highly capable and motivated workforce, to continue to evolve, to continue to grow and to prosper. So that's probably all for me for now. I'll now hand over to Kevin. And as I said earlier, he's going to talk a little bit more about our operational and financial performance over the last year. Thanks very much. And Kevin, over to you.

Great. Thanks, David. So my plan is to just talk briefly about some operational highlights, so spotlight some key performance indicators. And then we'll talk a little bit about the nitty-gritty of finance. So as David's already mentioned, the generation volume this year was well below the long-run mean that we expect, driven by mainly the weather. But as I'm going to spotlight -- talk about in a few minutes, there was also a major outage which had a material contribution to this. The Waipori scheme outage was a planned outage, 8 weeks. And while there was, of course, no generation during that 8 weeks, with some careful management of our storage lakes, we didn't lose any overall generation. This was a very complex project, and it's a testament to the staff who worked down there and our engineers in our head office how successful it was. The Highbank outage, not a success -- a successful repair, but of course, the failure itself was unplanned and unhelpful. This is the single-worst point of failure in our network. It's the only station we have where there's only one generator. So a failure in that generator means the station can no longer generate. The lost revenue was exacerbated in this case because it occurred at the beginning of winter, which is the peak generations period. So moving briefly on to retail. This is a slide that many people will be familiar with. You can see that we're growing our customer numbers. The slide -- the graph in the top right-hand corner is a very quick piece of analysis that we did, where we've compared our revenue over a 2-year period less the cost of acquisition credits to our competitors' revenue over the same period, less the cost of their acquisition credits. We can see that our approach is not the most profitable for companies, but -- at the top end and that, over the longer term, the value approach, which doesn't rely on price discounting in years 3, 4 and 5, we believe, will add significant value. Churn. The key messages from this graph is to say that the Tauranga customer base has lower churn, but overall, it doesn't make a material difference to our customer base. We can see clearly a reduction in churn for our energy-only customers. This is driven by 2 things: One is a focus on retention activity, which is a proactive move that we are making to reduce churn. And secondly, because these customers are a strong, loyal customer base with increasing tenure, our expectation is that the churn in this group will continue to decline over time. This graph is a COVID-19 kind of graph, which we've never produced before. But it does indicate that the kind of customers that you have is quite material in terms of your ability to sustain a significant economic shock. Our experience in the past is that domestic customers who have been with us for a long time and who are older, particularly over 54, are much more likely to continue to pay their accounts and far less likely to get into credit difficulties than particularly customers under 35. Similarly with the small business sector, Trustpower has a very modest exposure to this sector, only 10% of the sector itself and only 10% of our customers. And when we even analyze that sector more deeply, we find that we have a very low exposure to high-risk sectors, such as tourism and travel. So overall messaging we're trying to say here is that we are uncertain about exactly how the future will pan out, but we believe that we have a strong base from which to move. This graph is interesting in the sense that it shows that 2 of our digital channels, the app and the web chat, are actually driving stronger customer satisfaction levels than the traditional phone. But all of our channels are delivering higher levels of customer satisfaction. So moving on to the financial results itself. As you can see from this graph, the overall result is materially less than last year. I've got detailed graphs on the next 2 slides. We'll go into the details, but you can see from this one that the account -- there's been some accounting changes impacts and some material weather impacts as well as a few strategic decisions the company has made. So generation earnings. We've talked briefly about the increase in operating costs from Highbank and Waipori. Other revenue is a revaluation of our carbon credit stocks. Volume and price is actually showing an improvement from last year, but that is primarily driven by a material increase in price of energy transferred through to the retail business. Our original expectation was that with the volume increase and this price increase, that green bar would have been significantly higher. As David said, we sold the meter asset business. That was a good overall value-enhancing thing, but it has resulted in a reduction in EBITDA. Avoided cost of transmission is well forecast and should be known to everyone. But this is the last year that we should see a material drop like this. And corporate allocations, which I'll talk to later in the context of retail. So talking about corporate allocations. Last year, being FY '19, we had $14 million of unallocated corporate overheads. This year, we've got $3 million, which is a more normal level. As a result, there's been an increase in costs in retail and generation without there being an increase in costs in the overall company. Our debts has increased. That's mainly driven by the provision for doubtful debts at year-end. There's considerable uncertainty around that number whether it is higher or lower, but the expectation is that the economy will move into recession, and as a result, we will suffer higher bad debts. Electricity gross profit has had a material increase in costs as well as a very mild autumn, early winter last year. The last -- only other one that I wanted to talk about is this direct customer acquisition costs. As I mentioned earlier, we are focusing heavily this year on retention, which has -- well, one example of this is the significant increase in modems that we have issued to our established customers in preparation for the Rugby World Cup to make sure that their experience in that event was positive and rewarding. And what is pleasing, of course, is to see that the telco gross profit has increased as a consequence of that. Final dividend. Final dividend is $0.155 fully imputed, slightly down from $0.17 per share fully imputed interim dividend but delivering a total dividend of 32.5%, just only a few percentage points lower than last year. The Board has resolved to keep its dividend policy unchanged and will, of course, continue to monitor dividend payments closely in the future. Debt capital management. This graph is as of today. And as you can see, we have completely refinanced all of our debt that is maturing in the next 12 months. We now believe that we're in a very strong position to take advantage of strategic opportunities and also to manage any uncertainty. Generation asset valuation. It wasn't a requirement for us to revalue our assets this year from an accounting perspective. But the Board considered that given that this was the largest component of our balance sheet, that having an independent revaluation in the light of COVID was prudent. As a result, there's been a very modest change in the value. So moving on from the year that has been and looking forward. In summary, the results was disappointing, but overall, the building blocks are there for a positive future. We have the funding and the capacity to grow our generation business. We're well positioned as a multiproduct retailer to deliver increased value. And we've -- as David said, we've got a highly capable staff. In terms of future, the Board has -- or the company has decided to guide to $190 million to $215 million for the FY '21 forecast. And there are, of course, a number of conditions or assumptions behind that, being generation volumes, prices consistent with current market is the key ones. But overarching assumption is that the country continues on the current track in terms of its response to the COVID-19 pandemic. Should there be another material lockdown then that could impact these forecasts. So the graph on the side shows the national daily demand for energy. And whilst we can see a material drop in energy over the lockdown period, the signs are positive that activity is returning to near-normal levels, and that should be good for Trustpower's sales to its customers. So that's the end of the presentation. So we're now looking to ask -- answer questions. [Operator Instructions]

And so the first person that wants to ask a question is Andrew Harvey-Green. So hopefully, Andrew, you will be able to speak now.

All right. Can you hear me?

Yes, we can.

Yes.

Yes, a couple of questions from me. And I guess, first of all, just around some of the guidance bits and pieces. So -- and then you talked about commercial volumes being down 35%. I just wanted to clarify a couple of things because it did seem quite a lot to me. First of all, is that the time-of-use volumes that we're talking about there? And how much -- and second part of that is, how much of it is COVID related, I guess, versus, I guess, competitive pressures and loss of some contracts that will be coming through this year.

The answer is -- I think, to your question was -- is it COVID related? And is it large commercials? The answer to those questions is yes for both of those. We're not anticipating a significant change in terms of the amount of volume we would sell. So absent of COVID, we would have forecast a reasonably close level of sales to our C&I customers from one year to the next. There will always be the odd customer that goes and replaced by new ones, but we weren't anticipating a material drop in that sector.

Okay. Okay. And the second question was just clarifying some of the bad debt commentaries. So I think there was an increase in the FY '20 number of bad debts of $3 million. Is that effectively an increase in provisions? So I think other commentary I saw indicated you were looking at FY '21 bad debt's been 3x the level of FY '20. So I just wanted to, I guess, clarify that.

Yes. So the answer is predominantly yes. We are -- I mean there would have been a slight increase in underlying bad debts absent of COVID, but -- which might have been $0.5 million or something. But the vast majority of it is the -- relates to COVID or our view of the impact the economic downturn will have on collectability. But this area, you're quite correct. This is an incredibly difficult area to predict. We're currently not experiencing significant changes in payment behavior. But the uncertainty is what will happen once government support in that drifts off as we move down the levels.

Yes. Yes. Next question I just had was around ACOT. And I guess, particularly the value was -- or the commentary around the revaluation of the assets. On my numbers, that looks like a 45% drop on current levels, looking at sort of $12 million to $13 million post FY '25. Is that sort of the area. And obviously, I think you are hoping to have that somewhat lower than what the valuers have suggested.

Yes, that's correct. The -- when they evaluated the value in FY '19, they assumed that the ACOT revenue would stay constant at its current level. In the current valuation, they have ascribed some probability to the Electricity Authority's current transmission pricing regime coming into play, and that would require a change to the ACOT scheme, which may result in reduced revenue. There's a number of ifs and maybes in that answer, which reflects the uncertainty. So they created a range of high probability that we'll keep nearly all of it through to a low probability that we'll keep it. And then we've chosen the midpoint.

Okay. And in terms of Trustpower's view around what might look like. And obviously, we didn't get the final decision from the EA, but...

Well, our view is that a year ago, the EA came out and said that the benefits of the current regime were about $6 billion to the economy. They've got -- they've now come back, and without any changes to the actual structure, they've come back and said, oh, no, it's only $1 billion now. Our view is that if they continue to correct the fundamental areas that are in that calculation, that will drop down to near 0, which will make prosecuting the change quite challenging. But it's true that the change, as it's promulgated at the moment, will cause a material drop in ACOT after about 2025.

Okay. And last question for me was just the slide which is looking at the long-term generation and talking about 60 gigawatt-hours of enhancement activity. I guess 2 questions sort of around there. First of all, what sort of costs are we looking at to achieve those enhancements? And secondly, has Trustpower got anything else in the pipeline that it's looking at to, I guess, enhance its generation base going forward? I think in the past, there was some talk about maybe looking at solar. But if you're able to give us an update on that, that would be great.

Yes. So the enhancement schemes will only go ahead if they're financially viable. So they -- but they would be low millions of dollars each year to achieve that. In terms of the more substantial change, i.e., will we build a new generation station? Thematically, as David said, we are supportive of the view that electrification in the economy is a required thing and that building new generation will be required by New Zealand. Strategically, we think that we have a core capability in managing smaller scale, more community-orientated generation. And so we're currently actively talking to a number of partners in that space, which is kind of all I can say about that, really. So I've...

Should we take the written questions...

Yes. Yes, let's do that. Why don't you take yours, Paul, and give me 2 seconds to go through them?

Yes, sure. So we've got some questions that have come through the chat function from Stephen Hudson. One for me was, what was the Board's thinking behind the final dividend cut versus holding off given the headwinds this year? And the answer to that is simply prudence. We absolutely could have paid the dividend at $0.17 per share. We could have signed solvency certificates. We had the cash. It's simply that, looking forward, what we would think is that the performance of our retail business, i.e., that we've -- people are paying has been substantially held up by the government actions, the wage schemes and so on and so forth, redundancy payments that people have received. And we can't predict what the political and economic responses are going to be going forward. So I want to say we don't expect it to get better in the short run. But how that plays out and people's ability to pay the utility accounts is something that we obviously monitor incredibly closely and work actively with our customers to try and help them with payment arrangements and schemes. But look, if it deteriorates, what we've done with that $0.015 that we've kept back is just hold back a little bit of financial capability. Just on that, I think it's important that if our customers -- and it won't be just us, of course. It will be Contact and Meridian and everybody else -- get under really severe pressure, it is going to require not just Trustpower and the gentailers to help with the solutions. But it's likely that it would need some government help and also the network companies, both on the telco and in the electricity space, to play their part. And there are discussions going on with those companies and those organizations. Nothing has developed yet, but we're optimistic that there will be some positive outcomes there. In terms of the signal, so this is a question from Phil Campbell, what are the signals for increasing dividends? It really is -- well, obviously, you've got the second wave. Obviously, if we end up in level 3 or level 4, then that would be not a good outcome for anybody. But it really is the performance of our payables -- of our receivables that is what the Board is tracking most closely, what's our cash flow. So those are the questions that we're addressed to me. Kevin, do you want to take that EBITDA question on meter sale?

Yes. Definitely. But unless David wants to jump in with the outlook for industrial load.

Look, just a couple of comments on that, and thanks for the question, Stephen. And to be honest, I think we've probably answered that from the comments that Paul and Kevin just gave a minute ago. But just to reiterate that, if you look at the last couple of months, what we have seen is a net reduction in demand by around about 11% or 12%. Obviously, there was a significantly higher reduction in industrial load compensated by an increase in retail. Going forward, as I said, we've got a forecast out there but at present is predicting our bad debt levels being elevated to something like 3x pre-COVID levels. And without a crystal ball and without being able to understand exactly what is going to happen once the wage subsidy that's in place, which I think is actually just providing a buffer and to a certain extent is actually just kicking the can down the road, what implications that is going to have, I don't think anybody knows at present. So it's -- without having that crystal ball, I think it's quite difficult to answer that question other than to say we are taking a very prudent approach. And as I said, in our forecast going forward, we're assuming bad debt levels being elevated to 3x pre-COVID levels. But we'll be watching that very closely.

Okay. And Stephen, in relation to the question, what is the lost EBITDA from the meter sale of FY '21? We gave very detailed forecasts in our November '19 release, but from memory, I think it was around $6 million. That business, as you know, is a sunset business. It's a business of owning legacy meters, which we are actively replacing with smart meters. So there was always going to be a declining revenue stream and EBITDA stream from that business. But if you go back to the release in November '19, there's the details there. Now there was another question around churn, which I might go back to the churn graph to talk to. So the question was, why has electricity and telco churn increased over the last 5 months? I guess the answer is there is a slight increase there. It will be driven by competitor activity. But you can see from all of the lines that they bounce up and down a little bit depending on campaigning and competitive activity. So I'm not aware of any particular underlying macro trend there. Obviously, yes. It will be different -- obviously, the churn drops dramatically if we were to move that graph on a month into April. But -- so the answer to that is it's just within the normal bounds of churn that we would expect. And the other question was, how is wireless broadband going? Well, actually, that -- this is a product that we are targeting towards our more provincial customers who are wanting broadband but don't have access to fiber that our urban customers have. We find it resonates well with the -- I don't have the NPS numbers in front of me, but it's a very simple product to install and seems to work well and gives a material uplift in terms of broadband performance for those customers. So perhaps we might take another verbal question. Now unfortunately, I don't know your name because you've dialed in by phone, but hopefully, you all know who you are, and you can introduce yourself when I've allowed you to talk.

It's Nevill Gluyas here, Jarden. Right. So it's good. It sounds like it's all working. So a number of questions for me. To start off, with CapEx, obviously, elevated CapEx -- or I believe it's an elevated CapEx view for the year ahead. What is your view for long run?

The -- we're expecting that the next 2 to 3 years in generation CapEx will be a little bit higher or similar levels to that, and then it will all flatten off after that or reduce back to sort of more FY '19 kind of levels.

Yes. And the IT and telco, is that -- is some of that sort of one-off spurs? Or...

We're kind of hopeful that, that CapEx will continue to be elevated in a way because it means that we're continuing to grow and expand our telco retail business. So -- but yes, there'll be -- when you're a digital business like us, there'll be an ongoing need for CapEx. If the business doesn't grow, then, of course, that will scale back.

Great. Next question then, I will just keep on the CapEx theme. You talked about -- it sounds like the strategy is going to come up with -- or produce some more detailed ideas about how you might participate in decarbonization. A general question on that strategy approach. Yes, you've kind of got an expertise and competitive advantage in the small generation space. I wonder if it's Trustpower capital that will be employed there or whether you are looking to partner with small builders who would provide their own capital or third-party capital.

Yes is the answer to that, to probably all of those options. I don't think we've closed the door on anything. I guess in principle, our approach to partnering would be to find partners where both partners brought something to the table, and that would often mean, I think, a sharing of the capital burden as well as the expertise and other attributes. So -- yes go ahead, Paul.

I think the type of scale we're looking at, a lot of it would be -- could be done on balance sheet, Nevill, I think, from our point of view. I mean sometimes with these schemes, you do get the entrepreneurs who bring you the projects. That's quite a typical way for these to develop. My preference would be that we buy them out or perhaps just leave them with a residual carry, something like that but really be in control of the -- control of them.

Okay. That's useful. So I guess a pure PPA growth, which so far has been, for example, the Genesis approach wouldn't necessarily be yours?

Well, we're -- I mean we've -- well, absent of Genesis' last foray, in the last few years, we've been a PPA participant for many, many years in terms of other small-scale generators. So there's no reason to suspect that we would stop doing that. But it's a matter of scale, really.

Yes. Right. That's useful. Very interesting, the churn chart. I see you still have those up. And what stood out for me is how the electricity only and the dual products sort of all seem to be converging to a new lower level, clearly, a gain to triple play, which seems to sort of stay pretty static. But how much of this decline is due to -- or how much would you attribute to sort of your retention activity versus higher customer service level versus other propositions? I'm just wondering if you could offer some commentary on that.

I think the -- partly, it's just a statistical thing where we have known for many years, as most people do, that the longer you own -- or you have a customer relationship, the less likely that person is to churn away. And so that sector of the customer base is progressively aging because we're not targeting new electricity only or new dual fuel only customers. So the number of new customers coming in is modest. And so the average age of the customer base is increased -- increasing -- average tenure, rather, probably age of them as well. But -- and that's driving higher loyalty and lower propensity to churn.

So another way of saying, I think reflecting back your answer is sort of you've got a core of customers who really just aren't inclined to switch. They like you so much, they're just not inclined switch, and that's what we're seeing more and more of in those top 3 lines.

On the top 2, and you're right.

Okay. Now just -- I was looking at the capitalized acquisition costs, and those have taken another jump, the additions to capitalized acquisition costs, I think, taking another sort of $10 million or $11 million increase. And obviously, the amortization of that's increased as well. How much of that uplift is due to higher retention activity.

I don't know the answer to that, Nevill. I'll have to do some research and flick it to you later.

Yes, that would be great. And I guess the sort of the follow-on question to that is, do you expect to see that sort of stabilize at the levels, the additions? And presumably, the amortizations will catch up but for the additions to stabilize at about the levels you printed last year.

No. We'd probably see the future being lower than last year.

Right. Right. That's great. So maybe back to FY '19 levels if we're going to plug numbers into our models?

Yes.

Great. Just one clarification. And apologies if it's something that's been told before. I suspect it has been. The efficiency improvements target of $20 million per annum included in the generation sort of enhancement project. Is that -- sorry, is that $20 million per annum? Or is it a sort of one-off $20 million gain? And what are the nature of those improvements?

I don't know. Where does that come from, Nev? I'm not sure.

I think it's on the slide that talks about those projects, might be one of the backup slides. Stay with me for a moment.

Because $20 million efficiency gain per annum would be half -- would mean we'd have to halve our maintenance costs, which seems a bit unlikely?

Yes, it sort of occurred to me as well. So I just want to sort of understand what it really was.

Maybe we'll just take this one offline, Nevill. And you can hunt it down and flick me an e-mail, and I'll clarify it for you.

Yes. Very good. Just sort of a bit of a follow-on question on the TPM proposal. Looks like it's sort of -- it's going to truck ahead. And I'm wondering, should we expect sort of another judicial review of that? I mean is that sort of something you would consider doing again or starting again?

I don't know...

Too early to make that call, Nevill, would be the answer of that. Too early. You've got to let the process run out and see where it lands. Too early to make the call.

Yes. So Nevill, I've just had a text from Karl saying that it's a net present value number, that $20 million, not an annual statement.

Yes, that's great. And I'm assuming that is an NPV of OpEx -- another question. We can do that one off-line. Yes, that's perfect. That's an important number, I think. All right. I think that sort of covers my key points, actually. So maybe one last point of clarification. I think just the -- your earlier reply, Paul, regarding the dividend. And you sort of connected the sort of the lower level to bad debt. I mean is that how we should think about it? If your bad debt performance tracks better than expected that it does return to pre-COVID levels, then the dividend would return to that $0.34 per share track as well.

Broadly, yes. Yes. No, look, we -- that's -- we see that as the big -- the largest unknown going forward. And obviously, we have unknowns in terms of rainfall and those sorts of natural volatilities. But the sort of the abnormal variable that we're facing now is that number. And it's a real matrix as to how it's going to play out. It's not just in our control. It depends on how others behave in the space as well. But broadly, the underlying business remains in good shape. So if we continue to collect the -- our invoices, then I would expect to revert. Should we, Kevin -- just picking up on some of the written questions there. There's one there about Tiwai and what our current thoughts are. David, that might be one for you. And then one just again from Stephen about forecast for industrial load over the next few years. Maybe, Kevin, that's one for you. Just to allocate that.

Yes, yes. No, thank you, Paul. Sorry, I didn't see that, but I can see that now from Andrew. Thanks for the question, Andrew. Can you please discuss your put thoughts on the Tiwai Point smelter and perhaps what scenarios you're modeling the outcomes and how Trustpower is positioned? Well, look, I guess there are probably other people on this call, who I certainly won't name, who are probably a lot closer to some of the ongoing discussions around this than I am. I think most people listening in will be aware that there was an expectation that there was going to be a result around the strategic review that was be undertaken by the end of March. I haven't heard anything since then as to whether that's been postponed or delayed, but I presume that because we haven't heard anything that it has. I think it's fair to say the conversations that I've had with various people in the industry over the past couple of months have flipped from yes, it's definitely going to go ahead and close; to no, there's no chance it is. So I'm not quite sure how I can answer that question simply because I don't think anybody knows yet. Very happy -- this is an open invitation for anybody to stick their hand up and provide any other commentary they've got. With respect to the scenarios that we've modeled for Trustpower, I mean we are -- perhaps one thing that Kevin didn't mention was that like many other companies over the last couple of months, we have been actively working on a number of scenarios primarily driven by, I guess, different levels of severity of COVID but also overlaying that with our aspects within the wider energy sector, which Tiwai Point smelter is one. So yes, we are thinking about it. And perhaps, I think it's too early at the moment to talk about what some of those outcomes are and how Trustpower is positioned under those.

Okay. Thanks. I guess the thing to note, Andrew, is that it's good to have your generation spread out all over New Zealand rather than concentrated at the bottom of the South Island in regards to Tiwai. And I think that answer probably covers the thing about industrial load over the next few years, which is also around your view on Tiwai. Will industrial load come in and replace Tiwai if it closes? We don't really know answers to any of those questions, but it's always a possibility. I think that's the end of the questions. And it's now just gone midday, so I think it's probably time to call the webinar now to a close. So thank you, everyone, for your participation, and stay safe.

Thank you. Thank you, everyone.

Thank you, everybody. Thanks for joining.

Cheers. Thank you.