Mercury NZ Limited (MCY.AX) Earnings Call Transcript & Summary

[Foreign Language] everybody. My name is Stew Hamilton. I'm the Chief Executive for Mercury. I'm here today with Richard Hopkins, Chief Financial Officer; and with Paul Ruedige, who's Head of Business Performance and Investor Relations. It's wonderful to have you here as we talk through the full year results for FY '25. We're sitting in a wet Auckland, and that is great for a hydro generators perspective, but equally, we'll try and talk loud if the rain falls too heavily on the roof. So we'll kick off with the first slide or Slide #3. This is really a repeat of the work that we introduced in our refreshed strategy in June. So it was wonderful to have an awesome group of people join us down on Rotorua in June, where we had the chance to share our new refreshed strategy. And that shows how we were targeting the biggest drivers of value. This strategy outlines a strong investment proposition for Mercury. Firstly, we have a capable team that's leveraging our superior portfolio due to not only our asset location, but our hydro river peaking. We've got a fantastic customer scale and our efficiency that enables us to unlock value. We shared at the Investor Day, the growth opportunities in front of us and the plan to deliver more value in 2030. We have the best pipeline of wind prospects and have some exciting geothermal options. We also have a team with proven execution not only in geothermal and wind but also in hydro projects. Through this, we continue to deliver attractive returns for our owners and our strategy is produced, one which produces a better Mercury today, what we're building for tomorrow and also brighter together. Now looking ahead or looking backwards at our FY '25 performance, and what was one of the most challenging hydro years on record, we were able to deliver steady performance. So with reduced production of 10%, we achieved an FY '25 EBITDAF of $786 million. This compared to our originally guided $820 million and our most recent guidance update in April of $760 million. We were then able to provide an ordinary full year dividend of $0.24 per share, which produces our 17th consecutive year of dividend growth. Our customer scale and efficiency has enabled us to unlock more value, and our total connections grew to 906,000 on the back of our multiproduct offering and also produced value from our retail scale as we completed this integration synergies. Our positive momentum and generation delivery continues with 3 major builds simultaneously in construction, stretching from the top of the North of New Zealand to the bottom of the South, a $1 billion investment will produce 1.1 terawatt hours additional renewable energy. We entered into long-term electricity agreements with Fonterra and Visy and our Tiwai contract started in January, and we continue to build a strong sales pipeline, which gives us the confidence to continue to keep building. We continue to build and strengthen our social license and had a great result through the year of no post-pay credit disconnections for customers in hardship. Looking ahead, our refreshed strategy will continue to deliver value with a focus on productivity and a focus on executing our build program. With that, we provided an FY '26 guidance of EBITDAF of $1 billion with a dividend of $0.25 per share and a stay-in-business CapEx guidance of $150 million. In June, we also shared our plan to accelerate generation development. That plan is now in motion, and we will continue to deliver 3.5 terawatt hours of new generation by 2030. So our refreshed strategy places a focus on the priorities that will deliver greatest value. The first 2 components of our strategy, our aspirations around Kaitiakitanga and customer are really all about how we use our prospecting and execution of a pipeline, combining it with a customer electrification demand leads to commercial outcomes. The second 2 components are really how we engage with our partners and our unleash our people to deliver that value, all delivering on a commercial outcome, which results in returns for our owners that enable investment back into growth, again demonstrating better today, building tomorrow brighter together. Our executive team is forming and is hitting the ground running. We have a structure that's now aligned with the key aspects of our strategy. We've developed our plans, working very closely with our Board and setting up our team to deliver on that performance. The heart of who we are is our people. I'm very proud of the continued and sustained improvement in our safety performance over FY '25 and the disciplined delivery of not only plant safety but also process safety performance. There's no doubt that it has been a tough year for many in New Zealand that extends to our customers and our people. For our people, we've actually made really good progress, particularly against our gender pay equity ratio and yet recent organizational and workforce changes have had an impact on our cultural index score and our progress towards our target for people leaders of ethnicity. We have work to do in that space. Through delivery of a safer environment and growing our people, we will accelerate our performance. Through that, we are simplifying our organizational structures. We're aligning our company's scorecard targets to our strategy and better linking that to pay for performance, and we're also leaning in and enhancing the use of artificial intelligent tools so our people continue to focus on the highest value work. I'll now hand over to Richard to look through some of the financial numbers.

Thanks, Stew, and [Foreign Language], everyone. It's great to be here for my first year-end results at Mercury. So let me start by talking through the FY '25 financial performance. Starting off with trading margin. That's down 75% from prior year, really, as Stew touched on already linked to the less generation. And that's been partially offset by improved sales. Underlying operating expenditure was flat on prior year, but we had increased costs from 2 areas: organizational changes, which are enabling us to get to the $370 million OpEx looking forward and also well maintenance. This explains the EBITDAF movement. The NPAT itself was impacted by fair value adjustments on nonhedged accounted derivatives. And the key bits that Stew has also touched on is the investment that we've been making in growth, so particularly on OEC5, KD2 and Kaiwaikawe and 2 of these are going to be starting operations in 2026. Dividends up 3%, representing the 17th consecutive year of dividend growth. Turning to the next slide, looking at the EBITDAF bridge. So from $877 million last year, the largest impact was the reduction in generation volume costing $159 million. Mass market yields increased by $6 a megawatt hour. C&I yields increased by $13 a megawatt hour, as a big focus for the year was signing these long-term contracts that Stew touched on already. So Fonterra, Visy and Tiwai all at fair prices. Telco continued to make good progress, adding over 30,000 connections whilst yields reduced slightly, making -- but the telecom business continues to make a meaningful contribution to Mercury, both in margin but also in reduced customer churn. Price increase of $7 million was largely driven by trading gains. We expect to normalize back to historic levels, partially offset by the increased geothermal royalty costs, and under our long-term agreements on royalty costs, they're based on a 3-year weighted rolling average linked to historical spot prices. So that's the -- that's royalty costs going up, particularly for the Rotokawa JV. We cover OpEx on the next slide. But look, the key takeaway for me from this slide is, look, it's a good trading performance above the $760 million that we had indicated in April. And that really comes down to careful yield management and targeted contracting, which really cushioned the result and set us up well for 2026. Turning now to the next slide, the critical areas of focus for the future success. Ultimately, underlying operating costs were the same as similar to last year, and we really do see this as peak OpEx. We're focused on reducing our costs to the $370 million as we discussed at Investor Day. And we had some additional restructuring costs during the year as we managed our employee numbers down. The cash flow waterfall shows that we reinvested 56% of our earnings back into the business, a clear signal of our commitment to growth even in a challenging hydro year. This reinvestment funded both our major growth projects and our critical stay-in-business work, ensuring operational resilience and future earnings uplift. Despite the hydrology challenge, we increased capital spend. We also maintained our progressive dividend policy, marking our 17th consecutive year of dividend growth. This reflects the underlying strength of our integrated business model, disciplined capital allocation and confidence in future cash generation as new projects come online. As you can see in the pack, debt increased by $230 million during the year, and I'm going to talk about that a bit more when I go through our credit position. This next slide really runs through how we've enhanced our assets, and it's a quick review of where we invest our capital in FY '25. So we advanced major hydro resilient projects, including Arapuni Left Abutment and strengthening and Taupo Control Gates gates. Geothermal investment included 2 injection wells, 1 each at Kawerau and Rotokawa for $30 million. Other generation CapEx included $46 million in critical generation assets, such as the refurbishment of Karapiro third unit and intake gate replacement. With that, I'm going to hand back to Stew to talk through the next few slides.

Thank you, Richard. FY '25 brought into light the impact in the drop of gas supply in New Zealand and in combination with the dry periods that we experienced the signals to the market to take action, and we'll talk about that action that was taken soon. The left side of this chart or this slide with the charts down on the left-hand side show the gas situation in harsh reality, declining gas reserves and also reuse or more -- greater use of coal generation being substituted for the gas can be shown. On the right side, the market maintained energy security during a volatile hydrology period. We had near-record low hydrology in the early parts of FY '25 that coincided with the high gas prices. This resulted in high electricity spot prices. And we saw a strong market response that included a combination of demand-side gas deals, increased thermal generation, demand response from industrials like Tiwai until we saw high hydro inflows later in the financial year. Early focus on winter 2025 from energy security from all sector participants and above average inflows from May 2025 have lowered electricity spot prices and set us up well now to get through winter '25. The year had 2 very significant dry spells, and we learned a lot and bolstered our ability to manage that volatility. This chart shows the hydrology in the Lake Taupo through the year. The yellow line being FY '25 compared to the average line in gray and what was FY '24 in blue. The table, in particular, if you look at the second line down shows the Waikato inflows, and so firstly, before we came into FY '24, there were pretty dry conditions that carried over into this current form to FY '25 financial year. That saw us starting Lake Taupo 103 gigawatt hours below average in terms of storage. The dry year -- the dry period persisted through the start of FY '25, and you can see that middle line there with July being down by 137 gigawatt hours, August down by 89 gigawatt hours compared to average, meaning that our net position exposure grew over that quarter, which is shown in the middle line of that chart. Inflows then recovered in October, but then we started to see what would be a 6-month very dry period and actually some of the lowest inflows on record. You can see that our net position though improved later in that quarter. And as we hit the start of calendar year '25, we managed Lake Taupo levels and utilized other mechanisms very well to bring our net position to balance. And you see the last 6 months of FY '25, our net position has been managed extremely well. We have since experienced strong inflows, particularly in Q4, that's providing tailwinds into FY '26. In fact, our hydro generation had a record of 566 gigawatt hours for the month of July due to strong Waikato inflows due to great asset management and the work that's been done with AI to optimize and make them even more efficient. That's above average hydro generation to date through July and August of 160 and 52 gigawatt hours. When you combine that with the Taupo storage level being 77 gigawatt hours above average, it gives us a 290 gigawatt hour tailwind heading into FY '26. One of our core approaches to future value exists in our ability to execute long-term deals and develop a robust sales pipeline to drive renewables investment. Over the year, the New Zealand aluminum smelter long-term agreement became operational. That underpins our Kaiwera Downs S2 wind farm project in Southland. We're very excited about our Visy deal in terms of a long-term 10- and 20-year deal with Visy and also proud to be supporting the electrification of Fonterra. Those 3 contracts represent a total of about 1 terawatt hour of electricity per year, which provides a solid robust sales pipeline to drive further investment in generation development. We are now in the process of commissioning the third unit of our Karapiro station, combined with AI Digital River that has lifted our mean hydro generation to 4,140 gigawatt hours per year. And we now move to the design and development of the next phase of our rehabilitation on the hydro system on the Waikato River as we head up river to Maraetai, Ohakuri, Atiamuri. We are making excellent progress with our current 3 generation development projects and construction. Firstly, with OEC5 at Nga Tamariki. There is a small risk to delay due to equipment delivery and some construction challenges, but we are being conservative in our assumptions for production, and this will provide a very strong base load for winter 2026. Our wind projects that are both in play are planned for power production over the middle of next year will deliver good value through FY '26 and into FY '27. We are making great progress on our OpEx per connection target as well on the customer side of the business. We're targeting a 30% reduction in OpEx spend by FY '28, and we've delivered 11% of that already. We've maintained energy connections flat, whilst continue to grow our telco connections that was up by about 32,000 relative to the prior comparable period, driven mainly by cross-sell opportunity. In fact, we've lifted the [Technical Difficulty] with 2 or more products by nearly 5% and then that's up to now 38%. There's no doubt that the confidence in the sector's capability to provide secure affordable renewable energy took a big hit in 2024. Despite that, New Zealand's energy system or electricity system is still ranked in the top 10 globally against the trilemma. We continue to provide support for our customers, the best thing we can actually do is to build our pace and to firm it. We and the sector are making great strides here. There's a number of activities which are captured on the slide and really making sure that Mercury is doing both those in terms of building up pace and entering into mechanisms which firm our renewable generation projects. We're particularly proud of the work we are doing to support those most vulnerable. Our customer care program has seen our post-pay credit disconnections drop to 0 for the year. For all of our customers that we work with, we're aiming to deliver greater clarity, greater control and then care for those customers through targeted support for those in hardship. With regards to the Electricity Authority and the ComCom Energy Task Force, this morning, they released an update in terms of the progress they're making against a couple of initiatives planned there. We've been engaged with that group and supportive of the review. We've also been supporting a number of independent analysts and looking at the solutions for the problem. And that's the key thing is to making sure that the solutions that have been developed are actually addressing the core problem, and that is that we need more energy, we need it firmed and we need transparency of those prices for customers in order to manage that risk. So on that front, there's 2 key things that we see as being priorities for policy solutions. The first is around firming generation that's ultimately needed to keep our lights on. That is the #1 priority, and we're pleased to enter into the Strategic Huntly Firming Option as a key part of providing that firming for New Zealand system. The second is around boosting hedge market to enable a vibrant competition. We've seen the EA and the ComCom come out this morning talking more about that. We're generally supportive of work that creates a vibrant hedge market. However, if it goes to the space of more intrusive options like separation, we struggle to see how that actually addresses the problem and will not result in more energy projects being built for being firmed. We have 1 terawatt hour in construction at the moment with delivery through the next year and into FY '27. We have received consent for our BESS for our -- battery energy storage solution. we will look at launching consent form Mahinerangi 2 wind farm this year, and we're progressing other projects in our pipeline that will see us hit towards 3.5 terawatt hours by 2030. Firming is a critical focus of our wholesale management team. It underpins our growth. This slide shows 2 bars. On the left-hand side is our portfolio need for capacity requirements. This is our firming requirement to 2030. That requires about 330 megawatts of capacity in order to support our growth plan. The right-hand side is a stack chart, which shows how we're growing that capacity requirements. It starts at the bottom by having a renewable diversity. We're ticking lots of boxes in that space by building in the north and the south our hydro refurbishment programs, enhancing our capacity also providing a good level of capacity. Our portfolio of flex continues to add to that capacity through hot water heater system and our mass market trials, including time-of-use pricing. The contracted flexibility through projects and mechanisms like the Genesis Huntly Firming Option and some of our generation following sales provide the next part of that stack bar, and then ultimately, we have a 300-megawatt Whakamaru BESS option, which is now consented, which will enable us to have a fourth leader to unlock a significant portion of what we require to firm our growth plan to 2030. Our geothermal growth prospects are extremely exciting. Two months ago, we shared an aspiration for an additional 5 terawatt hours, we've now deployed a team of capable people into this area with the mission of initially prospecting the first 3 terawatt hours across 7 opportunities. Those, we plan to share more details of over the next 6 to 9 months as they come to fruition and look to make sure we provide the details in order for us to ultimately take those prospects and turn them into executable options.

Okay. So let me pick it up now with the balance sheet. So our debt to EBITDAF on an S&P adjusted basis is 2.5, so right in the middle of our 2 to 3x target range for maintaining a BBB+ rating. This multiple reflects a combination of the temporarily lower EBITDAF from weak hydrology and a higher net debt as we progress our 3 major growth projects. We've got $600 million in undrawn facilities, boosted by the AUD 400 million green bond issuance in March. We've also got a dividend reinvestment plan in place. For the final dividend, we're going to offer the 2% discount and expect to raise about $60 million through the DRP, including Crown participation, and looking forward, it's going to be about $100 million a year through the DRP, supporting investment funding while preserving balance sheet flexibility. This disciplined approach to balance sheet management is exactly what we set out at Investor Day, enabling us to fund growth while maintaining attractive returns to shareholders. And now turning to our final slide, the '26 guidance. So look, after a challenging hydro year in '25, '26 is looking much more positive. EBITDAF guidance for the market is $1 billion. As Stew has touched on, July has seen record generation for Mercury, driven by starting the year with a higher lake level and 86 percentile inflows since the 1st of July. Together, this accounts for guidance being $50 million above our normalized expectation for EBITDAF of $950 million. We're forecasting total generation for the year to be around 9.3 gigawatt hours, or -- sorry, 9,260 gigawatt hours across the whole portfolio. So bridging from the [ $786 million last year, we had $114 million ] from normalizing to mean hydro generation and trading gains. We've built in $17 million from OEC and KD2 in the first year. We've conservatively excluded OEC5's generation for the commissioning period. We've got $7 million from yield growth across sales channels, offset by risk mitigation, roll-off acquired generation and direct costs. And we've got the $26 million worth of cost reductions, which were in line with the commitment we made to you at Investor Day plus the $50 million of above-average hydro as outlined. Dividend guidance, we've increased $0.25 per share, up 4.25%, reflecting confidence in earnings growth and our stay-in-business guidance is $150 million and remains in line with our long-term CapEx commitments. Growth CapEx is going to be $600 million focused on completing OEC5, KD2 and Kaiwaikawe, plus network upgrades and hydro resilience projects. We expect to see net debt to finish at around $2.4 billion and for our debt to EBITDA multiple to be lower than we've seen this year. So overall, great to have some more water. We're going to work hard to deliver strong shareholder returns and really looking forward to having a couple of new projects going live this financial year.

Thanks, Richard. Yes, I agree. It's been a challenging year from a hydrology perspective that we've managed extremely well. The winter of '24 is behind us. We're building at pace. We're investing in those projects and supporting it through firming, that will ultimately deliver competitive prices. We'll see continued electrification and demand growth, and that growth then creates the pipeline for us to continue to drive generation development and particularly in our geothermal and wind prospects. And ultimately, we'll use and create value from our great people. We've got great opportunities ahead of us. We've got a great plan, and now we aim to deliver. So with that, I'll hand over to Paul to open up to questions.

Hello, everyone. [Operator Instructions] First question of today is from Grant Swanepoel.

So I know you touched on the geothermal opportunity of 5 terawatt hours. It's now a month since your Investor Day, it seems to be a high priority for you. Can you give any update on whether that is firming up quite well? Would you be able to give some sort of early indication sometime in the near future on maybe 1.5 terawatt hours that is achievable? Or is this something we just have to wait until everything is done?

We'll definitely provide updates as we progress. We're certainly not going to hold on to it and do a review once the 5 terawatts is there. It's a massive priority both for me, for our executive team and for the Board, it's exciting. We can see the opportunities there. We just want to progress those initial prospecting opportunities to the space where we can then share the details with you. There's kind of -- there's probably a few horizons of those projects. There's sort of an initial short- to medium-term set of options, which we think we can progress at a reasonable pace. Those will share probably, if not later this year, certainly in the early part of next year in terms of where we see them sit. And then there's a medium to longer-term prospects, which will probably be a little less transparent about in the short term until we actually firm those up. And as they -- but as they develop, we will share them with you and others.

That's a great time line. You did touch on the Frontier report that comes out next month. Is there anything you're hearing from government that scares you other than maybe a separation or some sort of capacity market?

We're like you. We haven't heard a lot of information coming out. We note the Minister of Energy, Simon Watts, comment over the last week, talking about surgical intervention. We'll wait to see what that looks like. We've been engaging pretty heavily. We had a good opportunity to talk to the Frontier team. There's no doubt through that discussion, there was a lot of focus on firming. We're pretty happy with the work that the industry has been doing with the market mechanisms that are at play through the Strategic Huntly Firming Option and from what we can make out I think government and others have been pretty supportive of the work that's been done collaboratively across the sector to do that. So ultimately, like you, we don't know quite what's coming out, but we certainly continue to advocate for our position and also make sure that we're working on the things that we actually think are going to solve the problems, which is to build generation of pace and to firm it.

So hopefully, Watts is a good surgeon. The 50 megawatts you signed with Genesis. Would you have wanted more? Or is this just you're paying to keep this capacity around for longer term and it's more a good market?

Yes. So -- yes, so we signed up to the 50 megawatts. This is the Strategic Huntly Firming Option. And as we head into next year, actually, we still have some of the previous HFO live for us. So I think as we head into FY '26 now, we have about 65 megawatts of the HFO available to us. So our team in the wholesale markets part of the business are utilizing that. Even last week when it was pretty cold, they were calling some of that to support our portfolio and manage it. So we see it definitely adds value to the sector, but it absolutely adds value for our portfolio as well. We do have the option to go further and take on more. We'll consider that. And it does become part of that stack, which was on one of the slides, looking at how we firm our renewable portfolio. So we'll watch that pretty closely. It's adding value for us now, and Tim Thompson and the team will consider whether we need to grow it beyond that.

Just to clarify that. Does that mean from January next year, you'll have the last of the 65 HFO plus the 50 of this new one?

No, no, it's total 65.

Just 50 in HFO? Okay. And then my final question, just in terms of your guidance of $1 billion, great number. What is the trading gain assumed in that?

I will say it's dropped down back to normalized levels, so around the 18% level.

Next, we have Vignesh Nair.

Couple of questions. First, just on the guidance into '26, sort of include $7 million in yield and portfolio impacts. Just wondering if you can talk to that a little bit more. The performance this year was quite strong. So just wondering if prices are beginning to moderate, I suppose, into '26.

Yes, look, there's a bit of work going on across our mass market and also our C&I side there. There's a few things that make that up. but not too much more information we're providing on that at this point.

Okay. Are you able to provide what the kind of, I suppose, netback inflation you've got or price increase you've gotten into '26 at all? Is it sort of in line with CPI below or slightly above?

Yes. I think using CPI is a good basis for that Vignesh.

Okay. Just the next question on upgrades. You've got Taupo Control Gates and Arapuni. You've talked to I think, $120 million in spend for Arapuni. I don't think there was a firm number on the Taupo Gates upgrade. Just wondering if we can get some more information on the cost there.

No. So we -- that project is still in a solutioning phase. So we haven't yet -- we've got a broad understanding of the cost. But until we actually settle on the solution and do the detailed engineering, we won't have the specific cost number. Our expectation, though, over the next 10 years is to continue to maintain the overall stay-in-business CapEx in that $150 million per year window and that...

Do you know when -- sorry, so do you know when you'll get some color on what that will look like?

I think that the team is still pretty early phase of engaging with [indiscernible] in that space, and we'll need to do a fair bit of work. So I think it's still -- it's going to be a good 1 or 2 years out before we get a good understanding of that.

Okay. Sure. And just finally, just on the OpEx. I assume you've baked in the Genesis premiums for the HFOs into the guidance into next year, is that fair?

That's correct, yes.

Is that included in the energy margin? Or is it in the OpEx line?

It shows up in energy margin.

Next, we have Andrew Harvey-Green. You can unmute Andrew. Andrew, you can unmute if you like. I'll just take him off screen for a moment, but come back to you, Andrew. Next, we have Joshua Dale from Craigs.

Can you hear me okay?

Yes, we can.

Stew, you mentioned just before you learned a lot and bolstered your ability to manage the hydro volatility. Just curious, if you rewind the clock 12 months knowing what you know now, what would you do differently?

So the team has done a whole lot of work around understanding what's the -- what -- how do we manage the lake level and how do we make sure we come into the start of the year in a right position, and so there's a fair bit of work that's been done around our portfolio settings to make sure that we are in a good position, particularly as we hit the start of the calendar year, and make sure that we set up to succeed in that space. So there's been quite a lot of work that's really in the wholesale team, in particular with Tim and co to make sure that we're in a better position hitting into future years. It's obviously helped in times like now where we have a bit more water, but there's been a lot of work to make sure that even if we go through dry periods. And I think dry periods are probably a better thing to talk about than dry years now. We tend to -- as you look at the last year, we had a couple of lowest periods, so making sure that we're better set up to -- with our portfolio and with our contracting to manage our net position through that time is critical.

I think that [ the thing is based on information ] it was that position through the middle of the slide, actually looking at that and actually how we manage. Look, it helps a lot at the -- as we got to the end of the year that we had some rain, but actually managing that net position really closely and making sure we don't get out of whack takes a lot of thinking and a lot of effort, and it's really important for our earnings.

Brilliant. And you probably saw Contact's announcement yesterday around looking at increasing battery capacity. You've got a 150-megawatt battery in the pipeline. Slide 22 today suggests you could go to 300, it looks like there's a lot of industry capacity in the pipeline with regard to batteries. When does it start to become uneconomic in your view?

Yes. I think the big thing here, Joshua, is that we want to get projects that are ready to go, but they don't have to go. We need to make sure that they go when they have a good -- they stand up well economically. I think batteries is certainly one of the more challenging ones to get standing up. But the main thing for us is getting that portfolio there, looking at the market, looking at what's coming and then making really smart investment decisions at the time. And that's what we're going to try and do right across not only our batteries, but our whole development portfolio is really look, take very smart decisions, the best we can at the time, looking forward and seeing what others are doing, that say all of them are NPV positive and actually support a wider portfolio as well.

Ultimately, we'll have a choice right in terms of capacity requirements so that stacks on page -- on Slide 22, grid scale batteries building them ourselves is a choice. But equally, we can contract for that capacity in other ways, too.

Last question around your OpEx targets. I know you were fairly clear at your Investor Day. You've just reported $396 million, you're hoping to stay flat at $370 million over each of the next 3 years. It does seem like a fairly abrupt drop with no transition or annualization of savings. Just curious what the movements are there.

Yes. Look, when we've talked through these results, there are some one-offs in there. So we talked about the well piece. And then we've also talked about restructuring costs, and there was quite a few million dollars worth of that. So actually, a lot of the heavy lifting and hard work was done in the final quarter of the year to get our org in place. And so a lot of the savings is actually going to come through people and the reduction headcount we're having and also then just sort of careful management of our costs and prioritization of things going through. So we think we're in good shape to deliver that $370 million, but things can go bump in the nights and might do, but we think we've got a really good credible plan and most of that is already baked in. So there's not a lot of annualization that we're going to be doing through the year. We've got things in place for the start of this year.

Okay. And well done on a good year.

Thanks, Joshua. Thank you.

Next, we have Steve Hudson from Macquarie.

Can you hear me?

Yes, we can.

That was the first challenge overcome. I probably should have asked this at the Investor Day, but obviously, there's quite a bit going on, on the supercritical, geothermal side of things in New Zealand, with the government spearheading some pilot drilling right now, I understand. And GNS sort of talking about 32,000 gigawatt hours of supercritical line beneath the existing conventional. Why are you guys so much more excited about the medium to low temperature stuff and not this?

I'd say it's purely the availability of the technology and the likelihood of overcoming the technical challenges to deliver on that. So the reason why I was so excited about the short to medium term, the high to medium temperature geothermals because the technical solutions already exist. And for us, it's basically prospecting those options and delivering and executing on those and got a strong level of confidence in delivering that. So that's certainly a key profile of focus for us. And I mentioned before the sort of horizons you go, Horizon 1, 2, 3. And kind of in those Horizons 1 and 2, it's very much building on our current assets. Horizon 2 is more about pushing out to some greenfields prospects. And then kind of Horizon 3 is more of the super critical, right? We are very supportive of it. I've actually -- one of our best project managers has been supported into the government to support the project management of the first well being drilled. So we're supportive of it. It's just that the time frames are longer. And so we need to make sure that we're working on all 3 of those horizons to deliver value for our owners in the short, medium and long term.

How much of the 5 terawatts would be supercritical -- terawatt hours, sorry?

Zero.

[ So that's all. Okay. ] Just in terms of the HFO working capital requirement, can we take sort of your share of the 600,000 tonnes of coal that's going to backstop those transactions, so your share of kind of $160 million as your working capital commitment to that product in the next financial year?

I'll hand over to the accounting team to...

Yes. No, I think of it as being a derivative, so yes, no, I think that's my answer to that. We've been -- we've put the sort of actually the cost of the availability through our books.

Right. I think Contact was sort of taking it as a working capital adjustment. Anyway, we can take that off stream. Just on the Manawa hedge, you've got sort of the first taste of what that looks like rolling off 250 gigs -- gigawatt hours a year now. What are you assuming in terms of the headwind from those roll-offs as we can see, sort of, obviously, the fair value adjustment in your accounts is fairly large on that contract. But presumably you're making some assumption in this guidance and your sort of target EBITDAs on what the headwind will be as that -- as those -- as that CFD rolls-off. I was just wondering if you can give us some steer for what you're assuming.

Yes. So look, the Manawa deal became effectively less positive than it was because it struck at a price sub $100 million. And so that's what you're seeing coming through the accounts. So yes, as we look forward at the -- from a pricing perspective, it's going to become less positive as we head towards sort of an ASX pricing in October '26 going forward. So yes, but that's also covered through the CFD adjustment.

So does that dollar for dollar hits your EBITDA? Or is there something below the line?

It hits EBITDA.

Dollar for dollar. Yes. So if we assume kind of 2 terawatt hours, as you say, closer to $100 million rather than, say, $150 million or $160 million, there's $120 million of EBITDA drag per annum when it's fully rolled off in 3 years' time. Is that correct?

Yes, it is. But we think that when we factor that all into our guidance. So when we look at the 1.15 to 1.25 that we announced, that's all baked into that already. So we continue to see EBITDA growth through that.

That's all we have for question time.

Andrew, do you want to have another go?

Andrew had a little bit of a technical issue so he couldn't come and ask his question.

[ Very good. ]

Okay. Well, thanks, everybody. I look forward to catching up over this afternoon over the next couple of days. It's excited to be here. I really appreciate the support of Paul through this and Richard as we build a new executive team and look forward to the results flowing in FY '26.