Mercury NZ Limited (MCY) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Mercury Annual Results Analyst Briefing for 2021. [Operator Instructions] And just please be advised that today's conference is being recorded. But I will now hand the conference over to your first speaker for today, Chief Executive, Vince Hawksworth. Thank you, and please go ahead, Vince.

Thank you, and good morning, everybody, and welcome to the FY '21 Mercury Annual Results Presentation. I'm joined here this morning by William Meek, our Chief Financial Officer, and we'll work through the presentation jointly. So turning to Slide 3. I'll start there with the highlights. So our EBITDAF result of $463 million was obviously down versus the prior year, reflecting the fourth lowest inflows since 1999 and, obviously, also our Kawerau plant outage. So that outage of 42 days and the low inflows combined with the high spot prices, which occurred due to generally low inflows and also low gas deliverability, resulted in a difficult year compared with the prior one. We have, though, been very focused internally on continuous improvement. And we've talked before about our thriving focus and that continues to deliver for us as we work smarter and faster and aims to deliver the $30 million improvement that we've talked about previously. Externally, the year we've seen us focused on creating value through mergers and acquisition opportunities. We're really pleased about the Tilt Renewables acquisition, which brought the New Zealand assets of Tilt into the Mercury stable. And we're excited by the Trustpower retail transaction, which, subject to approvals, will see us increase our scale quite importantly. We declared a final dividend of $0.102 per share, which, together with our interim dividend, means the dividend for the year is $0.17 per share. This is the 13th consecutive year of dividend growth and represents a 7.6% increase on FY '20. We're providing guidance today of $590 million at the EBITDAF level due to contributions from Tilt Renewables and the Turitea wind farm and our continuous improvement initiatives for the FY '22 year. Now I'm going to turn to the next page, Page 4, and hand over to William for the next part of the presentation.

Thank you, Vince, and welcome to everyone on the line today. So I'm going to touch on the financial performance and some of our key financial measures here on Slide 4, starting with energy margin. So as Vince has already said, was down 126 gigawatt hours for the year, with spot prices up around $70 a megawatt hour on the FY '20 year. So quite sharp increases in pricing. And we did see quite low inflows, particularly in the second half of the year seeing both the lake decline to very low levels, which impacted the flexibility of our generation position from Lake Taupo across the Waikato catchment. And as Vince has also mentioned, the outage on the 7th of June at Kawerau with a return to service on 20th of July also took 3 weeks of production from that plant out at a time that prices were near record highs. Operating expenditure $4 million lower at $190 million than prior year, has been restated for SaaS, Software as a Service. So Mercury has implemented those IFRIC changes to our accounts restating last year's also by a similar number, $6 million. So $194 million FY '20 versus $190 million in this financial year. EBITDA, so essentially the movement there of $27 million down, are largely a combination of energy margin, operating expenditure and some slight changes to other income. NPAT declined quite significantly to $141 million from $209 million in the prior year. Biggest movement there was around the fair value of financial instruments, mostly electricity. So we saw a negative $47 million movement there on mostly power contracts against the $22 million positive movement on the prior year. So that's the biggest impact to NPAT. We did enjoy a $41 million gain on the back of our sale of our interest in Hudson Ranch geothermal plant in California back in November. And we did capitalize $11 million of interest to the Turitea project, which is now going through commissioning. We also recognized a $15 million loss related to disposals of some assets at Kawerau on the back of that outage. Operating cash flow and free cash flow, I'll talk to together. So only a slight movement there in operating cash flow of $14 million, down to $338 million for the year. If you look at actually the core drivers, receipts from customers less the payments to suppliers and employees actually was only $4 million different from the prior year. We did see cash interest $9 million lower at $51 million, and cash tax is significantly higher. So cash tax is largely explaining the decline in operating free cash flow from $352 million to $338 million. Free cash, up largely on the back of much lower CapEx expenditure. So CapEx, almost half of what it was in the prior year. We had no drilling this year. And we did make decisions to defer some projects on the back of the impacts of COVID-19, particularly the refurbishment of the Kawerau -- sorry, the Karapiro hydro station, which is going through essentially a full replacement for turbines and generators there. So that was delayed a year, largely due to COVID-19 and concerns about factory inspection testing and the ability of overseas contracts that deliver that well given the challenges moving into New Zealand. A big year of growth investment, driven mostly by Turitea at $194 million. So Turitea, $151 million spent in '21, taking total projects being to $335 million. We did make an investment into EnergySource Minerals. So that's the -- this is the holding company for the project that's looking to extract lithium from the brine at Hudson Ranch. We also have invested $11 million into NOW broadband during FY '21 and spent around $20 million on the Rotokawa upgrade, which should see us increase output at Rotokawa power station and Nga Awa Purua joint venture by 5 to 6 megawatts, which is in play now. So a good step up to the year and good to see progress at Turitea. Dividend up 7.6% on the prior year to $0.17 a share. So looking at just over $230 million of dividends declared in FY '21. Turning to the bridge of earnings. We can see we start last year at $490 million, end up at $463 million, $27 million lower. So lower generation volumes worth about $14 million. Probably the key takeout here is the effect of spot prices. We look at the combination of -- if -- so fixed price variable volume purchases, plus derivative settlements, we've got a data of about $489 million versus the impact of generation, which was positive $441 million. So that's probably the biggest impact, particularly evident in the last couple of months of FY '21. The other big takeout here is the lifts in yield. So we're seeing around 7% lifts in customer yields. That's from mass market through C&I, so some strong growth here and a lift in actually the total sales position. So total sales up over 200 gigawatt hours in those segments. So a fairly comprehensive bridge there for our EBITDAF performance in '21. And I'll hand back to Vince for Slide 6.

Thanks, William. So Slide 6 covers our key performance indicators. Going from the top. But we've been really pleased with how strong the Mercury brand remains in terms of consumer awareness. And that has been proving out as we've launched our moves campaign over the last couple of months, which has seen some retention benefits where we're not tending to lose as many customers as we were previously. The Net Promoter Score remains firm. And as I say, churn, we are seeing declines in churn as we have launched our moves campaigns. With respect to our partnership column there. We're really pleased that the Climate Change Commission's final advice continues to support electrification as a way of decarbonizing. And that, from our point of view, is the right way to go. We see the rollout of renewables supporting wider decarbonization as the key thing that needs to occur. We've engaged with the New Zealand Battery Project because we think it's important that there is a broader discussion than just a discussion about Onslow, but a discussion that considers all of the ways that as New Zealand, we can decarbonize and the role that electricity plays. I note that Turitea, whilst delayed, we have now had first energy from that project, and I'll talk a bit more about that subsequently. On health and safety and employment side of things. Look, we've had a good year from a health and safety point of view. But of course, we always realize that you're only as good as your last incident. What has been really pleasing is our focus on human factors as well as process factors. In terms of shareholder returns. Again, good shareholder returns at a TSR of above 45%. We talked about the dividend, but importantly, we are creating a platform that will transform the future. So turning to the health and safety slide. I think the main focus here for us is, as I said, not just the ability to have a lower TRIFR or lower incidents, but much more importantly, the focus on human factors. Because as I say, as performance and process improves, people do make the difference. We'll continue to look to do that because when you come to health and safety, the last line of defense is always the culture that you have in the business. This year, very importantly, we've refreshed our strategic framework. So whilst we've retained our long-term 2030 ambitions and goals, we've got really focused on what our 3-year objectives look like. Last year, I talked about the Thrive project that had been underway for some time, and we're now starting to see the benefits of. And you'll see in the 3-year objectives, we have 2 halves to the center circle there, one being thriving today about the activities that we will undertake to create that thriving environment and the other being shaping tomorrow. Particularly, want to draw attention to the objectives within that circle. So our thriving today objective is to increase the value of our business to a $700 million EBITDAF over the next 3 years. And the Tilt transaction obviously helps that platform. But we think it's really important to -- in achieving those financial outcomes to enhance our license to operate. We are really focused on collaborating with our stakeholders, whether they be iwi or regulators or whether they be government and customers. We think this industry has a lot to offer New Zealand, and Mercury can play a leading role in this space. We also want to unleash the full potential of our people, and that is done through a culture where people can really participate and see the benefits that are achieved through their efforts. So that's thriving today. Shaping tomorrow is also really important. The role that this sector of Mercury will play in decarbonization in New Zealand is critical, and that is the centerpiece of our shaping tomorrow strategy. If we create the executable options for growth, and we now have a platform from Tilt that will allow us to play a major role in that decarbonization, then both New Zealand, the sector and Mercury can be successful. Of course, to do that, we need to be adaptive and resilient as an organization and responsive to future needs, and our investment in people and processes will deliver that. So that's kind of how we see our next 3 years fitting in with those long-term objectives. And of course, if we achieve all of that, we will truly inspire New Zealanders to enjoy energy in more wonderful ways. Moving to the next slide, and William will talk to this one.

Thanks, Vince. We're on Slide 9 now with these 4 charts here, which I'll just step through. So this really deals with the fuel supply to New Zealand and particularly the fuel supply that impacts certainly the power sector. So we're in the business of energy conversion. So we're taking essentially energy sources, be they water, gas or coal, wind, solar and particularly converting those to electricity. The first chart shows gas production. The key takeouts, you can see quite significant decreases at Pohokura particularly over the last 2 years. It's -- you're looking at around about 100 TJs a day from 2 years ago. We're looking at drilling to improve output there, hopefully, in the first quarter of next calendar year. But 100 TJs a day is essentially e3p and TCC baseload continuously. So it's a big impact to the energy system in New Zealand and certainly very important that we're seeing lifts across those most major fields. So certainly, we're seeing some improvements at Maui and Mangahewa, which is positive. Again, it will be common knowledge, certainly the imports of coal to drive the ranking units at Huntly have lifted significantly. Certainly, the reliance on Huntly is -- has been quite significant over the last -- certainly the last calendar year. But you can see that those coal prices, based on the Indonesian Coal Index, have lifted significantly combined with quite sharp increases in the ETS prices too, which are now around $48. So those coal prices plus carbon means to run Huntly, you're staring at a number that's close to $150 a megawatt hour on coal. So certainly those fuel prices really driving impacts into the power market. Hydro storage. 55% of New Zealand's power comes from hydro. We can see there against historical averages and historical min and maxes. And the blue shaded area on the top right chart, the yellow line scooting along through that late summer, early autumn period. The bottom, the minimum we've seen in the last 20-odd years, that did reflect back into higher power prices during that period. We did see quite a rapid recovery through May and June as wet conditions lifted South Island Lakes, while it was remained dry in the North Island. So a deep dive into the Waikato catchment and Lake Taupo storage over FY '21. Again, probably a few points to pull out of this slide on Slide 10. 9% of inflows in the second half of this financial year. The lake -- typically, we like to bring the lake up to near full over summer as that autumn period is our driest months. So you tend to see -- as you can see in the average that Lake Taupo will [ originally ] fall from January through to April and May. Certainly, the declines there in terms of lake level were sharper and coincided with, as you can see in the table, spot prices at Otahuhu trending well into the 200s. So starting February at $238 and then lifting to $295 by May. The yellow line we got within, I think, about 15 centimeters from the bottom of the lake. At 10 centimeters from the lake, our resource consents requires us to essentially have minimum flow from Karapiro on the Waikato River that will constrain generation on the hydro system to around 7.5 to 8 gigawatt hour days with Karapiro at minimum flows. Once you hit the 0 operating lake range level, which is 1.4 meters of range, at that point, we match outflows, outflows from Lake Taupo will match inflows. So you will see daily generation fall to about 4 or 5 gigawatt hour days, which is quite a significant decrease. If you take June, for example, we would expect to be generating around 12.5 gig days in a normal year, so quite a significant decline. Fortunately, that didn't happen, and we did see some rain late in June and into July that saw the lake start to tick up again. We're now on Slide 11. Really a couple of things here talking about our sales position to customers. So certainly, Mercury is certainly aware that the impacts of the high fuel prices into the power market are impacting -- sort of impacting customers, particularly the Commercial & Industrial segment with repricing at circa futures levels occurring. Mercury has committed to that market, and we see that we've stepped up our sales by -- and in this chart here, by about 400 gigawatt hours, ignores the -- ignore some of the buying contracts. So we have committed strongly to C&I, and we've eased back in terms of mass markets, which I'll talk to more in the next slide. You can see the [ C&I ] market in the pricing chart around channel yields. You've got futures prices, spot prices well above the net yields that Mercury is selling into mass market. So certainly, it's a challenging market for retailers. It's a challenging market for Mercury, and with ICPs down circa 20,000 in FY '21 on the back of the 28,000 decline the year before. So we did make decisions to sign longer dated C&I contracts. The consequence of that in the front end is that they are out of the money. And so that does -- that did impact profitability for FY '21. But as the heading says, some short-term pain for longer-term gain on those contracts. Slide 12. This really focused more on the churn, and that's largely driven by our mass market business. Our retail business still remains fiercely competitive. We're certainly seeing competition both in terms of just raw pricing but also in terms of bundled offers. National churn remains above 20%. We are very focused on value for our customers. And certainly, the high price environment is creating some challenges there. As I said, 20,000 customer loss in terms of market share during FY '21. But that is more than offset by increased sales into the C&I segment. You will have seen, certainly, if you live in the city, the Mercury move campaign has been pretty bright. So the words of Coldplay in the song Yellow was certainly true here in Auckland. There's certainly a lot of yellow signs promoting the move campaign. And certainly, we're very proud to see some of the successes of that coming through in terms of increased -- or decreased net churn. So you can see the yellow line starting to trick up towards the sort of net neutral 0 mark. So we're expecting to see more of the above. Also some more targeted offers into those mass market segments helping that net churn figure. But I'll hand over to Vince.

Thanks, William. So we're now on Slide 13. So power outage, as William mentioned, from the 7th of June to 20th of July. Clearly, a significant loss of 100 megawatts in our portfolio. Ultimately, the result of a loss of lubrication oil to the generator and steam turbine bearings. And that really resulted in the destruction of the generator and steam turbine rotors and also the exciter. A couple of key things really. The availability of critical spares was really seeing the benefits of that. Our ability to bring the plant back in such a controlled and quick and safe way was down to the abilities of the team, both internally and contractual-wise and having those spares. One issue that we did face was that the exciter -- we did not have a spare for the exciter. And had we had to rely on an overseas manufacturer, we would have seen a 5-month further delay in that return to service. But a small engineering company in Kawerau called Milbank, who we want to give a shout-out to, were able to manufacture a new exciter in 5 or 6 weeks such that, that didn't really become the critical path to return. So it was a fantastic outcome that we have that sort of capability in New Zealand, and I think a bit of a lesson in this pandemic world about being able to look after yourself. I mean, we obviously have had some lessons out of this, as there always is, and we've taken actions to prevent reoccurrence of the fault of this nature, including the review of systems at other similar stations that we have and obviously also sharing this knowledge with -- through the manufacturer as well. Insurance remains under discussion. We also had an important relationship with Norske Skog Tasman. And on the closure of the mill, we've negotiated an early exit from a foundation hedge that had been in place for a long time. That has the result of reducing sales and a $10 million net impact expected in the coming year as part of that termination settlement. It does, obviously, though, releases that load for our future use. On carbon, we chose to exercise the ETS fixed production as others have done to -- at a total cost of $8 million in FY '21 at a $35 per unit versus the current price of circa $50 per unit. We also purchased 0.7 million emissions credits through the government auction process and currently have an inventory of 2.2 million credits. Turning to Turitea. Well, obviously, Turitea has been a challenging project, as we've talked about previously. We are feeling that at least with North, there is some light at the end of the tunnel, some real potential to see the energy turn up. And we have now started commissioning with 27 turbines erected of the 33, and we expect EBITDAF contribution to start coming as we commission that part of the wind farm, still with a target for total completion in the last quarter of this calendar year. Turitea South though remains challenging from a civil's perspective. And those of you that are looking at the presentation will see the lower picture there and the size of some of the civil work that needs to be done. We continue to work with Vestas and the subcontractors to look for ways forward that can bring forward the completion date from that mid-calendar '23 date. We note that Turitea spend and the total project cost is forecast at $464 million, in line with guidance. Of course, one of the big opportunities we had in this financial year was the sale of Tilt business. And I'm on Slide 15. Ultimately, for Mercury, our desire was to continue to see Tilt grow. But faced with the reality of the business being sold, we worked hard to find a partner that we could work with and capture the New Zealand assets. That resulted in the process we've described previously in releases with an initial successful bid of $7.80 per share, subsequently increasing to $8.10 in April. But we can feel very really pleased by the contribution that, that investment has made for us with 19.9% shareholding costing $144 million, selling for $608 million, adding the debt and ending up with the New Zealand assets. As said earlier, this adds over 1,100 gigawatt hours of wind generation and a development pipeline, [ will make ] Mercury New Zealand's largest wind generator once Turitea North is commissioned and lift EBITDAF in FY '22 by $30 million. We also announced, alongside Tilt and Genesis, the PPA for Omamari, now known as Kaiwaikawe. This is, I think, a very important thing. Right at the start, when we said we were acquiring the Tilt assets, we said we were taking really seriously the role that these needs to play in the decarbonization of New Zealand and work with both competitors and others to see this pipeline rolled out. We're really excited that we'll be able to start that journey with Genesis and are pleased that they and Tilt and ourselves were able to get this PPA signed. Turning to our other acquisition activity, obviously, Trustpower retail acquisition. Whilst we didn't expect this to necessarily come to market when it did, we were determined to participate sensibly in this acquisition and are pleased to be successful at $441 million, which gives us the retail business, an electricity supply agreement, the ISP network and is contingent on the Commerce Commission approvals, which are now in process, and the restructure of the TECT rebate arrangements. There's still a fair way to go. And the exact timing of completion of this transaction is, at this point, uncertain. However, we do forecast significant synergies on the cost side and also expect to be able to see revenue upside as we become a truly bundled offering in the retail market. The full year contribution of $50 million will be offset by $30 million of transition costs in year 1. But of course, we don't yet know when year 1 will start. Now going to hand back to William to talk about continuous improvement and Thrive.

Thank you, Vince. So we're on Slide 17. And really, I just want to talk about thriving today and shaping tomorrow, which comes straight from our strategic framework. So Thrive is a continuous improvement program. A lot of it is about way we work. And certainly, this slide lays out some of the initiatives and cultural changes we're making inside Mercury to ultimately deliver that $30 million uplift of value in FY '22. So you can see here a -- there's a schematic here. This is the Digital River. This is an initiative that is now running. Essentially, this is a sophisticated hydraulic model which can model generation across the Waikato system, looks to optimize unit dispatch. Multi-day is a hugely valuable tool to help our traders and dispatchers essentially extract maximum value across the river catchment. So we're really excited about some of the gains that, that Digital River will help our people to actually run those hydro assets better. Maraetai tail water lowering. We've got some operating restraints. Whakapapa is the smallest station in the -- on the Waikato chain. It's downstream with Maraetai, which is by far the largest. And essentially, by looking very carefully at the operating constraints and ensuring that assets are protected, we can essentially deliver greater peaking from Maraetai for longer by managing those constraints better while managing the physical risk to plant. So that's also quite interesting in terms of how that will influence, say, GWAPs, for the Waikato River. Whakapuawai culture change program, so we've touched on that. It's really about how we do our best work together and align essentially our culture with essentially our performance mindset. Moving to a more rapid cadence around quarterly planning, business planning, again, to really allocate resources, both people and money to the things that really matter to the firm. So that's something that we're very focused on as a leadership team and with our senior leaders across the business and how we work better with our people. Derivatives trading looks pretty exciting to us. We think we do have a competency here. So looking about how we might leverage that outside the core products of power potentially into carbon markets, et cetera, is something we're exploring further. Around the procurement space, some nice wins around manual meter reading. We were just reviewing how that's -- who supplies that, under what terms and optimizing our meter reading runs given 15% of our meters still are nonsmart and some of those will never be smart. Gas meters are still manually read. Class 3 outage review. So these are reasonably significant outages, certainly less than class 4s, but really moving and analyzing condition-based maintenance versus time, having a really deep dive review around scope and what actually gets done to essentially minimize both the scope and time frames for undertaking those class 3 outages which occur periodically over every couple of years. So net of that is a $30 million benefit forecast in '22, split approximately 1/3 OpEx, 2/3 revenue. I'm now on Slide 18, really just touching on guidance again. So EBITDAF for FY '22 at $590 million. That's reflecting hydro generation of 3,900 gigawatt hours. So that's 150 gigawatt hours less than our mean hydro, which we're now stating at 4,050, reflecting the efficiency upgrades from the refurbs that have been undertaken on the river. That does exclude any contribution from the Trustpower retail acquisition. As Vince says, the timing of that remains still uncertain or any insurance proceeds from Kawerau or any LDs related to the Turitea project. Dividend guidance sitting at $0.20, so a 17.6% uplift on FY '21, or $0.03 a share, with stay-in-business CapEx of $70 million. So a pretty comprehensive and detailed bridge there taking us from today's actuals through to FY '22 guidance at $590 million. And I'll hand back to Vince to close this part of the presentation.

Thanks, William. I'll just close on Slide 20. And Slide 20 is a photograph of the Turitea North site, and I think you can see there that it's a pretty impressive site. We just now to bring now bring that all to fruition and deliver those important gigawatt hours. So that concludes our presentation. Although I do want to note a couple of further things that over the last few weeks, we've been joined by Stewart Hamilton as our GM of Generation, and Craig Neustroski as our GM of Customers. So we now have a fully fledged executive team who are really all set to go and hit the opportunities that we have created within the Mercury business. We also have the benefit of Dennis Barnes joining us as a director in September. And I think that will again add to the quality of debate around the Board table as we transition to that net carbon-neutral future that we all aspire to. So with that, I'll close. And operator, hand that back for questions.

[Operator Instructions] But your first question today comes from the line of Andrew Harvey-Green from Forsyth Barr.

A few questions from me. First of all, just around -- obviously, the last couple of months of the year were pretty tough given where hydrology went and wholesale prices were. Are you rethinking your risk management strategy, given the downside risks of being short in the current environment has gone up?

Yes. Look, I think hindsight is a wonderful thing, isn't it? And I think if you look at the -- if you look at the graph on Slide, give me a second, Slide 10, if you look at that, I think the story to draw from that is some of those decisions, and you look at the pricing, some of those decisions would have had to have been made in the last quarter of the calendar year in that sort of October, November time. And we'll certainly be thinking quite carefully about that in the scenario work we do around thinking about where the lake can be. But ultimately, yes, hindsight is wonderful. Would we have done some things different? Yes. Will we think about those differently in the future? Yes.

And I guess a follow-on question from that is any implications for what underlying earnings might be if you, I guess, take a bit of risk off the table? Presumably that does have a -- come with a bit of a cost.

Yes, I think we're still comfortable that we've given guidance based on our ability to manage things.

Yes, sure. Okay. And second question is just, I guess, around some of that guidance and notice, and we've got the Kawerau insurance and liquidated damages potentially. Are you able to give us a bit of a sense on what the potential might be across those 2 things? And I guess, sort of wrapped up in that is the extent that liquidated damages might be impacted by sort of any renegotiation on Turitea South? Any sort of, I guess, update on those negotiations?

William here, Andrew. Yes, so both those discussions are ongoing. Turitea damages, we still haven't -- we're still focused on getting plants running and commissioning. We keep engaging with Vestas on those. They're confidential. We're not going to talk about those in a public forum. But yes, they may not even come to fruition in FY '22 just given that project actually doesn't complete. We're not expecting completion until mid-'23 anyway. On the -- and on insurance in Kawerau, same thing. It's still early days with insurers working through what that might mean and what the [ focal sense ] of the claims will be. Most of that claim will relate to essentially repairs and replacement of damaged equipment. There will be a little bit of BI potentially given a 30-day stand-down for insurance, and the outage was 2 weeks longer than that. But again, those discussions are still ongoing.

Yes. Okay. And last question for me was just around the investment in NOW broadband and the timing of that. I'm not familiar with it. So I'm interested, and, I guess, note in terms of the scale of that business around, I guess, fiber connections and how that fits in strategy-wise with the Trustpower transaction.

Yes. So the NOW investment occurred in the -- well, prior -- around the sort of Christmas period, prior to Christmas this last year gone. Of course, we made that investment without any knowledge of whether the Trustpower business would come to market. Now it's got sort of circa 16,000, 17,000 connections. It's got an operating base with geo in terms of an ISP network aggregation operating center. It has quite a well-tuned ability to deal in small to medium enterprises as well. Our investment in that, we're not -- we're not the 100% owners of that. We invested with the original investors. And I guess anything that impacts on that vis-a-vis Trustpower will play out once we know the outcome of the Trustpower process. So it's kind of difficult for us to make any assumptions around that at this stage. We still sit and await the Commerce Commission process.

Your next question comes from the line of Grant Swanepoel from Jarden.

First question, is Trustpower still on track to be done at the beginning of calendar year '22?

Well, again, Grant, it's really down to the Commerce Commission and TECT process. Well, we know that TECT have a court date in November. We don't know how the judge will then proceed to give his or her opinions on that. And we know that the Commerce Commission process is underway. And so I guess, our sort of working assumption is it will be early in '22. And -- but we're not in control of that process.

So nothing's pushed out since the deal. Second question, the $35 million in guidance for Turitea, how many gigawatt hours are you assuming from that plant?

It's essentially assuming full output from October, whatever that comes to. So that's what -- 9 -- 3/4 of $470 million.

Norske Skog, that $10 million payment. Is that assumed in your forecast for FY '22? And is there nothing left in there for FY '23?

Yes, so you can see there's a note in our -- at the back of our annual report around that deal. So essentially, that just reflects the impacts in terms of earnings. So essentially, that foundation contract has been terminated, but we've acquired some other positions from Norske given their ceased operations here in New Zealand with the net effect of essentially decreasing our sales position.

That just washes through in some of the uplift for FY '22 as you sell it into the market?

Correct.

You don't specifically disclose it in your guidance?

No.

The $30 million Tilt net, can you just explain to this layman on how the $14 million associated accounting for March year-end is ripped out in FY '22 EBITDAF?

So for Tilt, so at the moment, we're recognizing -- we were recognizing Tilt as essentially an associate. So you're recognizing your share of profits and other income. So that equity accounting goes now given those -- we're not a shareholder in Tilt, but essentially we recognize the uplift of essentially Tilt's revenue, which is $45 million. So $45 million less the $14 million gets you to about $30 million.

Okay. Maybe offline, you can give me some more detail on that. And final question, that SaaS $10 million expense in your cost line. Is it ongoing or is this a once off?

No. Essentially, with Software-as-a-Service, where you are modifying essentially mostly cloud systems where you don't actually control the software, it's still provided by essentially a third party. While historically, we would have to capitalize that as IT costs, now essentially all going to OpEx. So essentially, you've just got a substitution out of CapEx into operating costs. So that is ongoing, but it will -- depending on the level of customization and change, that will fluctuate over time. But we're talking single millions unless you're investing significantly into a cloud platform.

Yes, we've been an early adopter of that, Grant. So it will flow through for all businesses that use Software-as-a-Service cloud platforms.

So I expect you're going to get it a lot with -- most large New Zealand corporates are going to -- possibly most will wait until this financial year to recognize. You'll see it appear at the interims, I suspect.

Okay. Your next question comes from Jeremy Kincaid from UBS.

Just 2 questions for me. The first one around the full refurb of Karapiro. Is that in the $17 million of spend business CapEx or is that growth CapEx?

No, it's inside stay-in-business. Essentially just it's maintenance or -- it's maintenance of existing stations, yes.

And it will flow into subsequent years.

Because it's a 5-year program.

Sure. Okay. And then my other question is I'd just be interested in your thoughts around the outages of last week. And obviously, there's been some industry commentary around changing the market structure, such as introducing capacity market or breaking up the gentailers. I'd just be interested in your thoughts around that.