Mercury NZ Limited (MCY) Earnings Call Transcript & Summary

Thank you, for standing by, and welcome to the Mercury NZ Annual Results and Analyst Briefing 2022. [Operator Instructions] I would now like to hand the conference over to Vince Hawksworth, Chief Executive. Please go ahead.

Kia ora koutou, and welcome to the Mercury New Zealand results presentation. I'm joined by William Meek, our Chief Financial Officer. I'll turn firstly to the disclaimer page. I'm sure you've all seen that, move quickly through to the next slide. Clearly, it's been an exciting year for Mercury. In the last 12 months, we've become New Zealand's largest wind generator and we've also become New Zealand's largest retailer. It has truly been a year of transformation and one we have really enjoyed, but more than anything, I'm really excited about what it brings through the future. So in this year, we integrated the Tilt New Zealand operations following the transaction completing earlier in the financial year. We have completed the transaction to acquire the Trustpower retail business and 3 months past the completion date of May 1, we can feel really pleased about the way that that's coming together, including the way that both teams in both the former Trustpower business and Mercury business have worked to satisfy our customers. We expect to meet our synergy targets and integration is progressing. The $581 million EBITDAF was bolstered by our new wind generation, higher prices and thrive. But of course, at the same time, we saw really low inflows. In fact, the third consecutive year of dry hydro conditions in the Waikato. So we were really pleased, I think, to say that at the end of the year, in June, we saw some water coming into the lake. And for the first time since I took over the job finally seeing storage levels in Lake Taupo high at the end of the financial year, and therefore, dispelling the myth that it might have been me. That was the problem. We've also really pleased about the Thrive program that we've been running. That contributed $47 million EBITDAF lift in FY '22. But probably more important than that for us is the change in the ways of working. It's the beginning of a journey that will evolve our culture through a continuous improvement mindset, and I'm excited by what that will bring us over the coming years. Looking at the future, our FY '23 guidance has headline EBITDAF of $580 million. But as I hope everybody has been able to work through is to try and understand the movements associated with acquired derivatives, that is a EBITDAF level of $756 million if you unwind the $176 million of derivative in that result. And I'm sure William will talk to that into some degree because that's kind of a complicated situation that we're in. Pleasingly, we're able to declare a final dividend of $0.12 per share, confirmed that the DRP will be offered at a 2% discount and that our guidance for dividend in FY '23 is $0.218 per share up 9%. And finally, before I hand to William to talk to the bridge slides, I want to confirm that whilst we've been busy from an acquisition point of view, careful management of our balance sheet and really thinking about our opportunities in the future mean we retain headroom for growth. Pass over to William.

Thank you, Vince, and welcome, everyone, to the call. I'll probably start by saying this is actually a complicated set of results. It has been affected by some pretty significant accounting adjustments. And certainly, with IFRS, we're seeing an increasing divergence between what we represent in our profit and loss and how that diverges from essentially underlying cash flows and simply, the derivatives, which I'll talk to shortly, are a key driver of that and certainly become even more material as we look forward to '23 and '24 and discuss our guidance. So really, we're on Slide 4 now, just talking to trading margin. We've renamed that from energy margin with the acquisition of Trustpower. We bring in a whole lot of additional products mainly in the telco space and LPG. So trading margins is a far more generic term to capture the products that Mercury now sells through those 2 brands. The increase to $745 million is explained mostly by the wind generation added during the year. So the talk transaction with that acquired in August adding over 900 gigawatt hours of generation and in the Turitea commissioning adding over 300 gigawatt hours to our financial year results. Operating expenditure, we can see up $40 million. Again, in terms of the bridges, the addition of those wind farms, so far from that [ talk ] transaction and Turitea increasing cost by circa $20 million. The Trustpower business adding around $18 million. That included some transition and integration costs which did start in the 2 months prior to the year-end. I'm very pleased to see Thrive delivering a $12 million benefit to cast an offset from that. We did have some SaaS, Software-as-a-Service, which essentially saw items and technology that would have been capitalized previously being recognized as an expense. So core business expenses once adjusting for those scope changes in SaaS actually fell on the back of Thrive. EBITDA, largely driven by the combination of trading margin and operating expenditure does include the insurance of $26 million from the [indiscernible] failure in June last year. So we expect to see further insurance payments likely in FY '24 to cover around most of the costs incurred from that outage. They do also include the terminations of the Norske Skog contract, so that saw us terminate a contract that had 3 years to run. It was an 80-megawatt baseline contract, well out of the money with a strike of around $80 a megawatt hour. And I think our half year debt guided pretty clearly around the effects of that, and that's signaled again in the [indiscernible] to these results. NPAT steps up materially, up 230%, largely on the back of the gain on sale from the [indiscernible], which were then immediately utilized to acquire the Tilt New Zealand business. Operating cash flow, a small change to $352 million, probably lower than we expected largely on the consequence of the June result, which in terms of cash was June result last year until July of this year. So June was pretty tough with record high prices, very dry conditions and the Waikato catchment and obviously, [indiscernible] failing on the 7th of June. So quite a hard month which saw lower cash flows in July. I've talked to stay-in-business CapEx, $68 million, so still relatively low, certainly well lower than we're guiding for the next 2 years with a big drilling program coming up and the difference explained largely by [indiscernible] drilling costs and the ordering of the replacement gear to repair the [indiscernible] plant. Growth investment has stepped up materially, so over $1.3 billion, again explained easily by the $800-odd million for Tilt, the Trustpower transaction of $470 million and the capital expenditure at Turitea and the mid-70s explaining that big spike. And we've talked to dividend, $275 million ordinary dividend declared for FY '22. The bridge, again, looks fairly complicated, but we'll take us through it. Generation volumes were up slightly on the prior year. Again, driven with hydro about 50 gigs higher, so actually not materially better than the '21 year. We did see Turitea push out 108 gigawatt hours, which is useful. We have separated the ex Tilt wind farms. They are all subject to PPAs, so 961 gigs prices being down. So generation quantity is positive. The decline in prices of around $35 a megawatt hour leading to that $185 step down in generation revenue. Purchase costs obviously go the other way, a step down in purchase volumes for almost $120 million, with purchase prices rising -- sorry, being a positive result with lower prices, so energy costs to supply all our customers falling. Sales volumes up slightly in terms of mass markets, we can see that 242 -- sorry, 242 gigawatt is down. So given the price, that's positive and some significant changes in energy prices there. A mass market, well below inflation at just over 3%. But C&I really feeling some pretty stiff price increases there on the back of a high forward curve, high spot prices, so renewals coming through at much higher numbers than we would have observed 2 or 3 years ago. Trading, you've seen some unders and over, carbon revenue with what's -- which was a new initiative for this year with the quarterly auctions by the government there. So quite a significant gain of $27 million in terms of trading [indiscernible]. We saw the unwind of swaps of $75 million, most of that attributable to the termination of the Norske Skog contract. And finally, OpEx, we've already discussed. So that bridges to our $581 million from last year's $463 million. Vince?

Thanks, William. So let me move now to Slide 6, and that's the health and safety and well-being. And during the period, we've really tried to think about how we bring well-being into our conversations on health and safety, and that's a big focus for us. Whilst our results in terms of TRIFR and incidents are relatively good, and we're pleased about the direction of travel. We also realize that if we're going to maintain that, we need to work with everybody in the company to create a zero incident environment. And that's what our program is about that we call out in this slide deck. It's leading us to having better conversations about the role of us as individuals, the role of us as a company and the role of us as leaders. So we're quite encouraged by that. Equally though, we have three sites, which are classified as major hazard facilities. They are the sites that use pentane. There's a reasonable amount of work for us to do around critical safety elements, and that work is ongoing in collaboration or working with WorkSafe. Disappointingly, the Steam Hammer Event that we talked about last year, it occurred last July. Following investigation over the last few days, WorkSafe have decided to lay charges, and we'll be working through that process over the coming weeks. There were no injuries in that event. We continue to use daily rep testing at our generation sites. This is both to protect our people, but also to protect the integrity of our ability to operate. as I think everybody can appreciate, in winter the both the risks of illness and also the needs of the community for generation when it's cold is important, and we're trying to achieve that balance. Moving to the next slide. You will have seen this before. It's our FY '22 to '24 strategic framework. And I just want to note that from a point of view of our purpose and our longer-term goals, which we call [ 2030 ] at the moment, but one could call out to 10-year goals. We're in a process of review. That review needs to take into account the growth in our business, the change of the nature of our business, and we'll have more to say about that later in the year. So our focus here is on the 3-year objectives, our thriving today and shaping tomorrow objectives. And in particular, before I move to the next slide, I'll call out the increase in the target EBITDAF for the business from $700 million to $800 million that reflects the changes in the underlying nature of our scope with the addition of both the Tilt assets and the Trustpower retail business. So moving to some of the indicators set underneath those objectives on Slide 8. Look, our enhancing our license to operate. Well, clearly, it is really important to us that we achieve the health and safety objectives that we set ourselves. I've always believed greatly that we should think of things in the order of safety of people, safety of the plant and then production. And that's underlying the cultural message that we have in the business. We've been busy with customer care guidelines, and we have completed reviews of our external sector engagement and the relationships with our partners. I've just already touched on increasing the value of our business to the $700 million to $800 million EBITDAF. And whilst we've seen benefits, of course, given the nature of the marketplace, shareholder returns have debt. So we believe we've got a really strong story that shareholders should be pleased to see for the coming years. A major part of our transforming through people and transforming our culture is about how we lead. This is really about bringing more diversity to our business and upping our engagement from a cultural perspective. This is not easy work, and we have to be diligent and continuous in the effort but it is a major focus of the organization. Turning to Slide 9. The next heading is about being adaptive and resilient. And one of the things I think we've all seen is we're looking to employ people is there's massive competition for talent. And that means from my point of view, we need to continue to look to develop our own capability and hence, the focus on trying to fill roles through internal candidates. That will take time because it requires us to invest in people. We are also obviously reviewing our technology platforms in the light of the Trustpower acquisition. Really important, I think, from the whole sector's perspective, is this whole idea of the electricity sector and mercury playing a leading role for the successful transition to a low-carbon economy. We've been doing a lot of work in this space, both in terms of our own asset development, but also in trying to engage with or other sector participants and to create ways to work together within the bounds of the Commerce Act, of course, to build forward for New Zealand an environment which sees electricity drive decarbonization. And I'll talk a bit more about some of that in a few minutes. And of course, executable options for growth. Well, the two transactions we've done have really set us on a pathway that allows us to have many options in our toolkit. And we'll have more to say about that in the weeks to come. But I do note that we did get the consent for the Kaiwaikawe wind farm for which we have a PPA with Genesis. I'll pass back to William now to talk a little bit more detail around the market.

So we're now on Slide 10 with a couple of scatter plots. So really, the market did change from late 2018 with that power core outage, and that trend has largely continued. We can see in the first chart, the dots much higher, reflecting that both gas availability and high thermal costs and the strong correlation or inverse correlation with national storage deviations from average. So certainly, during FY '22 we saw some prices attenuated in the first half, but then really quite strongly in the second half. So again, consistent with recent years around pricing. Similarly, gas price, spot gas price, which has traded again, strong correlation there, high spot gas prices flowing through to high spot prices. So that's a phenomenon that's certainly still here and has been playing out over recent years. Turning to Slide 11. Again, some familiar charts here covering off gas national storage, coal price and carbon prices in the interplay. So the world is in the clutches of an energy crisis. It's complicated. It's not just down to the Ukraine, Russia situation playing out currently and its effects on Europe. COVID has a role, investment business driven by climate change are a factor and those are manifesting in here in a little of New Zealand through oil, coal, gas, methanol and aluminum pricing, and we're not immune from that in the sector. We're pleased to see that there's significant capital investment going into our gas sector probably driven by high oil prices. So condensates are very valuable and certainly predictions that gas demand could reach 20-year highs over 2023, '24 at almost 200 PJs a year. Good to also see some flexibility there and trading of gas, particularly between Methanex and Genesis, which is helpful when those thermal fuel supplies are tight. Coal price as we can see just a very steep curve continue to rise. The call out there is when you observe the offering behavior of the rankings, we can see clearly repeating tranches in the $230 to $350 range, largely reflected of carbon costs, which are now over $80 a ton interplaying with coal pricing, given 15% of our electricity generation still supplied by thermal sources. So again, creating a strong imperative to continue to invest in new renewables to assist that decarbonization journey for New Zealand. Slide 12, just focusing in on Lake Taupo. Slightly cheeky hitting there, start low, finish high, possibly describe both our mood and Lake Taupo as the year progressed. So certainly starting the year very low on the back of those dry conditions and finishing very high with a very wet churn setting us well for FY '23, which is feeding through to guidance. So acutely dry again from that January to May period, which is the seasonally dry time in the Central North Island, where both average -- the late level almost always trends down. Just calling out the futures interactions with spot prices, we can see the South Island had some pretty good inflows over winter last year. Futures prices and spot prices hit records at the end of FY '21 at almost $300. And you can see the futures prices there, it's well or well ahead of where spot prices traded out for certainly almost the whole first half of this year as spot prices came down. So certainly, if you get thermal out of the stack with high hydro generation as we have now, prices definitely come back to levels we used to see 3 or 4 years ago. But then futures price lagged again. So they were much lower on a sort of if you were hedging a quarter out and spot prices relatively strongly again put that phenomenon of expensive thermal prices and carbon combining to create a pretty hot spot price in a number of cases, a number of months are exceeding $200 a megawatt hour. I'll hand back to Vince.

Thanks, William. So yes, when we look at our customer mix, it has over the year tilted towards C&I. And if you look at the chart on the top left, you'll see the C&I physical and financial sales in blue and the mass market in yellow. And just to point out that the FY '22 yellow number is 2 months of Trustpower sales, so it doesn't reflect a full year situation. As William said, wholesale prices did persist at an elevated level. And yes, mass market competition was still pretty stiff with churn at about 18%. Residential prices did lift about 3%, and that was below inflation a little over 7%. We're still seeing connection growth in the Trustpower brand over the period since May. And whilst over the year, the Mercury brand did shed some customers, that's now flattened out, and we remain optimistic about the -- our future position there. The bottom left graph kind of interesting because the yellow line is the rolling Otahuhu spot price, 12-month rolling out Otahuhu spot price. And the black line is the 12-month Otahuhu futures price one year prior. So I guess, ultimately, we conclude out of that, that with a sort of sensible hedging strategy, you can sort of ride these difficult waves. And as William said, as we see more renewables connect, we'd expect prices to flatten out, but we also expect to see volatility. We also note that the closeout of Norske Skog reduced our sales position, but we are re-signing customers, and those customers are often signing for 5 to 10 years. And we know our sales yield lift there in both mass market and C&I, and William's touched on that earlier in the conversation. So moving to the next slide. Well, I think everybody is -- will be really aware of the retail acquisition and that completed successfully at the beginning of May. As I said earlier, we're really pleased about the 3 months in position. Connection growth has been steady. But probably, most importantly, collectively, our people have been able to ensure that customer experience is maintained. We have done some realignment across our retail lead teams so that we have a combined view of both brands and the commercial positioning of those brands and customer outcomes. We've undertaken a technology review, and we've established an integration team that is now really focusing on the processes, systems and change management required so that we can deliver the benefits expected over the next 2 to 3 years that we set out lower in the slide. And as William has noted, and I'm sure we'll discuss probably further in questions, there's been quite a lot of day 1 accounting that we've had to deal with in order to deal with the derivatives. But we're really pleased about where we have got to in what is a little over 3 months. Moving to Slide 15. That sort of sets out how Tilt Renewables assets have boosted our wind position. Obviously, 12 months ago, we didn't have these assets and Turitea commissioning was only underway for the north. So a big change for us during this year. Wind slightly less than we would have liked, but that's part of the normal cycle. The production is hedged through long-term PPAs and CFDs. So our risk position is unchanged. We did suffer a fire on one turbine at Tararua. That replacement is in country, and we will be -- we will be installing that shortly. As I noted earlier, we have the CFD signed PPA with Genesis for Kaiwaikawe and so we're getting now steady contribution from the operating assets. But importantly, and I'll talk about this in a minute, we get the opportunities that come with the pipeline. So turning to Turitea on Slide 16. Northern section completed, producing, performing well under a long-term O&M agreements. Southern section, we did benefit from pretty good weather up until June or the end of June. So roading infrastructure largely complete, Southern substation well underway. And as we stand at the moment, we're still talking about a sort of completion in the middle of next calendar year. Moving to Slide 17. Look, everyone will have know -- will know about the named projects here. Importantly, we're also working on a series of early-stage options that we'll build on the back of this deployment. I think of when we think about these projects, we are advancing them in parallel. We want to try and get to a position where we have a series of investment choices that make sense. But there are challenges, and those challenges, I think, are well understood. The change that we're going to see from a regulatory perspective from the RMA to the NBEA, Natural Built Environment Act, needs to recognize that all electricity or the renewable electricity is the platform for other industries to decarbonize. So while we should focus on making sure these pipelines of opportunities come to market, we also need to realize that core hydro, core geothermal that comes up for reconsenting is important. It probably doesn't need me to tell you that inflation and supply chains are a challenge. And in the medium term, we expect equipment manufacturers to see some capacity constraints as Europe and the U.S. seek to decarbonize, but also in Europe, disconnect themselves from Russian gas. Turning to 18. I suppose the things I want to call out here is that the industry is responding to the pricing and with 2.3 terawatts of renewable generation being built at the moment. But we can't avoid the fact that when we have issues like 9th of August last year, that causes concern for both regulators and politicians. In high hydro times, the flexibility of the hydro system delivers very well on peak demand. But we shouldn't underestimate at the moment as we go through this transition, the need for thermal generation backup. And because it's less flexible and gets dispatched less, that does add some risk. I would say, though, that those who own thermal plant have done a really good job of, in general, keeping that available and ensuring they are up to the challenge at a time when all of the market signals are pushing them out of the market. We see the -- we know that we have several other things going on in the marketplace. New Zealand battery projects, the prospective recontracting of the aluminum smelter. And look, I've always been of a view that these are not linked issues in a sense that a productive economy should be able to see a pathway for a smelter to stay and for other new projects like hydrogen and data centers to be able to come to market. Obviously, we're all interested to see how Onslow progresses and how that will work from an ownership and dispatch perspective. It will have big impacts on people's generation investment decisions over the coming 5 to 10 years. I want to move to the next slide. Look, we've got a list of things that we've done under Thrive. But I guess the thematic here is this is about continually questioning ourselves about the way we do work, about the opportunities to improve and about the way that we can help our people grow their capability and their careers. So as we look into the future from these points that are on this slide, our goal is to create a combined organization as we bring the somewhat 1,400 people together that we've now got. So that we are continuously learning from our experiences and using those experiences to improve our performance for our shareholders, partners and our customers. So I'm going to pass back to William now to talk a little bit about some of the detail around the numbers and some of the moving parts.

We're on Slide 21. Just talking about the Kawerau outage and the insurance proceeds. So under IFRS insurance proceeds, when they're almost certain are recognized as income, irrespective of whether they relate to business interruption or property cover. So the insurers have declared cover at the site for the incident and made an interim payment of $26 million, which is inside the $581 million EBITDAF recognized in FY '22. We have ordered the replacement generator and steam path. They're currently under construction in Japan, and we're expecting those to be installed in May and June of next year. We would expect a further insurance payment in FY '24 once all those costs [indiscernible]. Just touching on carbon trading. So with the carbon options, we saw that as an opportunity to both buy carbon and trade. And so you can see there, $27 million gain was earned during this year. We still hold 900,000 credits at $65 million at the end of this financial year and sold 1.1 million during the year. So our carbon credits is essentially held in 2 areas of our accounts if they're held for trading, how does inventory, if they're held for essentially hedging or emissions offsets the treated as a particularly intangible asset, of which we currently hold 1.7 million units, which is roughly about 5 years of our current ETS obligation. We are very pleased to see that the -- our trial at Nga Tamariki around sequestration so on one of the OECs there. is reinjecting the NGCs of which most of that is CO2 back into the reservoir. So that is a big focus on both time and resources around extending that across our [indiscernible] fleet. And we are thinking very hard about what we can do with our Scope 3 emissions also, which largely are driven by our gas sales to customers, which have doubled with the Trustpower acquisition. Just talk about the ASX futures in terms of the prudential cost. Some may be aware of the announcements from EnergyAustralia a month or so ago with the downgrade and having to post very large prudential to cover their exposure in Australia. So we do -- you do have to post cash to the ASX. You've see there it increased by $33 million to almost $100 million by -- at the end of June, and we peaked at almost $120 million in March 2022. So that is a real cost. That's real cash being posted on deposit. We have been actively managing those exposures through exchange for physical, essentially where those futures contracts are swapped out either with a bank or another counterparty for CFD, which therefore, removes the prudential exposure, but substitutes that for a credit with the counterparty. And just calling out that essentially for electricity purchases on the NZX for clearing those are generally covered by a letter of credit. So don't require that posting of cash. So in the home straight final slide in terms of guidance for FY '23. So we are guiding headline guidance of $580 million, which is awfully close to what we've headline results this year, $581 million. But on a normalized basis, if we back out those unwinds, sees us at $756 million. So that unwinds detailed in graphic glory on Slide 21 of the sticks in the appendix, so spread across the Trustpower contract or the Trustpower derivatives, Norske Skog and Tilt, and so net are $176 million. So to put that in perspective, we're expecting Trustpower retail business to have a standard or normal EBITDA of about $50 million in FY '23 that unwind on the Manawa hedge is $200 million. So that derivative was recognized with an asset value of $488 million through the acquisition accounting. So again, a DCF model, which works out the value of the business, resulting in a purchase price of $470 million, which included $50 million of receivables is, for accounting purposes then allocated across the respective assets. You can see most of that -- in fact, more of that value was allocated. So the derivative was actually the contract assets of the customer is actually being valued at nil, so you can get some quite strange outcomes from the acquisition accounting. So coming back to the start, bridging across, we start at $581 million. That obviously does include the insurance of $26 million. I think the BI cost would have been about $15 million. Kawerau was out for 20 days in July. It also includes the termination of the Norske Skog contract, which is about $65 million, which was canceled. That did see us net about 375 gigawatt hours longer as a consequence of terminating that contract after we acquired some of their existing book. Hydro was increased by about 400 gigawatt hours with $63 million. So normalizing for that, when normalized, as Vince says, was slightly less windy year. I would have given us $7 million, the unwind of those derivatives gives us net $7 million. So the Trustpower negative impact is largely offset by the both the Tilt and Norske Skog impacts, and we had nonrecurring trading gains. So again, that's stellar performance in terms of carbon trading. We're not expecting that to repeat unless we see carbon prices whirl away to $120 a ton from the current $80 price. So that gets us to about mid-600s. Given the stellar start to the year, the weather conditions we were expecting hydro to generate another 300 gigs. Trustpower retail adds another [ 42 ], which is essentially another 10 months of EBITDA from the Trustpower business. Wind steps up by almost 20. That's essentially 1 extra month from the external assets plus about 6 or 7 months of Turitea. Our portfolio growth is at $31 million. Again, that's across the whole sales book to all customers, C&I and mass markets and reflects price changes and the other costs essentially increasing $27 million is mostly explained by a forecast of $25 million spent on retail integration, with $5 million of -- synergies realized in FY '23, which takes you through to the $756 million normalized FY '23 EBITDA. So with that, we'll open the line for questions.

[Operator Instructions] Your first question comes from Cameron Parker with Craig Investment Partners.

Congratulations on a huge year. Could I just ask a question about TY and how you're thinking about your development pipeline in terms of the TY negotiation? And are you -- have you been approached directly at all?

Yes. Thanks, Cam. Look, I think the way we're thinking about it is we think that there is a case for TY to be able to negotiate an outcome. It's almost certainly going to to be probably more than they were paying given where aluminum prices are. But the demand for aluminum globally means there seems to be a really good case. And I don't think that's a negative to New Zealand's ability to decarbonize. So we are -- as far as our development portfolio is concerned, I think generally in the sector, the what I would call the concern about the TY dip is being balanced by the concern about the need to ensure that we're on this pathway to decarbonization that I've talked about a lot. So we are pushing ahead with projects that we have in our portfolio. And we're pushing ahead across the board so that we've got choices about which ones to execute on. We're, I think, in a reasonably fortunate or unique position in that we have quite a lot of choices across both islands, and we need to -- we believe we need to bring those to market. In terms of conversations with TY themselves, look, we haven't had any sort of serious conversations, but we remain available and we would probably keep those reasonably commercially tight.

Look, some of your peers and, of course, analysts are also predicting kind of higher wholesale prices for longer, definitely feels that way in terms of the impact of imported thermal and domestic thermal costs and carbon. What are you seeing in terms of C&I customers coming to you? And in terms of long-dated contracts and so forth, I noticed sort of Contact today stated that they're stimulating that sort of process. And in terms of engagement on baseload geothermal, are you seeing the same thing coming to your portfolio?

Yes. Well, I think actually probably 2 years ago, we talked about the fact that Mercury is always open for business, and we are always willing to price anything anybody is looking for us to do to help them manage their risks. We have seen a trend towards people wanting longer-dated contracts to help smooth the near-term volatility. I don't think that will change, particularly but I don't feel like that's new news. We've been at this for a couple of years now, and it actually flows through into our forward performance. In terms of specific projects, we take a portfolio view of our ability to help people meet their energy needs. But at the same time, we do have conversations with folks who may be are looking to establish themselves in New Zealand or establish a different sort of presence and are interested in being more closely associated with a particular project, and we welcome those inquiries as well. And there's a lot of that going on in New Zealand at the moment. And so our message is come and talk to us.

And are you hearing -- you're being approached in the data centers and so forth. We're seeing some of those kick off in Auckland at the moment. Could you provide any color on that?

Yes, we are seeing approaches and no, I'm not providing any color.

No, that's fair enough. I guess, from an investor perspective, people see -- quite keen to see the long-awaited demand uptick. So I guess we'll wait and see there.

Thanks, Cam. Hey, we're keen to see those people talking to us.

Our next question comes from Andrew Harvey-Green with Forsyth Barr.

A couple of questions from me. Just following on [indiscernible] in terms of the development discussions. Can you guys just give us a little bit of a feel around when we might expect to see Mercury sort of get to the FID point on any of these developments? And I guess, more specifically around the Northland on given, I guess, the Genesis obligations there?

As soon as possible, I would guess that it's the time frame as we're trying to work to. Look, we'd like to be able to make announces. But we're great believers in making -- if we say FID has been reached, that means every single contract has been signed, and it will happen. And that's something we just have to work through. With respect to Kaiwaikawe, look, we're working as hard as we can. We had a really difficult process that slowed us down with the resource consent, which fortunately, we were able to resolve without having to get thrown into the whole appeals and court process, but it took us several months longer than we had hoped. And the consequence of that is that's just put us behind. But I think if you look at our ambitions around the FY '24 goal, $800 million EBITDAF, that sort of implies we're expecting to build a bit more, but I haven't got an exact date for you yet.

Okay. And next question, I guess, was kind of related on the [indiscernible] side, is just around [indiscernible]. I saw on the slide you alluded to potential for liquidated damages there. You would indicate to us what the maximum level of LDs on that contract?

I think we wouldn't do that. We are -- as it indicates on that slide, we are in quite advanced discussions with the head contractor for that and how we think about those LDs and all of the other associated claims and counterclaims is pretty sensitive. So hopefully, we'll be able to clear that up for you in the not-too-distant future, Andrew.

Okay. No worries. Next question I just had was around the Trustpower retail integration costs. I think you've indicated $50 million in total and $25 million of that's going to be in this financial year. Are you able to just give us, I think, how much was spent in FY '22, I'm assuming it wasn't a great deal, but just to give it a guess of the timing beyond FY '23?

It was only a few million on integration. The transition process was separate. A couple of million on integration in the 2 months.

Right. And the last question just for me is just around the FY '23 dividend guidance. And if I look at the level of growth you've got coming through on EBITDAF and I guess what it might imply from a free cash flow perspective, I guess, is the uplift in dividend is a little bit lower than the underlying EBITDA growth. Would that give us a sense of guess of what free cash flow payout ratio you're targeting? And I guess bank of cash -- and I'm assuming the reason for holding things back a little bit is just given some expectations around the CapEx requirements going forward. But if you're able to just talk to that, that would be great.

Yes, it's a good question. It's not really driven by CapEx requirements. Our view is our balance sheet is strong, recovered strongly next year with earnings uplift. We're at the lower end of our 70% to 85% payout ratio. I think it's a long game. This will be essentially the 15th year of ordinary dividend growth of Mercury. We are cognizant that in the medium to longer term, we expect the market prices to attenuate back down. And so therefore, that does give you quite strong headwinds in terms of your portfolio revenues, as C&I reprices. Arguably, you could even find retail prices regressing if we got back to -- we're probably not going to get back to prices as we were back in the [ mid-2000 in teens ], but certainly, the prices where we currently are in the long run unsustainable, and we'd expect to see those thermal plants crowded out by renewable investments. So it's really looking forward over the sort of the 5- to 7-year period and where that might take you because it is quite negative to earnings in the long run if the market reprices back to even $100 a megawatt hour.

The next question comes from Stephen Hudson with Macquarie Securities.

Just three from me. I just wondered if you could give us some feel for whether or not you have any further brown or greenfield geothermal development options apart from the 35 meg Nga Tamariki one that you've called out? Secondly, I just saw and this is not a sort of comment on Mercury per se, but I saw that your voluntary turnover of staff had gone up by quite a measure sort of 12% to 21%. I just wondered if you could give us a feel for whether or not that's part of the various transactions that you've been involved with or what you're seeing there in terms of staff turnover? And then thirdly, if a longer duration and [indiscernible] deal were to be cemented in the next little while. Will, would you see Standard & Poor's shifting their 2 to 3x BBB target for you?