Mercury HY2018 Results Transcript Interim Results 2018: Analyst briefing transcript 27 February 2018, 11AM Transcribed by NASDAQ Pages: 9 Start of Transcript Fraser Whineray: Kia ora koutou. Welcome, everybody, to the investor call for the six months to 31 December 2017 for Mercury. I'm Fraser Whineray. I'm joined here with the Chief Financial Officer, William Meek, and also in the room is Tim Thompson, our Head of Treasury and Investor Relations. We'll go through some results for the half year, which have been posted to the NZX this morning, along with various media releases, and then we're happy to take Q&A. I'll just skip to slide 4. You'll see our mission there of energy freedom and this overall direction slide for the Company, which should be familiar to many of you that have followed the Company for some time. This is at the core of our rebrand. Nothing has changed on that slide. It is providing direction for our ongoing momentum, and we continue to work along to deliver those strategies, which I'll touch on each of those three, and also the three customer promises - not shown there, but they are to make it easy, inspire and reward our consumers. Turning to the half year highlights, we have produced a very pleasant $301 million record earnings, up from $270 million on the PCP. This was facilitated - obviously strongly - by hydro inflows into the Waikato catchment, but that was also aided by pan-company execution, particularly around the portfolio with managing that water, and also playing to our advantages, in that our hydrological position doesn’t have nearly the impact on wholesale prices that South Island hydro storage does. We were managing to capture high volume and the high priced outcomes in the wholesale market. In terms of recognition the previous slide referred to what was at the centre of our rebrand. We've been recognised through two different sets of audiences around that common direction. We have won the top two marketing awards in the country last year - the Effies and TVNZ one - and we've also won some workplace awards as well, being the best enterprise place to work for the IBM Survey in 2017. That’s two key audiences around the same initiative, not actually different initiatives for different groups. That’s why those - that external recognition is particularly pleasing. We’re on a $0.06 interim dividend, which is up 3.4% on the prior year. William will go into the financials in more detail, including guidance. Record generation aided by the hydro flows that I mentioned earlier, but also maintaining a high 95% geothermal availability with plenty of planned outages in the period. Loyalty. Well, we keep on focussing on those three customer promises that are listed there on slide 5, and we continue to have materially lower, or below market churn. It is tough going, although we still manage to hold an advantage, which we achieved since the rebranding and associated activities. There is plenty of activity on. You can see that with the capital expenditure figure, with the ongoing hydro work. We've got two units at two different stations getting the long term overhaul and upgrade and also some geothermal
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activity and IT upgrades, so a lot of activity in the first half. This calendar 2018 looks to also be a very strong period for that. I'll just quickly hand over for some financial highlights to William, Chief Financial Officer, and we'll work our way through the slide deck. William Meek: Thank you Fraser. We're now on slide 6, financial highlights. I'd like to start my talk with a joke, as these results announcements can be a dry affair. What do you call two days of constant rain in New Zealand? The weekend. We've certainly had a lot of those over the last six months as Mercury. That joke does segue nicely into our Chair's opening comments and our interim report around weather is fickle, and it has been fickle indeed. We've seen quite different hydrological outcomes between the North and South Islands this last six months, so we'll touch on that in more detail later. As Fraser said, you can see the charts there across all the financial metrics. You're seeing a strong uptick on the year before again, so that’s a strong performance across the board of our operations at Mercury. First half generation over 4100 gigawatt hours - a record - higher customer yields and flat OpEx again contributing to those results. We did see elevated wholesale prices, particularly at the beginning and end of this half year period. Again, the hydrology in the North Island very different to the South Island, so higher prices and higher generation volumes. Again, that contributes to that record EBITDAF of $301 million. Free cash flow lifting to $154 million. That’s despite higher cash taxes compared to the year before. Capital expenditure up slightly on the PCP, again driven by those big hydro refurbishments at Whakamaru and Aratiatia. Also well drilling at Ngatamariki and the new rotor for the Kawerau power station. $0.06 dividend, fully imputed, declared and payable on 3 April. I'll hand back to Fraser. Fraser Whineray: Thanks. On that opening slide I covered - we talk about three key strategic drivers. One is delivering customer advocacy, then leveraging core strengths and delivering sustainable growth. I'll just cover on a couple of highlights and the slides of each of these in turn. As I mentioned, the Mercury brand trader churn is significantly lower than the market at 5.5%. The market is at 7.9%. The reason why we single out the Mercury brand there - we do have some other brands, smaller brands, and they have different characteristics on churn in our marketing, and our rebranding was focussed behind the Mercury brand, and that’s where we're seeing the impact and change there. We have completed an SAP upgrade in November. That is running very well. After a four day outage in November we turned it all back on. We've upgraded SAP database technology and we also put that into the cloud. That is seeing much greater efficiency of processing times with our back end and also for our customer - contact centre staff. We're looking to add on to that platform to driver further enhancements for our consumers. As I mentioned, we've won the - a couple of awards there, as well as for individuals and groups at the 2017 CRM Contact Centre Awards, where we won eight. That’s really important because it's not just about the technology. We did invest quite heavily in training and approach for the wellbeing of our staff, and their approach on the phone or email et cetera, or live chat with our consumers. That is paying off both for people and for our consumer experience. With respect to slide 8, the leveraging core strengths, we have had no serious harm in the first half. That is our most important goal for safety. TRIFR is down slightly, but the previous year was elevated. There's no high severity incidents in there. Three of them were related to the drilling program. Two of those were actually not even near the rig itself. It was related to the ancillary services like catering et cetera associated with the rig. We're pleased with our focus there, but particularly no serious harm.
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We've been heavily focussed also on generating process safety, safety cases for our geothermal sites with pentane which either we own or own in partnership with Maori land trusts. They're due for submission in the second half. That’s a critical part of the new WorkSafe legislation. In terms of successful project execution, as I said, we've had a lot on. Not all of it goes perfectly, but a huge amount of it has gone very, very well. We've talked about Whakamaru and Aratiatia, the SAP IT and Maximo product for the asset management. The Metrix project is ongoing to bring in half-hourly reads on an Oracle platform. That will achieve success in the second half of the financial year, and we're in some parallel runs there. Also major maintenance outages at Rotokawa, Nga Awa Purua, Mokai, and we kicked off this financial year with a significant shut at Kawerau and replaced the steam path, as William has already mentioned. In terms of delivering sustainable growth, the OpEx is higher for the first half year-on-year but, largely, that’s due to the phasing of the prior year being slightly low. We expect to bring OpEx in flat for the financial year on a nominal basis, which is the fifth year in a row of that outcome. We've announced a few investments along the way. A couple there related to the Mercury R&D centre down in Penrose. That also won an award, and we're putting in a Tesla battery which should be ready by July/August of this year, which will be the first one connected to the grid. We also had a look at the acquisition of AGL's metering assets, which were called Active Stream, but we were unsuccessful in that process. In terms of the EBITDAF guidance, that remains at $530 million. That’s the same guidance that we put out in late January with our operating statistics. If that comes home, that will be a record above the $523 million that we produced in the prior financial year. Full year dividend guidance is projected at $0.15 a share. That, if it is paid according to plan, will be the tenth year of consecutive ordinary dividend growth. Now I'll hand over to William to talk more about the market dynamics. William… William Meek: Fraser. We're now on slide 11. Slide 11 really just repeats our long-held market thesis of a gradual market tightening. Again, that progressively feeds into higher futures prices, should lift C&I pricing, leads to churn reduction and then, ultimately, higher mass market yields. You can see that laid out there in that short table. We did see some moderately higher prices over the first half of this financial year; averaged almost $90 in the central North Island. Prices elevated particularly in July and December. However, the South Island dry. It wasn’t th actually that dry in the South Island. We were about a 30 percentile inflow event for the South Island. The North st Island was at an 81 percentile inflow event so, again, quite a difference there between the two islands and, again, highlights the difference between Mercury's portfolio, where you can actually have wet conditions under high wholesale prices, which again we'll elaborate further later. Turning to slide 12, touching on our demand, again a familiar chart. There again reflecting similar trends we've seen in previous periods. So you're seeing broad-based growth in urban centres and general rural relatively flat demand growth across the dairy sector, the smelter at the bottom of the South Island and also in irrigation, and again declines in the industrial sector so it's a pretty familiar picture we've seen for a number of years. So that tug of war continues between urban and rural and industrial. That being said, on a normalised basis demand did grow over 2% against the prior six-month period, and actual demand growth was actually up 1.4%. So again positive moves there for demand and for the sector. Slide 13 - some relatively complex charts here showing the difference between the lake storage from mean in both the South and North Island by month graphed against and correlated with the monthly average wholesale prices. What do we see here? We see a much stronger correlation in the left-hand chart for the South Island between effectively either low lake levels or high lake levels and high prices and low prices. So you can see in the South Island very clearly for pretty much most of this six-month period the South Island's had below average storage, and
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we see prices generally above the line, R value of 0.42. So there is certainly a correlation there between - the differences between mean storage and wholesale price. We flick across to the North Island and we see quite a different story. Storage generally above average for the six2 month period and again an R value of close to zero, representing it's virtually independent. So you're not seeing a strong driver there between where your lake is and where wholesale prices are for the country. Again that reflects the relative size of South Island hydrology and its key impact on wholesale prices across the country. The last bullet-point there again highlighting that difference around GWAP and TWAP. Again the TWAP's calculated as a weighted average of time weighted prices at the generation site against what their average revenue would be. So you can see quite a stark difference there between Mercury's uplift at 1.06 versus those in the South Island at below 1 at 0.95. Turning now to slide 14, it's really dealing with this - looking forward, ASX really good proxy for C&I pricing and what do we see here? We certainly see in the first chart quite a big uptick at the end of the financial year. So 31 December you saw quite a strong movement in the two-year price on the ASX sitting there at $90, but we've seen it fall back significantly on the back of that large inflow event to the South Island a week or so ago, so quite a big regression. So very active market, but again feeding through into the two-year futures price on the other page. Again relatively narrow band so you've got ASX trading within that mid-$70s to mid-$80 window and it has been for three or so years again. So again looking forward, we'd expect to see C&I pricing renewing again in that band and that's certainly what we're experiencing at the moment. Fraser Whineray: Turning now to customers, I thought we'd just touch on a couple of things, some of which have already been covered about the digital execution that we're working on at the moment. It's always a feature where we get attracted to big sums of money being spent on concrete and steel and they are critical investments, but increasingly we are lifting our game on our digital investment and executing of that. We've lifted three there in the first main bullet-point. The digital execution seems to be going well with our consumers from a functionality and branding perspective. Our digital customer satisfaction is shown there as 70% which is almost 10 percentage points higher than our average customer satisfaction. So it's important that that one stays above where our current average is, and that's showing that they are highly satisfied or rating eight to 10 in terms of satisfaction per the footnote shown. In terms of the customer engagement capability, there's a huge range of things to engage with customers and now you can - we've just announced recently that we'll be bringing - the first energy company to bring Alexa into New Zealand. There's ongoing - you chip away at different levels of functionality for what that will be able to do for the customer experience. But it's important to stay focused on things that are actually going to end up being used by a meaningful number of customers, because the amortisation of IT spend over small hobbies can be pretty expensive. So the main things we've focused on with that customer engagement capability is getting the end-to-end processes ideally without any man-tronics in the middle of it - it should be electronic - and also dealing with high volume fixes. There are 3000 people that call every month just to simply find out their account balance. There's plenty other ways for them to do that. How do we make that easy for them? So there's another example at the bottom there of customer traffic to our join pages. Joining and moving are two key journeys and they need to be as simple as possible. In terms of market churn, we do like to keep showing this chart (16) to everybody because it can highlight just where those net gains and losses come from. Gaining net customers is something that can easily be done if you're prepared to spend a lot of money on acquisition, but the question is whether or not that's either economic or those customers actually remain.
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So we do like to focus on churn. Churn improvements give us choices, though as I've said, it actually is pretty tough at the moment. We've still got an advantage in churn but the market's reacting pretty hard. It's highly competitive. Everyone's working on their different propositions, whether they are fridges or smoke alarms or other goodies, and so we have to remain vigilant and focused in our marketing team to bring out things that are going to, as we said, make it easy, inspire and reward. We do notice that a number of competitors are letting go of the pre-pay proposition. Numbers on GLOBUG are relatively static if not slightly increasing, and that’s as pre-pay customers transition to the permanent solution in the market there. In terms of political change, we obviously acknowledge the change in government who are getting on with business. There's an electricity price review which –(we are) waiting to see a final terms of reference on for that. I think it's very important that the likes of the 2017 International Energy Agency Report on New Zealand are well understood as part of the scope of that review, because New Zealand has a competitive advantage in renewable electricity and if we don't focus on the right things we will give that up. I think there's some good opportunities with the review to deal with things like low fixed charge tariffs, the delineation between regulated asset base of network companies and competitive activity, particularly around new technologies, but largely we would like to see a general recognition of the sector and its world-leading position so that we can actually get on and use that to the country's advantage. We note on the right-hand side the latest - some latest data on the trilemma which of course in New Zealand we call the trifecta for the World Energy Council. Climate change - we think the emphasis there will be stronger. That plays into the hands of renewable electricity and we'll see some - expect some stronger stances around carbon pricing et cetera, but again I think the focus needs to be on big tickets and that's a renewable energy target, not a renewable electricity target, which is what we communicated to the Transport and Infrastructure Committee and government last Thursday. We also need to make sure that businesses are focused on those bigger items as opposed to - the term is I think green-washing where people are trying to appeal to what is an innate customer sense of that being sustainable, when in fact that activity might not make a ‘zac’ of difference to the planet or the environment or the economy. So that concludes that political piece. We'll just go through some financial stuff now with William before I wrap up. William Meek: So a quick walk through the earnings bridge on slide 19. As previously noted, wholesale prices were almost $40 higher than the PCP (prior corresponding period) at around $90, so that combined with record generation saw earnings from generation lift almost $170 million. We are vertically integrated so there's a large offset against that so your purchase costs obviously cost more when prices are elevated, so again we saw a clawback of $130 million odd in terms of those higher energy costs. Lower sales volumes to customers - that includes swaps with customers - is offset by gains in particularly noncustomer or non-end user CFD settlements. The profits from the carbon sales in the previous period were not repeated in this half year so that explains reduction in other income. Then Fraser has already touched on the phasing of operating expenditure so it was up $4 million, but again we expect OpEx to be in line with previous financial years. In CapEx bridge - guidance for CapEx for the full year remains $115 million and again we've touched on the major projects comprising the $59 million for the first half of FY18, being those two hydro projects at Aratiatia and Whakamaru, the new steam path and completing a new well at Ngatamariki which will come online in April. Final side - dividends - again just the trend there - dividends up 3.4% fully imputed $0.06 payable on 3 April. Guidance remaining unchanged at $0.15 and 10th year of consecutive - 10th consecutive year of ordinary dividend growth so again a great trend there for Mercury. So I'll just hand back to Fraser for concluding comments.
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Fraser Whineray: Yes, thanks William. Look firstly I acknowledge the effort of all our people for that first half performance and their alignment and execution. We're really enjoying seeing the benefits of the rebrand which is far more than just a nice logo, which we also enjoy. It's all the things that sit behind it with consumers, with our employees, with our investors and with our communities and so we're seeing the benefits of that start to embed, and we're excited about what lies ahead. There's a few clues in some of the imagery on our half-year report about some - a campaign which is about to start, and so we'll leave you hanging until that comes through later this week. But it's been a great half-year but it is a game of two halves typically. We're travelling well. Guidance on - for a record at the moment of $530 million but in my near 10 years' experience at the Company there's plenty of stuff that can happen between now and 30 June, but if we do manage to continue with that guidance and tack that will, as I say, be a record. There's a very big calendar 2018 program of activity ahead of us right across the business, whether it's in generation, in retail, in high performance teams, in consolidating three-quarters of our staff into one office at the end of this year in Newmarket from all of the three or four Auckland offices we have now. We're very excited by that program of work ahead and look forward to the impact that we expect that will have on our performance. So that's it for us for 25 minutes or so for the half-year and we will be very happy to take questions, and look forward to catching up with various of you in the coming week or so. Operator: Thank you. If you wish to ask a question please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request please press star two. If you are on a speakerphone please pick up the handset to ask your question. Your first question comes from Andrew Harvey-Green from Forsyth Barr. Please go ahead. Fraser Whineray: Hi Andrew Andrew Harvey-Green: (Forsyth Barr, Analyst) Hi morning guys, just a couple of questions from me. The first one is just around the guidance and just confirming you are still assuming, I think it's 4,550 for hydro generation. I just want to look at the numbers for the first January/February. You look a little bit above average and you've got pretty much a full lake at Lake Taupo. Fraser Whineray: Yes. We issued the guidance late January. Look, if there is any movements from the $530 million/ 4,550 gigawatt hours, they're not material for us to adjust guidance. So we're comfortable leaving guidance where it is at the moment. We've had wonderful feedback from the investment community that we do the best guidance out of all of our peers. So we hope that the - when there is something material to update, you know that we'll certainly communicate it to the market. The next obvious opportunity to update that is in the April stats, unless there is a need to do so earlier. Andrew Harvey-Green: (Forsyth Barr, Analyst) Okay and then just a couple of retail based questions, just looking at the churn at the Bosco and GLOBUG. Is there anything you can do around that to improve it? Or is it - do you see that just as a function of the customer base and it is what it is? Fraser Whineray: A lot of it is to do with the origins of that customer base, Bosco being in apartments. So you see quite a few - quite a lot of churn there because people might only be in there for a year, so students and things, international students. And GLOBUG, people come onto it but people sometimes also try to get off that as well if they can manage to do so into post-pay with a competitor or ourselves. I think the core thing there isn't to be overly concerned about the churn. It's more to make sure that the cost, the transaction costs of that activity are kept as low as possible and ideally, it’s as digital as possible. That's what we're focussing on with those customers in seeing - and ideally consolidating some of the billing platforms, because they sit on separate billing platforms as well. We're looking at having
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established new foundations for the SAP core system. What we can do to reduce costs and reduce the transaction costs of that churn. It’s a bit of a journey that one. Andrew Harvey-Green: (Forsyth Barr, Analyst) Yes, which flows really nicely on to my last question, which was just around that digital - or digitisation, I guess, of the customer experience, customer interaction and what - any OpEx savings you are looking out coming out of that process? Or is it more about improving service? Fraser Whineray: I think they - I mean they tend to come together and it depends how far you go, all the way through to AI and speakers, from the people that enjoy currently and have done for the last at least five years. 180,000 I think a week get an email telling them what their consumption is. That's a way of doing things digitally as well and then of course having digital billing rather than paper bills. So yes, we'd expect with those investments over time that we'll be able to have our people focussed less on, as I said, man-tronics and more on actually addressing more sophisticated customer queries. We'll see how that flows over time. You never know. Sometimes with these things you need more support staff to run the actual toolsets themselves. But, in time, we'd like to see that there is a good ROI in those investments. The next ones we're looking at with SAP do have some of that factored in. But it's not material enough to talk to the market at this point. Andrew Harvey-Green: (Forsyth Barr, Analyst) Okay, thanks. That's all I had. Operator: Thank you. The next question comes from Grant Swanepoel from Craigs Investment Partners. Please go ahead. Grant Swanepoel: (Craigs Investment Partners, Analyst) Good morning guys. Well, thanks for the joke. A nice way to start the day. Just on price increases. Vector has got, I think, a price cut coming up in April and Genesis was boldly putting through price increases of 3% to 4% in January. Meridian poured a bit of cold water on that, saying they'll just put some line increase through this year. What are your plans, particularly with the Government review in mind, for price increases on the residential front? I'm just trying to put my questions quickly. Second question, [unclear] potentially got the next build at close to $60 on wind. Do you guys have something to compete with that and if so, when do you reckon that would come to fruition? My final question is on this battery stuff that you're doing. Is this more a marketing expense? Or do you actually expect to make an EBITDA profit out of that, sometime down the line? Fraser Whineray: I got most of that. Someone was tapping away on a phone. But the - firstly with price increases. Yes, Genesis and Contact went pretty hard at the end of last year. We have pretty much got all of our price change communications out, which deal with lines companies and our energy component. That energy component averages about 1.5% o it's largely at or slightly below inflation. That's the mean. There is a range of those, depending on where things are in the country and which brand we are running it under. That's where we've been at on our energy price for retail. I'd also point out that price rise does not apply to people on fixed price contracts. It only applies to those that are on - floating, for want of a better word. The next build. People can quote $60. But actually it's not the price. It's - I'm not sure if that's a level rise price or assume some wonderful inflator over the period and it also depends on what the FX rate is. There is no doubt about it. Wind is a competitive fuel system and, as we've communicated previously, Turitea and Puketoi in our view are the best wind sites in the country. We keep on assessing those for - and the market conditions for when would be suitable to exercise those options. The great thing about those is they can be exercised in very incremental amounts, which is somewhat less difficult for the scale economies you need out of a geothermal site. As for batteries and how cynical, Grant, to suggest it was only for marketing. The - it is actually some R&D for longer term thinking around that site and for providing peaks. We need to get into trading that in frequency and reserves. It's the first battery to be involved in that and also because that site has so much potential, given its 220 kV connection to facilitate renewable electricity coming up from the south over the coming decades into Auckland.
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That's one of the reasons why we're objecting to the East West Link, because that is the only site in Auckland which has consents to actually generate electricity and all those other wonderful things like the 220 kV connection. We think that site has got a strategic nature and doing this battery project is one way of getting us fit and understanding what that means. The site can take - I mean we've got 180 megawatts of transformers there. So theoretically the site can take that in batteries as well. But we're not planning on doing that, by the way. But it certainly is something we want our wholesale desk to get familiar with, along with geothermal and hydro activity. Grant Swanepoel: (Craigs Investment Partners, Analyst) Thanks Fraser. Fraser Whineray: Thanks Grant. Operator: Thank you. Your next question comes from Stephen Hudson from Macquarie Equities. Please go ahead. Stephen Hudson: (Macquarie Equities, Analyst) Oh, good morning guys, just a couple of quick ones, maybe just one for Will. On the guidance Will, are you including anything for carbon sale gains or land gains? I'm guessing it's pretty clean, but I just wanted to clarify that. And then Fraser, I'm just interested, the Tier 2 retail guides are nudging 11% ICP share at the moment. I just wondered if you saw any natural constraints to that number as a result of hedge liquidity, capital prudential requirements or just general customer appetite. William Meek: So on the - there is no current sales included in that number. Land gains, we had a small land sale at Marsden right at the beginning of the period. But that was like in the hundreds of thousands. It's de minimis. Fraser Whineray: So the answer - my part of that question Stephen. Yes, there is certainly an ICP share growing, as you've noted. In terms of value share, whilst that's not published to the market, I think that would look quite different. So let's go through the three things you mentioned, first on hedge liquidity. Every day and given even more sophisticated FTR market that's been introduced, you can buy or sell, with a maximum 5% spread on the ASX, 24,000 customers' worth. Now, the monthly liquidity in the market is probably only about 30,000 customers. So there is ample hedge liquidity for both independent generators and independent retailers to get access to product there. In terms of customer appetite, one of the challenges in New Zealand is we're very small scale. So to have - when we talk to international investors they just can't believe how many retailers are running around down here, even of a significance size, the bigger five or six. The challenge with going for a small niche in terms of a customer proposition - and you've seen this with a couple. They tend to - they've sometimes got stalled around the 50,000 mark. Now some are starting to push through that, like Pulse. Powershop is kind of a bit stalled around that level, because as soon as you try and broaden your proposition, it narrows the marketing effectiveness and therefore you start to look like one of the bigger all-thingsto-all-people brands. That is just a challenge of being the subscale market. The interesting intersection there is can you find a big enough niche which ultimately becomes cash flow positive because you've spent so much money acquiring customers and can you get some daylight there of gross margin? Cash flows and prudentials, I'm not so familiar on those pressures with the smaller players, but certainly in high wholesale price situations that can catch them out and particularly if they are unhedged. There have been some smaller people that probably would have got a little bit hurt over the last half year. You've seen the market - Flick’s growth get a bit suspended during periods of high pricing. Over time - if you get too big as a retailer, you still have to work out - whilst you can get access to the hedge market, that adds to the number of net sellers and buyers in the market. I think you can find yourself getting naturally constrained.
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But I think none of the smaller retailers are near that position yet and they've got plenty of access to the juice. But, you know, at the end of the day, there is probably too many and some people - a lot of them are burning equity, because retailing electricity actually isn't a big margin game. We'll see what happens over time. Stephen Hudson: (Macquarie Equities, Analyst) That's excellent. Thanks Fraser. Operator: Thank you. Your next question comes from Nevill Gluyas from FNZC. Please go ahead. Nevill Gluyas: (FNZC, Analyst) Good morning team, just a few questions for you about the CFD book. Obviously, it's had a bit of extra water this year. I'm assuming your CFD sales are a bit higher than they would normally be. Just get some idea from you where you think that will track to - on a mean-year basis. Whether you still think it may even have some more growth and just your views on what kind of pricing or margins you'd expect that to produce, because obviously it's a significant part of the retail portfolio now. Or a significant part of the sale portfolio. What kind of margins would you target there? Presumably it's tracking the ASX pricing. Just to get your comments on what kind of profitability that should produce. William Meek: Hi Neil, William here. So, if you look at the operating stats for the half year, you can see that one of the big movements was actually a decrease in bought contracts. That obviously makes you - technically makes you shorter. So that dropped by almost 200 gigawatt hours from 900 to almost 700. Sell contracts built up over 100. So you had a net movement of almost 300 in that CFD segment. So again, our hydro guys will, as they- as hydro volumes lift, they will typically look to contract that through either ASX trades or bilateral deals. Some of those bilateral deals can be very short term. You can be effectively supplying capacity week long contracts, those sorts of things. Certainly some advantageous contracts struck during those high price months in December and also in January, which won't be in these results. I mean if you are just talking about end-user CFDs, at the end of the day, depending on your counterfactual, putting aside the spot price settlement, you are going to get the market - you get the market counterfactual. Right here, right now, if you write a contract you're probably going to sign it for around high 70s, low 80s. That's what you are going to get. What the margin on that depends on what you're comparing it to. If it was against my COGs, well obviously there is a big gap, because my cost production doesn't fluctuate with hydrology. If it's against the spot price, well if the spot price was high, you are going to run a loss and vice versa. So, difficult to actually say what's that worth. Against the counterfactual of the contract price, it's worth very little. You'd be looking at a few bucks a megawatt hour. So I think that the big thing - I think the big difference is where you start talking about the more structured trades, where you trade in quarters or weeks or months. Again, those can be much more profitable when you're looking to particularly move water through time or create incentives for effectively generators to either make decisions about how they operate their own plant. Nevill Gluyas: (FNZC, Analyst) That's good. Yes. It makes sense. Thank you. Operator: Thank you. There are no further questions at this time. I would now like to hand back to Mr Whineray for closing remarks. Fraser Whineray: Well, thank you all for joining us for the FY18 first half results. We look forward to, as I said, catching up with you in due course and reporting on the full year results in August 2018. As always if there is any queries you've got, please get in touch with either William, Tim or myself and we'll be more than happy to catch up through a variety of media, to satisfy any questions. Thanks very much for your time. End of Transcript
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