Engine grounding drives 17.8% NPAT slide; dividend cut 37.5%

Management flagged the result as landing at the upper end of the November 2024 guidance range, so the deterioration was not a surprise — it was the consequence of engine availability constraints that the company expects to continue, with up to 11 aircraft grounded at times during the second half of the 2025 financial year.

The interim dividend was cut to 1.25 cents per share from 2.00 cents, a 37.5% reduction. Cash inflow from operating activities still rose 3.2% to NZ$424.0m, capex fell to NZ$297.0m from NZ$458.0m (–35.2%), and gross borrowings reduced to NZ$1.4b from NZ$1.6b. Trade debtors rose 16.1% to NZ$549.0m and inventories rose 17.1% to NZ$144.0m, driving an operating working-capital build of NZ$97.0m.

PBT margin of 4.6% sits inside Annolyse's historical baseline of –1.7% to 9.6% (mean 4.4%), but management's own commentary tells the story: aircraft on the ground in 2H25 means the revenue and cost base will continue to be misaligned. This matters because the result was already at the upper end of a range investors were warned about, and the operational drag is not over.

The dividend cut signals management discipline rather than balance-sheet stress. Net cash improved (gross borrowings down NZ$163.0m, cash NZ$1.5b), but the payout was reset from 52.6% of NPAT in the prior comparable to 40.3% this period, and to 33.6% of pre-lease free cash flow. Setting the dividend below earnings while engines remain a constraint preserves balance-sheet flexibility through a known disruption.

Working-capital investment absorbed real cash even as revenue fell. Receivable days rose 4.6 days to 29.4, inventory days rose 1.3 days to 7.7, and the NZ$97.0m operating working-capital build sits above the historical mean of –NZ$105.0m although still inside the recent range. On a –2.0% revenue print, that build is a leading indicator worth watching.

The forward shape is dominated by the disclosed engine availability issue: up to 11 aircraft grounded at times in 2H25, which weighs on capacity and unit economics regardless of demand.

The supplied second-half shape data is not directly comparable because FY24 included a discontinued-operation effect that distorts the simple H1/full-year share. What the release does support is that the H2 operating environment is expected to remain constrained; what it does not support is any judgement on the magnitude or duration of recovery beyond the current financial year.

Most of that swing came from capex declining 35.2% to NZ$297.0m (8.7% of revenue), not from a step-up in cash earnings — operating cash flow rose only 3.2%. The cash improvement therefore reflects timing of fleet investment as much as underlying performance, and capex intensity is likely to normalise as engine issues resolve and renewal cycles resume.

The earnings decline itself looks operational rather than accounting-driven. There are no disclosed non-recurring items, the effective tax rate of 31.6% sits at the upper edge of the historical range and adds a small extra drag (the PBT-to-NPAT growth gap is 1.6 percentage points), and PBT margin remains within the historical baseline of –1.7% to 9.6%. The honest read is that this is what the underlying business looked like under engine constraint, with cash discipline obscuring a portion of the operating pressure.

This briefing cannot assess the timeline or financial terms of any compensation arrangements with engine manufacturers, which materially affect the FY25 and FY26 earnings shape.