Cash fell 60.3% to $7.5m as inventory build absorbed $14.5m

Net operating cash outflow widened to -$21.8m from -$15.8m, driven by a $14.5m (+68.8%) inventory build to $35.6m. Cash on hand fell 60.3% to $7.5m from $18.8m a year earlier.

The reported loss widened materially. PBT growth was -409.8% and NPAT growth was -385.8%, taking the after-tax loss to $8.1m from $1.7m. Capex stepped up to $3.2m (7.7% of revenue) from $2.0m, including $2.2m on Napier plant reinstatement. Total equity declined 5.0% to $46.3m and ROE fell to -17.6% from -3.4%.

1. Inventory days extended from 98.5 to 153.8 — a 55.3-day increase — on management's deliberate woollen spun yarn buildup ahead of expected demand. This pre-funds a planned 2H revenue ramp, but it ties up working capital before that demand has been demonstrated in the order book disclosed here.

2. Cash runway has thinned. With $7.5m of cash, an $8.1m half-year loss, continuing Napier capex and pre-lease FCF of -$25.0m, the buffer is limited if 2H sales do not absorb inventory at planned margins. No interest-bearing borrowings are disclosed, so the absorption has been funded entirely from the prior cash balance.

3. The loss widening is operational, not tax-driven. Effective tax rates of -0.8% (current) and -5.8% (prior) and a PBT/NPAT growth gap of -24.0pp confirm tax is not the explanation. Gross margin of 21.3% on a growing revenue base implies cost-of-sales pressure, which matters because the inventory thesis assumes margins recover as the new yarn flows through.

Last year was second-half weighted: HY24 contributed 48.6% of FY24 revenue and HY24 NPAT was -36.1% of full-year NPAT, implying 2H24 delivered roughly $6.3m of NPAT against a $1.7m 1H24 loss. To repeat FY24's $4.6m profit, 2H25 would need to deliver around $12.7m of NPAT — a substantial swing from the -$8.1m starting point.

Annualised revenue from doubling HY25 is $84.3m, slightly ahead of FY24's $80.3m, so the top-line trajectory is intact. Profit recovery, however, depends on inventory converting into sales at planned margin, not on revenue growth alone.

Revenue growth is real and broadly based across geographies on management's own description, but gross margin of 21.3% is modest for a branded carpet manufacturer and the loss is operational rather than one-off. Cash conversion deteriorated materially: FCF/NPAT of 306.9% reflects cash burn outpacing the reported loss, and pre-lease FCF of -$25.0m compares with -$17.8m a year earlier.

The fundamental quality issue is that the half's investment thesis sits on the balance sheet as inventory rather than in revenue. Operating working capital rose $15.1m to $47.2m. If the woollen yarn pre-build converts at planned margins, the working-capital absorption reverses through 2H25 and FY26 and the cash outflow is recoverable. If demand softens or pricing disappoints, the inventory becomes either a prolonged cash drag or a margin write-down event. Either way, the result as reported is not a clean view of underlying earnings power — both the loss and the cash burn hinge on future conversion rather than in-period trading performance.

This briefing cannot assess the contractual backing for the inventory build, the company's banking arrangements, or the realistic gross margin trajectory, none of which were quantified in the release.