Net debt tripled to $2.6bn as leverage hit 5.6x EBITDAF

Gross borrowings rose from $1.1b to $2.7b and net debt jumped from $931m to $2.6b, taking net debt to EBITDAF from 1.7x to 5.6x. The driver was a step-change in investment: capex rose from $75m to $541m, equal to 25.5% of revenue.

The underlying earnings story was softer. Revenue fell 11.3% to $2.1b and EBITDAF fell 14.3% to $460m, reflecting an $84m onerous contract provision with a disclosed $113m EBITDAF impact. PBT fell 30.0% to $177m and reported profit was $127m versus $182m, with the effective tax rate effectively unchanged at 28.2%.

Operating cash flow was almost flat at $395m (prior $400m), and the full-year dividend was maintained at 35 cents per share with 35 cents guided for FY24.

• Net debt to EBITDAF moving from 1.7x to 5.6x in a single year is a structural change in the financial risk profile, not a cyclical swing. This matters because it shifts the company from a low-leverage gentailer to one carrying meaningful debt-funded development risk, with future free cash flow now committed to servicing and amortising that debt before discretionary capital returns.
• The onerous contract provision flags real margin pressure, not just an accounting charge. Management disclosed an $84m provision with a $113m EBITDAF impact tied to estimated available generation capacity. Stripping that effect, underlying EBITDAF would have been broadly flat to modestly higher; including it, the reported decline materially overstates run-rate deterioration but also signals that contracted positions are uncomfortable relative to physical generation.
• The dividend is funded by free cash flow, not earnings. The 35-cent payout represents 214.7% of NPAT but 91.5% of free cash flow pre-lease of $298m. That works while FCF holds, but with net debt rising sharply and growth capex still in flight, the cushion between distributions and cash generation is thin.

Against the HY23 shape, the second half clearly carried the year: HY23 NPAT was negative $7m, implying roughly $134m of profit in the second half, and HY23 contributed only 46.9% of full-year revenue and 53.5% of EBITDAF.

This matters because the FY24 dividend guidance assumes continued FCF generation at a level capable of covering ~$280m of distributions while the balance sheet absorbs the residual growth-capex programme. The release does not quantify when stepped-up generation investment converts to incremental EBITDAF, which is the key gap between current run-rate and the leverage trajectory.

That suggests the headline EBITDAF decline is not a cash-timing problem. However, two working-capital signals deserve attention. Trade debtors rose 18.0% to $157m and inventories rose 46.6% to $85m, lifting receivable days from 20 to 27 and inventory days from 9 to 15. Operating working capital absorbed $55m more cash than the prior year, which partly explains why OCF was flat despite the cash-conversion ratio improving.

Free cash flow of $298m versus $326m looks resilient, but the comparison is sensitive to how stay-in-business capex is bounded. Total capex of $541m versus $75m means the gap between operating cash generation and total investment cash needs widened sharply, and that gap was bridged by the $1.6bn increase in gross borrowings. ROE fell from 6.4% to 4.5%, consistent with a year where invested capital expanded ahead of earnings.

This briefing cannot assess hydrology, hedge-book economics, generation-mix shifts, or the project-level economics of the development pipeline that underpin the leverage and onerous-contract disclosures.