Leverage to 2.5x as prior-year provision flatters reported EBITDAF gain

On management's underlying basis, EBITDAF was $663m versus $573m a year earlier, a 16% gain, after stripping the $113m onerous contract provision booked in FY23. Underlying profit similarly grew 9% to $230m on the same basis, while reported profit before tax rose 91.0% to $338m and NPAT moved from $127m to $235m.

The balance-sheet move is more substantive. Gross borrowings fell $815m to $1.9b, taking net debt to $1.7b from $2.6b and leverage to 2.5x EBITDAF from 5.6x. Operating cash flow rose to $580m and free cash flow to $471m. The full-year ordinary dividend stepped up to 37.0cps from 35.0cps.

Capital raise adds balance-sheet context, with NZ$23m capital raised, but borrowings and gearing are the direct leverage evidence.

Reported PBT growth of 91.0% and the swing from $127m to $235m NPAT primarily reflect the unwinding of the prior-year onerous contract charge rather than an operating step-change. Underlying profit growth on management's own basis is 9%. The reported numbers should be read as base-effect normalisation, not earnings momentum.

Leverage is now in a different zone. Net debt to EBITDAF of 2.5x (from 5.6x) gives Contact materially more balance-sheet capacity to fund Te Huka 3 (in commissioning, expected online Q4 2024) and the 100MW Glenbrook battery (Q1 2026). With capex at $580m and 20.3% of revenue, the renewable build is being funded largely from internal cash rather than incremental gearing.

Retail is still loss-making and Wholesale margin compressed. The Retail segment result was -$32m (versus -$36m prior) and Wholesale segment gross margin slipped to 63.7% from 67.5%. Group earnings are being carried by Wholesale volumes and pricing rather than a Retail turnaround.

The source-backed payout ratio of 59.4% against free cash flow leaves headroom for the geothermal and battery programmes alongside that guided distribution. This matters because Te Huka 3 and Glenbrook are the only major near-term capacity additions disclosed.

Neither project will contribute meaningfully to FY25 EBITDAF, so the FY25 read will hinge on hydrology, wholesale pricing, and whether Retail margins move toward breakeven. The release does not provide enough forward detail to test either path.

Capex intensity fell to 20.3% of revenue from 25.5%, although absolute capex still rose 7.2% to $580m. Working capital was a small tailwind: receivable days fell to 20.8 from 27.1 and inventory days to 9.8 from 14.6, but the combined operating working-capital release was only $3m, so the cash result is not balance-sheet assisted.

The quality issue is the comparable, not the cash. Underlying EBITDAF growth of 16% and underlying profit growth of 9% are the durable readings; the reported growth rates are not repeatable. Reported NPAT of $235m sits only marginally above management's underlying profit of $230m, which suggests FY24 itself is largely free of one-off support — the distortion is in the prior period, not the current one.

This briefing cannot assess the specific operational drivers behind segment margin movements or the post-FY24 hydrology and wholesale-pricing trajectory.