Operating profit up 9.9% but PBT collapsed 94.6% on financing costs

Revenue grew 4.0% to NZ$500.0m, EBITDA rose to NZ$346.0m, and operating profit increased 9.9% to NZ$111.0m. Profit before tax then collapsed 94.6% to NZ$2.0m from NZ$37.0m, and NPAT swung to a NZ$5.0m loss from a NZ$26.0m profit (-119.2%).

The wedge between operating profit and PBT is the financing line. Gross borrowings rose 33.7% to NZ$2.9b and net debt/EBITDA stepped up to 8.1x from 6.6x, so the roughly NZ$10m of operating-profit improvement was more than absorbed by a higher interest charge.

Cash quality moved the other way: capex fell 19.1% to NZ$199.0m and pre-lease free cash flow more than doubled to NZ$58.0m, well above the company's historical baseline mean of -NZ$7.0m (range -NZ$45.0m to NZ$24.0m). The interim dividend was lifted to 23.0 cents from 13.5 cents.

Operating profit growth of 9.9% was fully consumed below the line, and PBT margin compressed to 0.4%. With net debt/EBITDA at 8.1x and gross borrowings up NZ$727m year-on-year, the operating improvement Chorus is delivering is not currently reaching the bottom line for shareholders.

The tax line distorted the headline NPAT print. The effective tax rate of 350.0% versus 29.7% in the prior period is well above the historical range and turns a small NZ$2.0m PBT into a NZ$5.0m reported loss; PBT is the cleaner read on the period, and PBT itself is weak. This matters because the loss headline overstates the period's deterioration relative to underlying operations, while PBT understates how much of the operating gain is being lost to financing.

Cash generation improved even as earnings fell. Pre-lease FCF of NZ$58.0m sits above the supplied historical range, driven mainly by lower capex (39.8% of revenue versus 51.1%) rather than higher operating cash flow, which actually fell 4.8% to NZ$257.0m. The implication is that current free cash strength is partly a build-cycle effect, not a step-change in earnings power.

The HY24/FY24 split implies a second-half-weighted year: HY24 contributed 47.6% of FY24 revenue and 46.7% of FY24 EBITDA, and FY24 NPAT was already a NZ$9.0m loss. On that pattern, the HY25 NZ$5.0m loss is consistent with another full-year loss unless interest costs ease or operating leverage from fibre revenue accelerates in the second half.

The release does not support any read on whether financing costs have peaked, which is the variable that matters most for FY25 PBT and dividend coverage.

The cash result is balance-sheet-assisted rather than purely earnings-driven. Pre-lease FCF improvement of NZ$34m came predominantly from a NZ$47m capex reduction, not operating cash, so durability depends on whether current capex intensity is a sustained step-down or a timing trough. The dividend lift to 23.0 cents is hard to reconcile with a NZ$5.0m statutory loss and 8.1x leverage; on the prior comparable, the payout ratio versus NPAT was already 106.6%, and the current period cannot be covered from reported earnings at all. ROE moved to -0.8% from 1.8%, a direct read-through of the financing pressure.

This briefing cannot assess whether the financing cost step-up reflects rate resets, drawn debt for capex, or both, because the release excerpts supplied do not break out interest expense drivers.