Revenue fell 15.7% but gross borrowings cut 68% on Tradelink exit

Despite the top-line decline, the pre-tax loss narrowed 10.9% to NZ$123.0m, but the after-tax loss widened 11.7% to NZ$134.0m because the discontinued Tradelink operation contributed a NZ$52.0m after-tax loss and the effective tax rate on continuing operations jumped to 33.3% from 15.2%.

The balance sheet was rebuilt aggressively. Gross borrowings dropped 68.0% to NZ$1.4b from NZ$4.3b, total equity rose 15.3% to NZ$3.9b, and net debt fell to NZ$1.2b from NZ$4.1b. Operating cash outflow narrowed to NZ$5.0m from NZ$126.0m, helped by a NZ$420.0m, 23.7%, reduction in inventory. No interim dividend was declared.

PBT growth of 10.9% is the cleaner operating read because the NPAT line absorbs both the NZ$52.0m discontinued-operation loss and an effective tax rate that, at 33.3%, is above the historical range (4-period mean 10.1%). The continuing-operations loss of NZ$82.0m is the figure to anchor on for forward earnings power, not the headline NZ$134.0m.

Balance-sheet repair, not trading, is the standout. A NZ$2.9b reduction in gross borrowings alongside a NZ$522.0m increase in equity points to a recapitalisation and disposal proceeds rather than organic deleveraging, given operating cash flow remained negative. This matters because Fletcher has bought time and capacity to absorb further trading weakness; net debt to half-year EBITDA before significant items still sits at roughly 3.4x.

Revenue weakness is structural, not seasonal. The 15.7% decline is materially worse than the historical mean of -3.4%, and ROE at -7.3% is below its historical range (mean 2.4%). PBT margin at -3.4% and NPAT margin at -3.7% are both below their respective historical ranges, so the cost actions absorbed in PBT have not yet offset volume loss.

Annualising current revenue gives NZ$7.2b, below the FY24 anchor of NZ$7.7b from continuing operations, and HY24 represented 55.3% of FY24 revenue, suggesting modest second-half seasonal lift is normal but does not by itself close the run-rate gap.

The supplied second-half shape for NPAT (HY24 at 52.9% of FY24's NZ$227.0m loss) gives an implied second-half loss of NZ$107.0m on the prior-year cadence; the current half is already worse than that benchmark on the after-tax line, which raises rather than relieves the burden on the second half.

EBITDA before significant items of NZ$346.0m converted to operating cash of just NZ$5.0m outflow, a ratio of -1.4%, with the bulk of cash relief coming from a NZ$420.0m inventory drawdown rather than trading profitability. Inventory days fell to 68.7 from a 3-period mean of 90.3, which is below the historical range and may not be repeatable; receivable days rose to 39.1 from 27.3, a 11.8-day lengthening that worked against working capital.

Capex of NZ$161.0m at 4.5% of revenue is broadly in line with prior intensity, so the cash improvement is not coming from underinvestment. However, FCF pre-lease of NZ$166.0m outflow remains within the historical range (4-period mean NZ$189.2m outflow) and is being funded from the recapitalised balance sheet, not from trading. The decision to declare no dividend is consistent with that picture.

This briefing cannot assess the embedded value of disposed Tradelink proceeds or the post-recapitalisation share count, neither of which is disclosed in the supplied excerpts.