NPAT up 83.6% but cash conversion fell to 58.3% with leverage at 6.6x

Below the line, NPAT grew 83.6% to NZ$70.3m and PBT grew 75.1% to NZ$93.7m, helped by a lower effective tax rate of 25.0% versus 28.4%.

The cash side moved the other way. Operating cash flow fell 40.1% to NZ$126.3m, dragging OCF/EBITDAF cash conversion to 58.3% — below the historical range and well under the three-period mean of 88.9% (range 75.3%–104.3%). Pre-lease free cash flow of NZ$46.0m sits NZ$145.7m below the NZ$191.7m baseline.

Net debt rose to NZ$1.4b and net debt/EBITDAF reached 6.6x, above the recent range and the 5.13x mean. The interim dividend lifted to 7.13 cents from 7.00 cents, taking the NPAT payout to 109.7%.

OCF/EBITDAF of 58.3% is the weakest of the four-period set and 30.6 percentage points below the historical baseline of 88.9%. With NPAT up 83.6% but operating cash flow down 40.1%, the headline earnings growth overstates underlying cash generation, and pre-lease FCF/NPAT of 65.4% does not cover the dividend.

Leverage is rising into a heavier capex cycle. Net debt/EBITDAF at 6.6x is above the historical band, with capex up 96.7% to NZ$65.5m (3.7% of revenue) as renewable and flexible generation projects are progressed. Funding the dividend at 109.7% of NPAT alongside an expanding investment programme leaves little internal slack and increases reliance on debt or hybrid capacity.

Earnings growth was not driven by the operating margin. EBITDAF grew only 7% on a 28.9% revenue lift, and EBITDAF margin of 12.3% is 7.8 percentage points below the historical mean of 20.1%, consistent with the sector's higher wholesale and fuel costs. The reported PBT and NPAT lift therefore depends on items below EBITDAF — including a more favourable tax rate — rather than gross-margin recovery.

The supplied second-half shape from FY24 shows the prior first half delivered 44.8% of full-year revenue, 49.6% of EBITDAF and just 29.2% of NPAT, so the business is structurally H2-weighted on profit. Annualising current revenue gives NZ$3.5b, modestly above the NZ$3b FY24 outturn, but that says little about full-year EBITDAF given hydrology, hedge cycles and fuel cost variability are not disclosed for H2.

The release does not provide guidance, hydrology assumptions or hedge-position commentary, so the gap between reported NPAT strength and weak cash generation cannot be calibrated to a specific full-year shape from the supplied disclosure alone.

The effective tax rate at 25.0% is below the historical 28.7% mean and contributed to the 8.5 percentage-point gap between PBT growth (75.1%) and NPAT growth (83.6%). EBITDAF margin remains below the historical range, so the lift in operating profit is not coming from gross-margin repair.

On the cash side, working capital absorbed NZ$29.5m — at the upper edge of the historical range and NZ$159.4m above the historical mean of an NZ$129.9m release. Trade debtors rose 9.0% and inventories rose 6.4% in dollar terms even as debtor and inventory days fell, so the absorption is volume-driven rather than collection deterioration. Capex roughly doubled, taking pre-lease FCF to NZ$46.0m versus the NZ$191.7m three-period baseline. Until cash conversion normalises, the durable read is closer to PBT growth and the gross-margin trajectory than to the headline NPAT figure.

This briefing cannot assess hydrology, hedge book positioning, or wholesale price assumptions for H2, all of which are central to whether the cash-conversion gap closes.