PBT fell 86.2% on a 1.7% revenue decline as acquisition costs hit Utilities

EBITDA excluding acquisition costs fell to NZD 7.9m from NZD 13.0m in HY25. The Veovo segment held broadly steady, contributing NZD 4.2m at a 24.2% margin.

Beneath the headline revenue softness, recurring revenue improved to NZD 85.3m (NZD 76.4m in HY25), lifting recurring mix from 68.2% to 77.4% of group revenue — a positive structural shift offset entirely by lower non-recurring project revenue in Utilities.

Operating cash flow turned negative at –NZD 8.7m versus a NZD 2.9m inflow in HY25, while trade receivables expanded from NZD 28.0m to NZD 34.4m, stretching receivable days from 45.6 to 56.8 days. NPAT fell 28.9% to NZD 5.1m, substantially cushioned by a negative effective tax rate of –400.0% this period versus 22.2% prior — making PBT the cleaner read on operating performance.

Segment profit fell from NZD 8.3m to NZD 3.1m despite only a NZD 2.4m revenue decline, implying a significant cost step-up. Management attributes this to acquisition costs and investment in the g2.0 platform, but the scale of margin compression — from 9.0% to 3.4% on a near-flat revenue base — signals that cost growth materially outpaced any operating leverage benefit. Until those costs abate or revenue accelerates, Utilities unit economics remain impaired.

Negative operating cash flow and receivables build are related risks. The swing from NZD 2.9m OCF to –NZD 8.7m, combined with a NZD 6.3m receivables increase, suggests billing and collection timing is pressuring near-term cash. The current OCF-to-EBITDA ratio is not analytically meaningful in the conventional sense given the basis distortion, but the FCF-to-NPAT conversion of –191.6% confirms that reported earnings are not yet translating to cash.

Tax distortion inflates NPAT relative to PBT. A –400.0% effective tax rate in HY26 versus 22.2% in HY25 means NPAT of NZD 5.1m masks a PBT of only NZD 1.3m. Investors relying on NPAT growth of –28.9% would materially understate the underlying operating deterioration of –86.2% at the PBT level.

FY25 full-year patterns imply the business has historically been second-half weighted: HY25 contributed approximately 48.7% of FY25 revenue and only 34.4% of FY25 NPAT, meaning the second half has historically carried substantially more of the profit load. That pattern makes the HY26 result less alarming on NPAT than the PBT number suggests — but also means the full-year outcome depends heavily on a second-half recovery in Utilities margin and cash generation.

Recurring revenue growth of 12% to NZD 85.3m is the most encouraging signal for forward momentum, but the gap between recurring revenue growth and total revenue or profit growth indicates non-recurring project activity has been a meaningful drag in the period. Whether acquisition-related costs are genuinely one-period in nature or represent a sustained investment phase is the key swing factor for FY26.

Recurring revenue growth is structurally positive and indicates customer retention and contract expansion are broadly intact. The 9.2 percentage point improvement in recurring mix to 77.4% reflects a business model moving in the right direction for long-run earnings predictability.

However, the profitability and cash dimensions are poor quality. PBT of NZD 1.3m on NZD 110.1m revenue represents a near-zero margin, driven by elevated costs in Utilities rather than any revenue-side problem. Negative OCF of –NZD 8.7m and FCF-to-NPAT of –191.6% indicate that even the modest NPAT figure is not backed by cash generation this half. Receivable days stretching to 56.8 days adds balance-sheet pressure. The NPAT figure itself is distorted by a large favourable tax movement and should not be treated as a clean indicator of operating performance.

This briefing cannot assess the revenue or margin impact of the two acquisitions announced in May 2026 or their effect on the FY26 full-year run rate, as no financial contribution data has been disclosed.