Refurbishment capex of NZ$44.0m drove pre-lease FCF to -NZ$39.6m

Capex rose 472.6% to NZ$44.0m (55.5% of revenue) to fund the hotel refurbishment programme, and pre-lease free cash flow swung to -NZ$39.6m. Annolyse's historical baseline shows that figure as unprecedented low against a four-period mean of +NZ$20.4m and a prior range of -NZ$0.8m to +NZ$53.9m.

That outflow, combined with operating cash flow of just NZ$4.3m (down 71.5% from NZ$15.3m), drew the cash balance down to NZ$16.1m and triggered NZ$30.0m of new borrowings. Net debt/EBITDA of 0.82x is above the supplied historical range, which had MCK in a net cash position averaging -2.18x.

Reported revenue fell 7.1% to NZ$79.3m as a 15% Hotels uplift was outweighed by a 51% drop in property sales. PBT fell 47.4% to NZ$11.3m, while NPAT rose 156.6% to NZ$6.7m off a loss-making prior comparable.

The refurbishment lifted capex intensity from 9.0% to 55.5% of revenue in a single half. This is investment, not operating deterioration, but it has converted a net cash position into NZ$13.9m of net debt and absorbed the entire historical FCF buffer. Future cash conversion will need to recover materially before the refurbishment cycle ends to avoid further drawdowns.

PBT is the cleaner read on operating performance. NPAT growth of 156.6% is flattered by tax: the prior-period effective rate was 147.2% (a one-off deferred tax adjustment), versus 25.1% this period. Stripping that distortion, PBT fell 47.4% and the EBITDA margin of 21.4% sits below the supplied historical range of 21.8%–43.3%.

Segment mix is doing the work. Hotel Operations now contributes 80.8% of revenue (up 15.3pp) with segment result essentially flat at NZ$6.7m. Residential Property Development collapsed from NZ$12.8m revenue and NZ$5.8m result to NZ$1.4m and a NZ$0.4m loss, removing the swing factor that drove prior-year property contributions.

The supplied second-half shape context is distorted: HY24 NPAT was a NZ$11.7m loss against an FY24 result of NZ$2.8m, implying NZ$14.5m of H2 NPAT, but that pattern reflected the unusual deferred tax adjustment rather than a clean seasonal shape.

Management commentary points to "further gains" when domestic and corporate travel recover and continued cooldown in property sales, but does not quantify either. With capex still in flight and property revenue at NZ$1.4m versus NZ$12.8m, a second-half rebuild depends on Hotels carrying the group while refurbishment activity continues to absorb cash.

Against that, EBITDA margin and PBT margin both sit below Annolyse's historical baselines (21.4% vs 31.1% mean; 14.3% vs 31.2% mean), reflecting the loss of high-margin property sales rather than hotel weakness.

Cash quality is the weak spot. OCF/EBITDA of 25.6% is below the supplied historical range (32.4%–67.4%, mean 54.4%), and pre-lease FCF/NPAT of -595.9% means the reported profit is not currently being converted to cash. Working-capital movement of -NZ$2.9m is within Annolyse's normal range, so the cash gap is not a debtor-build issue — it is the capex programme. That makes the FCF deficit timing-driven in principle, but the leverage shift it has caused is real and will persist until refurbishment spend normalises.

This briefing cannot assess the expected return on the refurbishment capex or management's internal hurdle rates, as no project-level economics or stabilised yield targets were disclosed.