FY25 EBITDAF fell 10.4% to $786m, missing $820m HY25 guidance

Revenue rose 2.2% to $3.5b on retail pricing and customer growth, but lower hydro generation cut total renewable output 10% to 7.9 TWh, which drove the underlying earnings shortfall.

Operating cash flow fell 21.1% to $483m, and cash conversion (OCF/EBITDAF) deteriorated to 61.5% from 69.8%. Capex surged 47.6% to $437m, lifting capex intensity to 12.5% of revenue from 8.6%. Gross borrowings rose 17.4% to $2.3b and net debt/EBITDAF stepped from 2.16x to 2.79x.

Reported PBT and NPAT both collapsed to about $1m from $415m and $290m. The growth percentages on those lines are not analytically meaningful at near‑negative‑100%, so EBITDAF is the cleaner read on operating performance.

The release attributes the result to dry hydrology and spot‑price spikes during peak demand. The 10% drop in renewable generation is closely matched by the 10.4% EBITDAF decline, which means the miss looks hydrology‑driven rather than structural, but it has consumed a guidance the company reaffirmed only six months earlier at HY25 EBITDAF of $418m.

Capex and leverage are accelerating together. Capex intensity rose 390bps to 12.5% of revenue while EBITDAF shrank, so net debt/EBITDAF has moved from a comfortable 2.16x to 2.79x with the build cycle still in front. Mercury cites a wind‑build pipeline and long‑term agreements with Fonterra and Visy as the rationale, but the leverage ratio is being squeezed from both numerator and denominator simultaneously.

Reported NPAT and PBT are not the operating read. The effective tax rate moved from 30.1% to 0.0%, and the near‑complete collapse of PBT and NPAT against only a 10% EBITDAF decline implies material non‑cash items between EBITDAF and reported profit. The supplied disclosure does not name the driver, so the composition of the gap remains unresolved.

The board has guided FY26 ordinary dividend of 25cps (versus 24.0cps declared for FY25), and the release references an "indicative FY30 EBITDAF aspiration" without a quantified path.

The supplied excerpts do not contain FY26 EBITDAF guidance. Without it, the read on whether $786m represents a hydrology low or a new base in a heavier‑capex configuration cannot be settled from this filing alone. The prior FY24 comparable also incorporated the completed Trustpower retail integration, so the year‑on‑year step is not a perfectly clean like‑for‑like.

The total ordinary dividend rose to 24.0cps from 23.3cps and is guided to 25cps for FY26, but FY24's distribution already represented 111.8% of NPAT, so dividend cover is increasingly a build‑cycle funding decision rather than a current‑earnings outcome.

Working capital released $105m via a $122m drop in trade debtors (receivable days fell to 40.3 from 54.2), yet operating cash flow still declined 21.1%. That tells you the underlying cash quality of EBITDAF is weaker than the headline working‑capital tailwind suggests, and the receivables normalisation is unlikely to repeat at the same scale. Company‑defined free cash flow of $345m (down from $470m) sits well below the $437m of total capex, and the funding gap is being closed by the $338m lift in gross borrowings — which is what the leverage ratio is now reflecting.

This briefing cannot assess the composition of the gap between EBITDAF and reported NPAT without specific disclosure of the fair‑value, derivative, or other non‑cash items sitting below the EBITDAF line.