EBITDAF fell 32.5% on energy-margin squeeze; dividend exceeded FCF

Profit before tax swung from $594m to -$619m (-204.2%) and net profit after tax flipped from $429m to -$452m (-205.4%), broadly mirroring each other given an effective tax rate of 27.0% versus 27.8% prior.

The PBT swing of about $1.2bn is much larger than the $294m EBITDAF decline, indicating sizeable non-cash fair-value movements below EBITDAF — the inverse of FY24, where commentary attributed material NPAT growth to net gains on hedge instruments.

Operating cash flow halved to $318m from $667m, cash on hand fell to $123m, and gross borrowings rose 16.5% to $1.6b. Net debt/EBITDAF roughly doubled to 2.4x from 1.2x. The final dividend was held flat at 14.85 cents per share.

Release commentary cites a 23% decline in energy margin from $1.276bn, reflecting record-low hydro inflows and an unprecedented domestic gas shortage that forced extensive smelter demand-response calls during H1. This is the core operational driver of the EBITDAF decline on otherwise flat revenue, and the release notes physical generation and energy margin have since reverted closer to normal — making this primarily a hydrological event rather than a structural reset.

Payout ratio versus pre-lease FCF is 162.6% based on the source-backed deterministic derivation.

Leverage absorbed the strain. Net debt rose to roughly $1.4b, and net debt/EBITDAF stepped up to 2.4x. With the dividend held flat through a hydrology-driven earnings shock, the balance sheet — not retained cash — carried the cost of maintaining shareholder distributions.

HY25 context shows where the damage was concentrated: H1 carried EBITDAF of $257m on operating cash flow of just $50m, with the implied H2 stronger at roughly $354m EBITDAF and $268m OCF as conditions normalised. NPAT, however, remained negative across both halves on the implied split, consistent with fair-value movements continuing to weigh on the statutory line in H2.

The economic question is timing of normalisation, not whether the statutory loss recurs. With management framing FY25 as an extreme hydrological year, FY26 EBITDAF should mechanically rebuild toward prior trend — but leverage will not reset on its own without either firmer cash generation or a slower distribution path.

The headline loss is heavily inflated by below-EBITDAF fair-value swings on hedge instruments — prior year flattered NPAT in the same way in reverse, and the release flags underlying net profit fell from $359m on a comparable basis. So the -205.4% NPAT swing overstates economic deterioration.

That said, the operating fundamentals did genuinely weaken. Energy margin compression of 23% is real cash, not accounting; cash conversion at 52.0% is materially below the prior 73.7%; and the 162.2% FCF payout means the dividend has been debt-funded for the year. Lower capex of $193m partly offset the OCF decline, but receivable days improved (30.7 vs 40.3) without rescuing the conversion ratio. The reliability of the FY26 read therefore depends on hydrology reverting and hedge book positioning, neither of which is disclosed.

This briefing cannot assess the FY26 hedge book positioning, normalised energy margin assumptions, or whether the dividend policy will be revisited if hydrology pressure persists.