PBT up 17.1% but cash quality leans on capex cut and working capital release

That swing, combined with capex falling 92.1% to NZ$0.2m from NZ$2.5m, is the dominant reason pre-lease free cash flow stepped up to NZ$6.1m versus a 3-period mean of NZ$2.7m.

Underlying earnings did return to growth from a depressed base. Revenue fell -1.9% to NZ$82.2m, but EBITDA rose 5.4% to NZ$7.8m, PBT grew 17.1% to NZ$4.1m and NPAT grew 20.0% to NZ$3.0m. Operating cash flow rose 27% to NZ$6.3m, net debt fell to NZ$9.7m (1.2x EBITDA, from 1.9x), and the company declared a 0.65cps interim dividend implying a 65.0% payout against current-period NPAT.

OCF/EBITDA conversion of 80.3% sits at the upper edge of the historical 47.7%–80.6% range, which is genuinely strong. However, both the working-capital release (classified below normal range) and the near-elimination of capex contributed materially. Inventory days fell to 0.7 from 4.2 prior, and inventories declined NZ$1.6m on the balance sheet — investors should expect some of that to reverse in normal trading.

Profit growth is from a low base. The 17.1% PBT and 20.0% NPAT growth rates are above-normal-range only because the prior 3-period mean was -35.2% and -32.8% respectively. PBT margin of 5.0% and EBITDA margin of 9.5% remain within the historical 4.2%–8.7% and 8.4%–12.2% ranges and slightly below the 3-period means, so this is recovery off a depressed prior comparable rather than expansion above trend.

Leverage improved without a tax distortion. Net debt fell NZ$4.4m year-on-year and the effective tax rate of 28.1% is essentially flat versus 28.3%, so the earnings improvement is not a tax-line artefact. Equity rose NZ$5.8m and total liabilities fell NZ$7.9m, leaving the balance sheet measurably stronger.

Annualising the half implies a NZ$164.4m run-rate against last year's NZ$175.7m full-year revenue, which would extend the multi-year revenue decline, though the historical pattern shows revenue growth of -1.9% sits within the recent normal range.

The dividend at 65.0% of half-year NPAT is supportable given the FCF print, but durability hinges on whether capex stays near zero — that intensity ratio of 0.2% of revenue is well below FY24 levels and is unlikely to be a steady-state assumption.

Gross margin reference of 47.9% in the prior comparable suggests the cost base was already being managed; the EBITDA dollar gain of NZ$0.4m on lower revenue indicates some genuine cost leverage.

The cash story is more timing-sensitive. Pre-lease FCF of NZ$6.1m converts at 205.4% of NPAT, which is mechanically unsustainable. The drivers were (1) a working-capital release of NZ$1.6m versus a typical build, including inventory falling 83.4%, and (2) capex of NZ$0.2m versus NZ$2.5m prior — a 92.1% reduction. Net debt reduction of NZ$2.1m since March is real, but a normalised capex year combined with any working-capital reversal would compress FCF materially closer to the historical NZ$2.4m–NZ$3.1m range.

This briefing cannot assess customer cohort behaviour, competitive positioning, or any forward outlook because no segment data, active-customer disclosures or guidance were supplied.