Operating cash flow collapsed 97.8% as leverage rose to 5.2x EBITDA

Operating cash flow fell 97.8% to $1.9m from $87.5m, even as EBITDA rose 12.0% to $113.1m. Cash conversion (OCF / EBITDA) dropped from 86.6% to 1.7%, and free cash flow pre-lease swung from +$10.1m to -$74.2m after $76.1m of capex.

Headline earnings split sharply. Revenue declined 4.5% to $420.8m, but EBITDA improved on a stronger Adelaide contribution. Below EBITDA, depreciation and interest absorbed the gain: PBT fell 41.5% to $28.1m and NPAT fell 72.9% to $6.1m, with the effective tax rate jumping to 78.4% from 53.1%.

The balance sheet absorbed the pressure. Cash fell to $88.6m from $188.2m, gross borrowings rose 19.0% to $678.2m, net debt climbed to $589.5m, and leverage moved from 3.8x to 5.2x EBITDA. No interim dividend was declared (HY24: 5.25cps).

Generating $1.9m of operating cash on $113.1m of EBITDA is not a working-capital story — operating working capital moved only $0.1m. The gap sits in cash interest, cash tax and other operating cash items, which means the headline EBITDA recovery did not translate into funding capacity. Combined with $76.1m of capex (18.1% of revenue), the half consumed cash rather than producing it.

Leverage has stepped up materially. Net debt rose by $208.1m to $589.5m and net debt / EBITDA reached 5.2x. The dividend suspension is consistent with that trajectory and the prior NPAT payout ratio of 175.0%, which was already unsustainable. Capacity for further capex, regulatory provisions or an Adelaide setback is now narrower.

Operating earnings are also weaker than EBITDA implies. PBT down 41.5% is the cleaner read because the tax line is distorted (78.4% effective rate vs 53.1%). Even on PBT, depreciation and interest grew faster than EBITDA, and the segment recovery was concentrated in Adelaide, which swung from a –$30.5m result to +$15.2m. Auckland revenue (–9.1% to $258.3m) and Online (segment result –$1.1m vs +$3.0m) remain pressure points.

Annualising HY25 revenue gives $841.6m, modestly below FY24's $861.0m.

What the release supports is that Adelaide has turned at the segment-result level and Auckland EBITDA held up despite revenue decline. What it does not support is a clean read on full-year cash generation, dividend timing, or the trajectory of regulatory and compliance costs flagged in commentary about lower-risk operating models. Those gaps matter because leverage at 5.2x leaves limited room for negative surprises.

The Adelaide segment result improved by roughly $45m year-on-year, dominating the group uplift, while Auckland revenue continues to shrink and Online has turned loss-making. That makes the EBITDA recovery dependent on a single property's normalisation rather than broad operating momentum.

The bigger quality concern is that almost none of the EBITDA reached operating cash flow. With operating working capital essentially flat, the deterioration is structural to the cost base — interest, tax and other cash operating items — not a timing reversal that should naturally unwind. Capex remained at FY24-comparable intensity (18.1% of revenue vs 17.5%), so the cash drain was funded by drawing cash balances and increasing borrowings rather than by operating performance. On that basis, the headline EBITDA growth overstates the durable improvement, and ROE of 0.5% (vs 1.5% prior) is a more honest measure of the period's economic return.

This briefing cannot assess the specific cash-flow line items beneath operating cash flow, the regulatory cost trajectory, or covenant headroom on the expanded debt stack.