FCF fell 31.6% as capex and working capital diluted a 6.8% NPAT lift

Free cash flow fell to $296.0m from $433.0m, a 31.6% drop, despite operating cash flow only easing 2.0% to $841.0m. The gap reflects capex up 15.8% to $410.0m (11.0% of revenue versus 9.9%) and an operating working capital build of $97.0m, with trade debtors up 18.2% and inventories up 67.2%.

Reported earnings were modestly higher: revenue +3.5% to $3.7b, EBITDAI +2.3% to $1.2b, PBT +5.1% to $581.0m and NPAT +6.8% to $410.0m. NPAT growth was lifted slightly by a lower effective tax rate (29.4% versus 30.6%).

Leverage drifted up. Gross borrowings rose 8.8% to $1.5b, net debt to roughly $1.5b, and net debt/EBITDAI to 1.27x from 1.18x. The full-year dividend was 25.0 cps, the same headline rate as FY21.

OCF/EBITDAI dropped to 73.1% from 76.3%, and FCF/NPAT collapsed to 72.2% from 112.8%. This matters because the same dividend rate that was comfortably covered by cash last year is no longer covered: declared dividends ran at 114.2% of NPAT in FY22 versus 60.4% in the prior comparable, on the canonical basis supplied.

Working capital absorbed real cash and the build is concentrated in inventory. Receivable days lengthened to 36.4 from 31.9, and inventory days rose to 10.5 from 6.5 as inventories jumped to $107.0m from $64.0m. The implication is that part of the reported margin and revenue growth is sitting on the balance sheet rather than flowing through to FCF, and unwinding it depends on device demand and procurement timing rather than further operating gains.

Segment mix is doing more work than headline margin suggests. Mobile delivered the lift, with revenue of $1.4b from $1.3b and segment margin expanding to 66.9% from 63.8%. That was partially offset by lower-margin Procurement and partners revenue growing 30.0% to $538.0m at a 9.9% segment margin, and by Cloud, security and service management margin slipping to 76.9% from 80.8%. The mix shift toward thinner-margin reseller-style revenue dilutes group operating leverage even when reported revenue grows.

Reaching the lower end of FCF guidance requires roughly 55% growth from the $296.0m FY22 base, which assumes the working-capital drag reverses and that capex intensity does not climb further from 11.0% of revenue.

The shape of FY22 offers limited reassurance: HY22 contributed 50.8% of revenue, 46.8% of EBITDAI and 43.7% of NPAT, so the second half carried earnings and margin but did not arrest the FCF deterioration that is visible in the full-year cash statement.

PBT growth of 5.1% is the better read on operating performance than 6.8% NPAT growth, because the effective tax rate fell roughly 120 bps to 29.4%. EBITDAI growth of 2.3% on revenue growth of 3.5% indicates negative operating leverage at the group level, consistent with the segment mix moving toward Procurement and partners.

The cash result is the weakest part of the print. FCF fell despite OCF holding broadly steady, so the deterioration is being driven by reinvestment intensity and working-capital absorption rather than by trading. Inventory has nearly doubled in absolute terms, debtor days have stretched by 4.5 days, and net debt/EBITDAI is rising. ROE of 27.8% versus 25.5% looks stronger but is partly a function of the small reduction in equity to $1.5b as borrowings funded a higher capex base. The durable elements are mobile margin expansion and Cloud revenue stability; the timing-sensitive elements are working capital, capex phasing and TowerCo monetisation.

This briefing cannot assess segment-level EBITDAI contributions, the split of the working-capital build between devices and other inventory, or how TowerCo proceeds will be allocated between debt reduction and shareholder returns.