EBITDAI up 6.9% but revenue fell 2.4% as cost-out masks top-line pressure

What changed

Revenue fell 2.4% to $1,893m in HY26, a modest acceleration of the decline trend from HY25 ($1,939m, -1.9%). Despite this, EBITDAI expanded 6.9% to $448m, reflecting cost-out actions and mobile momentum rather than any top-line recovery. EBITDAI margin widened by approximately 206 basis points, which is the central story of the half.

PBT rose 49.2% to $88m from $59m—the cleaner operating read, as the tax line remains elevated. NPAT of $64m (+82.9% to $35m) includes a $10m after-tax profit from a discontinued operation; continuing operations NPAT was $54m (+74.2%), so the headline NPAT growth overstates the underlying improvement by approximately $10m.

Operating cash flow more than doubled to $603m from $275m. This jump is large enough to warrant scrutiny: OCF-to-EBITDAI ran at 134.6% versus 65.6% in the prior half, suggesting significant working capital release or timing items. Reported free cash flow reached $107m; pre-lease free cash flow was approximately $332m, implying around $225m of lease and spectrum outflows. Gross borrowings fell sharply from $1,860m to $1,481m, taking estimated net debt to approximately $1,396m, and leverage to roughly 3.1x EBITDAI from 4.2x.

The interim dividend was cut to 8 cents per share from 12.5 cents (-36%), bringing it into alignment with free cash flow capacity rather than the historical practice of distributing well above post-lease FCF.

What matters

• Cost-out is doing the real work. Mobile service revenue grew 1.6% and mobile is the dominant segment at 39.8% of revenue with an implied segment margin around 65.8%. But this cannot offset declines elsewhere. The EBITDAI growth is being driven primarily by the SPK-30 cost reduction programme rather than by volume or pricing gains. The durability of this margin expansion depends on whether cost savings are structural or whether they reflect deferred spend.

• The OCF surge requires explanation. A doubling of operating cash flow against only 6.9% EBITDAI growth implies a large working capital release or phasing benefit. Full-year FY25 operating cash flow was $680m; HY26 alone delivered $603m, which is 88.7% of that full-year figure in a single half. The prior-year shape shows the first half typically contributes only around 40% of full-year OCF. This anomaly will likely partially reverse in H2 FY26 and should not be extrapolated.

• Dividend reset signals a lower structural payout. The 36% cut in the interim dividend is a meaningful capital allocation signal. At 8 cents per share, the dividend remains uncovered by post-lease FCF ($107m reported FCF versus an implied total dividend cost that would need to be assessed against share count), though it is comfortably covered on a pre-lease basis at a ~45% payout ratio. Whether the full-year dividend converges to 16 cents or whether the final is rebased further is unresolved.

Expectations

No explicit FY26 financial guidance was provided in the release materials. The SPK-30 strategy execution and references to mobile momentum and cost-out are the only forward signals offered.

Using the FY25 seasonal shape as context, the first half typically contributed approximately 40% of full-year EBITDAI and only 13.5% of full-year NPAT—the business is strongly second-half weighted at the NPAT level. HY26 EBITDAI of $448m annualises to approximately $896m, which would be a material step-down from FY25's $1,053m; however, the FY25 second half benefited from approximately $85m in cost savings versus the prior second half, which means the H2 FY26 comparison base is already elevated. Revenue annualised at $3,786m sits modestly above FY25's $3,725m, but the trajectory within the half matters more than the level.

The Connexa tower sale proceeds (~$310m flagged in HY25) appear to explain the gross borrowings reduction and part of the OCF jump; if those proceeds flowed through in the current half, they are non-recurring and inflate both the balance sheet improvement and cash metrics.

Quality of result

The EBITDAI improvement is partially durable: mobile service revenue growth and structural cost reductions under SPK-30 are real, and the reduction in BAU capex (-9%) as the 5G rollout matures is a genuine cash flow tailwind. These elements support a modest, sustained improvement in underlying profitability.

However, three factors reduce the quality score for this half:

• The OCF surge of $603m versus $275m is almost certainly timing-assisted, likely including asset disposal proceeds and working capital phasing. An OCF-to-EBITDAI ratio of 134.6% is not repeatable.
• NPAT of $64m includes a $10m discontinued-operation contribution that will not recur.
• The revenue base continues to shrink, with the top-line declining in every comparable period presented. Cost-out programmes have a finite run; without revenue stabilisation, EBITDAI margin expansion has structural limits.

The balance sheet improvement (leverage from 4.2x to 3.1x) is genuine and credit-positive, but it has been funded partly by asset sales rather than organic cash generation.

Unresolved

• What specifically drove the $328m increase in operating cash flow—how much reflects the Connexa sale proceeds flowing through versus genuine working-capital improvement, and how much will reverse in H2 FY26?
• Is the full-year FY26 dividend being rebased to 16 cents (8 cents × 2), or is the final dividend likely to be set independently at a different level?
• When does revenue decline bottom out? Mobile growth at 1.6% is encouraging, but the procurement and partners segment (18.2% of revenue) and the continuing erosion in voice and legacy connectivity represent persistent headwinds with no disclosed stabilisation timeline.
• What is the data centre capital partner process delivering, and what dilution or structure is being contemplated for the strategic capex commitment ($54m in the half)?

This briefing cannot assess the precise quantum of non-recurring items embedded in operating cash flow without a full reconciliation of the Connexa proceeds and working capital movements from the statutory cash flow statement.

Key metrics

Segment breakdown

Analytical metrics

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This analysis was generated using Annolyse, an AI-powered tool that extracts and analyses NZX/ASX company announcements. The underlying data is extracted from official company filings and verified against source documents. This is general information only and does not constitute financial advice. The analysis may contain errors. Always read the original company filings and consult a licensed financial adviser before making investment decisions.