Distribution profit fell 70% as inventory drawdown cleared all bank debt

Revenue fell 17.0% to $261.8m, EBITDA dropped 30.6% to $21.2m, PBT fell 54.5% to $7.5m and NPAT fell 55.1% to $5.3m. The effective tax rate barely moved (28.6% versus 28.2%), so the operating read tracks the PBT decline rather than tax noise.

The earnings collapse is concentrated in Distribution, where segment result fell from $16.1m to $4.8m on revenue down to $153.1m from $191.6m. Infrastructure went the other way: revenue fell to $108.6m from $123.7m, but segment result rose to $5.4m from $4.2m, lifting Infrastructure's share of mix to 41.5% from 39.2%.

The balance sheet was transformed in parallel. Inventory was cut by $46.4m, gross borrowings of $40.0m were repaid in full, and cash rose to $26.3m from $7.5m. The interim dividend was held flat at 4.0 cps.

Distribution revenue fell roughly 20% but its segment result fell about 70%, signalling material operating deleverage in the larger business. Infrastructure produced a higher segment result on lower revenue, which means the group earnings story is a Distribution problem rather than a broad-based slowdown, and the read on the half depends heavily on whether Distribution margins are cyclical or structural.

Operating cash flow held up only because working capital was released. OCF was $38.7m versus $41.1m, so OCF-to-EBITDA rose to 182.9% from 134.9% — but operating working capital fell $55.7m, with inventory days down to 89.5 from 101.0. This matters because the cash story is balance-sheet-assisted: stripping the inventory drawdown, underlying cash generation looks much closer to the EBITDA decline.

The 4.0 cps interim dividend is uncovered by NPAT. Payout against NPAT is 125.0% versus 56.3% a year ago, although it remains covered by pre-lease FCF at a 19.5% payout. If the working capital tailwind reverses, dividend cover narrows quickly.

Management notes the result was above December 2023 guidance on normalised EBIT, and the release describes performance above 2H23 (revenue $273.8m, EBITDA $21.4m), which is the more relevant sequential anchor than HY23.

Annualising the current half implies roughly $523.5m of revenue, against FY23 of $589.1m. HY23 represented 53.5% of FY23 revenue and 58.8% of FY23 EBITDA, so the prior-year shape was first-half weighted; a flat second half on current run-rate would still leave FY24 well below FY23. The release does not provide a full-year revenue or earnings target, so the second-half trajectory and Distribution margin recovery remain the key open variables.

Pre-lease FCF was $34.3m, equivalent to 640.4% of NPAT, but most of that conversion comes from a $55.7m operating working capital release rather than recurring cash earnings. Capex was light at 1.7% of revenue, which protects near-term FCF but is also a lever that cannot be pulled twice.

The earnings side looks lower quality than headline cash suggests. Operating profit halved, ROE fell to 2.6% from 5.7%, and the Distribution segment result was the dominant driver. Because the cash protection came from inventory being run down to 89.5 days from 101.0, the same engine cannot continue to fund debt reduction or dividends at this rate. Net debt swung from $32.5m to a $26.3m net cash position — genuinely useful financial flexibility — but its origin is a one-time working-capital reset, not a step-up in underlying earnings.

This briefing cannot assess the durability of Distribution segment margins or the path of New Zealand construction and industrial steel demand into the second half.