Vector adjusted EBITDA +4.8%; NPAT doubling flattered by prior impairment

The divergence is driven by (a) the FY20 base carrying a disclosed $32.0m non-cash impairment that has not repeated, and (b) the effective tax rate normalising to 23.9% from 36.2%. The cleaner read on underlying operating progress is the adjusted EBITDA outcome, not the doubled NPAT line.

Operating cash flow lifted to $499.1m (FY20: $397.3m) and OCF/EBITDA strengthened to 97.2% from 81.1%. Capex stepped up to $529.5m (41.4% of revenue), so FCF pre-lease was -$30.4m versus -$91.4m. Net debt eased to $3.1b and net debt/EBITDA to 5.95x from 6.34x. The final dividend was set at 8.5cps, taking the declared full-year payout to 16.75cps from 16.5cps.

Reported NPAT growth materially overstates operating progress. Adjusted EBITDA growth of 4.8% is the more durable read; the +67.6% PBT figure is partly clean of the impairment base, and the +98.6% NPAT figure carries both the impairment non-repeat and a 12.3pp lower effective tax rate. Anchor underlying earnings momentum to EBITDA, not NPAT.

2. Cash conversion improved sharply at the OCF line, but the business remains free-cash negative. Capex at 41.4% of revenue exceeds OCF, FCF pre-lease is -$30.4m, and the 16.75cps dividend (an 86.8% NPAT payout) continues to be funded by debt and balance-sheet capacity rather than by free cash from operations.

3. Leverage stepped down to 5.95x net debt/EBITDA from 6.34x, but most of the reduction reflects EBITDA growth rather than debt paydown — gross borrowings remain near $3.07bn. Headroom to absorb a higher capex envelope or an adverse regulated revenue reset is limited at this leverage level.

H1 carried 50.6% of full-year revenue but 53.3% of full-year EBITDA, so the implied H2 EBITDA of $239.7m was softer than H1 — consistent with the winter-loaded seasonality of an electricity distribution business but worth noting against the headline 4.8% full-year lift.

Annualising the H1 EBITDA run rate would have implied a stronger full-year EBITDA than the $513.5m delivered. Without FY22 guidance, the question of whether the 4.8% adjusted EBITDA growth is a base rate or an H1-flattered outcome is not resolved by this release.

Headline NPAT is flattered by two non-operating effects: the prior-year $32.0m impairment non-repeat and the drop in effective tax rate to 23.9% from 36.2%. EBITDA growth of 4.8% is the more durable measure of operating momentum and is in line with what a mature regulated networks business should produce.

Cash quality at the OCF line genuinely improved (97.2% conversion against adjusted EBITDA), but capex at $529.5m absorbs more than 100% of operating cash flow, leaving FCF pre-lease at -$30.4m. The 16.75cps full-year dividend therefore continues to be funded from debt and asset-base growth rather than from cash earnings. The leverage step-down from 6.34x to 5.95x is essentially a denominator effect from EBITDA growth, because gross borrowings barely moved. The strong segment-result lift in Regulated Networks and Metering is consistent with the impairment non-repeat at segment level rather than a step-change in operating margin, and the supplied segment-result figures are on a derived margin basis.

This briefing cannot assess management's FY22 outlook because no forward guidance, stated targets, or regulatory reset assumptions were supplied with the release.