EGL reports flat $112M revenue, underlying EBITDA falls 22%, net loss $6.06M including impairment

Financial Results and Profitability Challenges

The Environmental Group Limited (ASX:EGL) delivered a flat revenue performance in FY26, generating approximately $112 million, essentially unchanged from the prior year. However, the headline numbers mask a challenging year marked by a 44.7% decline in underlying EBITDA to $8.7 million before significant items, and a statutory net loss after tax of $6.06 million. This compares to a $4.7 million profit in FY25 and reflects a combination of internal and external headwinds.

A significant drag was a $3 million non-cash goodwill impairment related to the Airtight Solutions cash-generating unit, triggered by weaker market conditions in the joinery sector and subdued post-Covid trading. Additionally, the group incurred $2.4 million in ERP remediation costs and other one-off charges including relocation and restructuring expenses. These factors combined to push statutory EBIT into a $6.4 million loss.

ERP Implementation Disruption and Operational Pressures

The rollout of a new Group-wide Enterprise Resource Planning (ERP) system emerged as a key operational challenge. Despite extensive planning, the transition disrupted invoicing, job cost allocation, and project delivery, particularly impacting EGL Energy, the Group's largest division. The ERP issues, coupled with increased fuel costs driven by the Strait of Hormuz closure and global energy market volatility, squeezed margins and delayed recovery.

Management acknowledged that the scale of change and user complexity were underestimated, leading to additional costs and operational inefficiencies. By year-end, most ERP issues had been resolved, and the system is now embedded, providing improved visibility and control. The Group has strengthened its finance leadership with the appointment of CFO Gareth Nicholls and bolstered operational management across divisions to improve execution and accountability.

Recurring Revenue Growth and Strategic Acquisitions

One bright spot was the growth in recurring revenue, which rose to 55.3% of total revenue, up from 52.8% the prior year. This base, comprising maintenance contracts, service work, repairs, spare parts, and water processing service charges, provides a more stable earnings platform amid project timing uncertainties.

The acquisition and integration of Advanced Boilers & Combustion Pty Ltd, completed in April 2025, expanded EGL’s industrial boiler capabilities and contributed $16 million in revenue and $2.8 million EBITDA in FY26. Advanced’s manufacturing and engineering expertise also supported the fabrication and deployment of PFAS treatment plants, enhancing the Group’s environmental solutions portfolio.

PFAS Treatment Technology and Market Expansion

EGL Waste Services advanced its patented PFAS extraction technology, achieving removal rates up to 99% across water, soils, and biosolids. The technology’s versatility has attracted domestic and international interest, including initial steps into the US market, one of the largest potential arenas for PFAS remediation. The Group is developing mobile treatment plants to enable rapid deployment for emergency response projects, aiming to transform PFAS-contaminated waste liabilities into reusable resources.

Segment Performance and Market Conditions

EGL Energy saw revenue rise 20.2% to $64.5 million, driven by strong service revenue growth and new boiler sales, despite EBITDA falling 7.7% due to ERP and fuel cost impacts. The segment now generates approximately 73% of revenue from recurring sources, underpinning future earnings resilience.

EGL Baltec’s revenue declined 25.5% to $26.6 million, reflecting delayed project deliveries and logistical challenges linked to geopolitical instability in the Middle East, including the Strait of Hormuz closure. However, EBITDA margin held steady at 10.7%, and the division is expanding its US presence to capture demand driven by data centre power needs and renewable energy integration.

EGL Clean Air’s revenue was slightly down 3.9% at $18.9 million, with EBITDA down 35.5%, affected by an impairment charge related to Airtight and subdued market conditions in sectors like lithium. The division secured a significant $9 million contract for emissions control at the Longonjo Rare Earth Refinery Project in Angola, marking a strategic entry into the critical minerals sector.

Balance Sheet, Cash Flow and Covenant Breach

The Group ended FY26 with net assets of $39.7 million, down from $45.8 million, reflecting the net loss and impairment charges. Cash and cash equivalents stood at $2.5 million, with a $0.8 million bank overdraft and a $4.75 million bank bill loan classified as current liabilities due to covenant breaches.

During the year, EGL failed to comply with financial covenants on its Westpac banking facility, triggering the lender’s contractual right to demand immediate repayment. However, the lender has not exercised this right and confirmed ongoing support. The Group is focused on improving operating cash flows, working capital management, and reducing debt levels.

Governance, Management Strengthening and Outlook

The Board and management have responded to FY26 challenges by expanding leadership capability, including new appointments in finance and operations, and consolidating facilities to enhance integration. The ERP system is stabilising, and the Group is prioritising execution improvement, cash conversion, and growth in high-margin recurring revenues.

Looking ahead, EGL anticipates EBITDA growth in FY27 supported by strong early boiler sales, PFAS plant deployments, and the major rare earths contract. Geopolitical uncertainties and market timing remain risks, particularly for EGL Baltec. The Group’s diversified technology portfolio and increasing recurring revenue base provide a foundation for more resilient and sustainable earnings.

Investors should watch for quarterly updates on ERP system performance, cash flow improvements, PFAS commercialisation progress, and legal developments related to the Airtight acquisition.