DGL’s FY26 Revenue Falls 4.8% as Statutory Loss Hits $40.2 Million

Expansion Costs Drive FY26 Underlying Loss

DGL Group Limited (ASX:DGL) posted an underlying loss after tax of $5.8 million for FY26, a sharp reversal from the prior year's $3.5 million profit. The company’s sales revenue declined 4.8% to $457.9 million, pressured by a volatile operating environment and significant investments in capacity expansion.

Margins came under strain from higher fuel and raw material costs, increased international shipping rates, and competitive pressure from low-cost imports of fully formulated chemical products. The closure of DGL’s Victorian lead acid battery recycling facility also weighed on Environmental Services revenue, contributing to a 44.1% jump in statutory loss after tax to $40.2 million, largely due to $34.4 million in non-cash impairments including goodwill and plant write-downs.

Strategic Capacity Investments and Operational Challenges

FY26 saw DGL undertake substantial capital expenditure, expanding manufacturing and logistics facilities across Australia and New Zealand. Notable projects included the commissioning of a new manufacturing plant at Narangba, QLD, powder repacking capabilities at Derrimut, Victoria, and upgrades to recycling equipment at Unanderra, NSW. These investments increased pallet capacity by 8.6% to 1.35 million, positioning DGL for future growth but also dragging on near-term earnings due to underutilised capacity and relocation costs.

The rollout of a new ERP system created temporary production and costing disruptions early in the year, impacting sales and margins, though these issues have since been resolved. Driver shortages increased reliance on subcontractors, further inflating operating expenses in the Logistics division. Despite these headwinds, Logistics revenue grew 7.4% to $151.8 million, supported by new facilities and technology upgrades such as RF scanning for dispatch efficiency.

Divisional Performance Reflects Mixed Trends

Manufacturing revenue increased 2.9% to $276.5 million but profitability declined due to higher overheads from facility expansion and seasonal weather effects reducing demand. Environmental Services revenue halved following the sale of the loss-making Victorian battery recycling site, though profitability improved through overhead rationalisation and operational optimisation at the NSW site. The new liquid waste treatment plant at Unanderra is nearing full operation, expected in H1 FY27, with licences sought to expand processing capabilities.

Cash Flow, Balance Sheet and Cost Controls

Operating cash flow fell to $15.8 million from $44.7 million in FY25, impacted by lower margins and a significant $11.3 million tax payment relating mostly to prior years. Despite this, operating cash conversion remained solid at 100% of underlying EBITDA. Net debt was marginally reduced to $93.9 million. The Group reduced employee numbers and overhead expenses by 7%, with further cost savings targeted in FY27.

Outlook Focused on Margin Recovery and Utilisation

Looking ahead, DGL is prioritising improved utilisation of its expanded manufacturing and warehouse footprint to drive revenue growth without significant additional capital expenditure. The company anticipates ongoing challenges from economic uncertainty, fuel price volatility, and global supply chain disruptions but remains confident in solid underlying demand for its chemical logistics services.

Management’s FY27 strategy centres on margin improvement through tighter cost control, productivity gains from completed system integrations, and leveraging its integrated service offering. Early signs of improved demand in crop protection and pest control markets, supported by favourable weather, offer some optimism for the year ahead.