Good morning, ladies and gentlemen. Simon Henry, CEO and founder of DGL, here to present our FY twenty-four financial results. Joining me on this call today is Frank Ierace, our CFO, and Alec Wing, our COO. And now we'll page turn through the pack.
Let's start on page, sorry, on slide three. DGL is a leading provider of chemicals and materials and services to essential industries throughout Australia and New Zealand. Turning to slide six. High-level financial numbers. Revenue is broadly in line with expectations. EBITDA, once again, broadly in line with expectations. Net profit after tax is down, primarily as a result of increased finance charges, depreciation, and our reinvestment into developing out our shared services across the group.
Once again, our cash flows from operations is down, primarily as a result of higher interest rates. Turning to slide seven, key drivers throughout FY twenty-four. We had meaningful volume growth of production and logistics through our various operations. We managed to expand our capacity, both with storing and manufacturing chemicals and transporting chemicals.
We had a meaningful contribution from the acquisitions that we had made throughout FY twenty-three and into FY twenty-four. We also managed to expand our margin through better economies of scale across the group. On the downside, still, we've got volatility in commodity prices. We've got cost inflation coming through in wages and insurance and other key input costs.
You've got New Zealand and Australia, New Zealand in recession, and Australia with very subdued growth, which does have an effect on our business. In some of our industries, we've seen significant increases in domestic competition. Turning to slide 8. DGL is a chemical company, 900-odd staff. Obviously keeping our staff and our community safe is paramount to our operations, and I'm pleased to say that our injuries in FY 2024 are significantly down on FY 2023.
Turning to slide 9. DGL is made up of three main segments. The first one being manufacturing, which is the manufacturing and formulation of chemicals, primarily for crop protection, mining, automotive, water treatment, and construction and infrastructure.
The next segment there is warehousing and logistics, which is the storage, the freight forwarding, the shipping, and the transportation of chemicals. And finally, our environmental services segment treats chemicals at the end of life and other industrial waste streams, along with recycling 40,000-odd tons of lead-acid batteries in two plants in Australia.
Turning to Slide 10. From their humble beginnings in Wellington in 1999, we now operate from around 90 sites, stretching from Christchurch to Darwin. This slide shows the scale of our operations and the diversity of the services that we're able to provide in the key metropolitan regions across Australia and New Zealand. This network will increase significantly over the coming years.
I'll now hand the financial results over to CFO , Frank . Frank will start on slide 12.
Thanks, Simon, and good morning to everyone. I'll commence on slide 12 of the presentation, which shows DGL's trend financial performance from FY 2021 to FY 2024. Over this period, revenue has increased from AUD 155 million in FY 2021 to AUD 465 million in FY 2024, representing a compound annual growth rate of 32%.
The volume growth achieved across our divisions was offset by a general reduction in commodity prices, resulting in flat revenue year on year. Gross margin increasing from AUD 60.7 million in FY 2021 to AUD 200.4 million in FY 2024 was a highlight, demonstrating economies of scale on a resilient earnings base, also assisted by a reduction in raw material input costs.
Our underlying EBITDA has grown from AUD 24.2 million in FY 2021 to AUD 63.7 million in FY 2024, and was broadly flat year on year. FY 2024 underlying EBITDA was constrained by the costs recognized during the year for significant investments in organic growth projects, internal system enhancements, and implementing a shared services platform during the year. Without the cost of these investments, earnings would have been much higher.
We expect to benefit from the contribution to earnings from these investments going forward. Alec and Simon will touch on these later. Operating expenses rose during FY 2024, following an increase in our headcount, as well as inflationary pressures, which are reflected in our FY 2024 EBITDA. I'll touch on the cost drivers in more detail in the following slides.
Net profit after tax has increased from AUD 11.3 million in FY 2021 to AUD 14.1 million in FY 2024. Our NPAT has normalized since FY 2022, which was a year we experienced outsized returns driven by supply imbalances, as discussed in past presentations. FY 2024 NPAT was reduced by higher depreciation and interest costs. Turning to Slide 13, which is DGL's financial overview for FY 2024, compared to the prior corresponding period.
As Simon noted, during FY 2024, DGL demonstrated resilience in challenging and volatile business conditions. In FY 2024, the business delivered revenue of AUD 465 million, which was broadly in line with prior year, despite downward trending commodity prices and supply chain challenges. Recent acquisitions provided a revenue uplift of AUD 43 million year-on-year.
Our gross margin of AUD 200.4 million was up 16% on the prior year, with gross margin percentage of 43%, which is up six percentage points year-on-year. This was driven by raw material procurement benefits and improved product mix. As expected, our expenses increased 26% to AUD 140 million compared to FY 2023, which was driven by higher headcount and inflationary pressures.
Our employee costs were 26.7 higher year-on-year, which reflects our investment in the shared services rollout in the Parramatta head office, as well as the impact of acquired headcount. Inflationary pressures were also a contributing factor to higher costs, increasing our people costs as well as our property outgoings. Underlying EBITDA of AUD 63.7 million and underlying EBITDA margin percentage of 13.7% were in line with last year.
Depreciation of AUD 30.3 million was up AUD 7.9 million, mainly as a result of our fleet expansion and additional right-of-use assets, which has been driven by our footprint expansion. This increase in depreciation year-on-year resulted in our underlying EBIT, AUD 33.5 million, being down AUD 8.2 million compared to last year. Underlying net profit after tax for the year was AUD 15.5 million, which was down AUD 5.2 million year-on-year.
It should be noted that our underlying NPAT excludes non-recurring items during the year, including M&A costs, site remediation, provision releases, and ERP implementation costs. It should also be noted that income tax expense for the prior corresponding period has been restated. This restatement was required to more accurately reflect last year's tax expense after finalizing the tax fixed asset registers relating to prior year acquisitions.
Finally, coming to our statutory NPAT of AUD 14.1 million, which was AUD 3.3 million down year-on-year, reflecting higher interest expense. Over to Slide 14, which shows our revenue growth by division over time. As mentioned earlier, growth in DGL's revenue has been strong over the period spanning FY 2021 to FY 2024. As you can see from the manufacturing revenue chart, there has been an easing of revenues in the FY 2024 year, and this is largely attributable to a reduction in commodity prices for agricultural chemicals as well as technical grade urea.
These two commodities impact our cropping and AdBlue products. Looking at the logistics revenue chart, you will note that logistics revenue have increased in FY 2024, even when excluding recent M&A. This is predominantly due to our investment in fleet expansion, which increased our capacity.
Finally, moving to the environmental revenues chart. Revenues in FY twenty-four for this division have eased year-on-year, primarily due to supply constraints in the used lead-acid battery market. This reduced volumes available for processing. Turning to Slide 15, which shows the bridge between our year-on-year underlying NPAT performance, as well as our gross margin performance by division. In FY twenty-four, our manufacturing division saw strong gross margin growth increasing AUD 11.9 million year-on-year, despite the revenue headwinds noted earlier.
This strong growth can be attributed to raw material procurement benefits, as well as improved customer mix. This also benefited from the full year impact of FY twenty-three acquisitions, and also the part year benefit from FY twenty-four acquisitions. As discussed on the previous slide, our environmental division experienced challenging market conditions for used lead-acid batteries, which restricted supply and also saw increasing pricing as a result.
These factors reduced utilization in our recycling facilities in the year, leading to a AUD 0.7 million gross margin reduction year-on-year. There was a pleasing result in the logistics division, with gross margins AUD 18.8 million higher than last year, which is reflective of our investment in specialized fleet assets. The full year benefit of FY23 acquisitions, and also the part year benefit from FY24 acquisitions, also contributed to the result.
As expected, our expenses for the year were AUD 37.3 million higher than last year, which includes depreciation. More on this on the next slide. Turning to slide 16. Here, we show the year-on-year impact of our expenses by key expense category.
During FY24, we saw an expected increase in costs from AUD 110.8 million in FY23 to AUD 140.2 million in FY24. This was broadly driven by increased headcount, as well as inflationary pressures, which increased both people costs and our property outgoings. Our people costs increased AUD 26.7 million year-on-year, which was attributable to the full year impact of our people costs relating to FY23 acquisitions,
the part year impact of our people costs relating to FY24 acquisitions, and also the increased headcount associated with the shared services rollout in the Parramatta head office. Our property costs increased AUD 4.5 million year-on-year, mainly due to the expansion of our physical footprint, as well as inflationary pressures on property outgoings across all of our sites.
Now turning to slide 17, our balance sheet. On this slide, you'll note our balance sheet strength with significant tangible assets of AUD 340 million that provide a solid platform for future growth. The AUD 17 million decrease in cash during the period largely reflects investment in M&A activity and CapEx, which was offset by strong operating cash flow generation. Our net working capital balance increased year-on-year, which was largely driven by FY 2024 acquisitions and seasonality.
I'll touch on this further in the next slide. The AUD 14 million increase in property, plant, and equipment relates to our acquisitions of two strategic properties, as well as fleet expansion. Our intangibles have remained steady year-on-year, reflecting our slowing rate of M&A during FY 2024, and our net debt at 30 June 2024 was AUD 114 million, which represents 1.78 times our underlying EBITDA.
This brings us to a net asset position of AUD 342 million at 30 June 2024, which is AUD 13 million higher than last year. Turning to Slide 18, we provide further insight into our operational capital allocation and efficiency. Looking at our net working capital, you can see there was an increase from AUD 56 million to AUD 62 million year-on-year at balance date.
Apart from the additional businesses that we acquired during the year, a key driver was the late breaking cropping season that pushed out the phasing profile of our debtors and inventory. Our net operating assets at balance date have also increased year-on-year from AUD 442 million to AUD 478 million.
It's important to note that AUD 149 million of this balance relates to DGL's strategic land and building holdings, which have hard-to-acquire licenses, which provides us with high barriers to entry. Turning to Slide 19. Finally, I'd like to talk to our cash flow. In FY twenty-four, our operating cash flows were AUD 37.3 million, which is down from AUD 59.3 million in FY twenty-three.
Although down on last year, we believe this is a strong result in the context of the headwinds we've encountered during the year, which I've touched on in the previous slides. Our cash flow conversion remained broadly steady at 86%. Our investing cash outflows for the year were AUD 42 million, which includes CapEx of AUD 30 million and business acquisitions of AUD 13 million.
Notable CapEx items for the year were our two site acquisitions at Narangba and Maddington, as well as our increased specialized fleet assets. The acquisition cash outflows of AUD 13 million relates to the five businesses we acquired during the year, which were QBL, Kinnear Transport, Bonex, Container Logistics, and Flexitank. No dividends have been declared for the FY 2024 year, as DGL continues to focus on reinvesting its cash to support growth.
Finally, to summarize, FY 2024 was a strong year given the challenging market environment and economic uncertainties. Despite these headwinds, we were still able to invest for the long term, with the cost of this investment inevitably impacting our short-term profits. With that, I'll hand back over to Simon.
... Thanks, Frank. Turning to slide 21, we look at DGL's business strategy. Over the past 25 years, we have accumulated an extensive customer base of over 5,000 regular customers across Australia and New Zealand and further afield... We see them more as partners than as customers. We work closely with them to find them solutions for chemical, logistics, and formulation.
We work in a highly regulated industry, and our customers are increasingly focused on vendors who hold all of the required accreditations and capabilities to provide them with the services that they are looking for in a safe manner. We look at the organic growth opportunities that are coming through to us with our extensive network of assets. We see these growth opportunities almost coming to us on a daily basis now.
In future years, our focus will be more on organic growth than growth through buying companies. We've agglomerated an extensive, integrated, chain of assets stretching across Australia and New Zealand. Over 90 plants, over 400 trucks. We are learning how to use these assets better and having them work together more efficiently, and gaining better utilization and return out of them. Since listing in FY 2021, we've acquired some 30 businesses,
and we are flat out on ensuring that all these businesses are completely integrated into the group. As a result, we're achieving significant efficiencies and cost savings. These will come through, particularly in FY 2025 and in future periods after that. We will continue to buy businesses, but we'll be buying fewer businesses.
We'll ensure that these businesses bring extensive value and networks to the DGL group. Turning to slide 22. I'll hand this over to our COO, Alec Wing.
Thanks, Simon, and good morning, all. So yeah, moving to slide 22 of the presentation. This covers DGL's FY 2024 investments. So throughout FY 2024, we've invested in three key areas: plants and equipment, people and systems, and our site capacity. The major plant investment is in our liquid waste treatment plant at Unanderra in New South Wales. This has been a multi-year project with several delays, given the challenges in meeting all the regulatory and licensing requirements.
We are confident it will be a major contributor to increased earnings when it comes online this year. We are also investing in two new extrusion plants for crop protection products to meet demand in Victoria and WA, which will also enter production later this year. Along with these, we have ongoing investments to upgrade and improve efficiency in our plants and transport fleets.
In the last year, we've made a major investment in new group-wide systems and centralized shared services. These include a new ERP system, warehouse management, and payroll systems, as well as centralized finance, HR, and legal support. The upfront cost hits profits in FY24, but will benefit efficiency, productivity, and earnings going forward.
We continue to expand our sites and capabilities, as previously mentioned, and we've invested to expand our warehouse capacity by 20% to 205,000 sq m in the last year. This has a short-term cost impact, but will benefit profits as we move to fully utilize the space. Turning to slide 23. Slide 23 shows our HSEQ group framework and the FY25 safety objectives. The group continues to maintain and improve our health and safety framework as we mature as an organization.
The framework centers on continuous improvement to keep our people, customers, and communities safe. We have broadened our ISO certifications, and these are embedded, these embed our commitment to develop the group alignment with globally recognized best practices. We are investing in new online training platforms, to support continuous training of our staff, and the implementation of this has begun. We're investing in continuous development to foster a culture of excellence, improve overall performance, and align our workforce with the DGL Group strategic objectives.
This training platform will be utilized by all staff across the group to assist them in excelling in their roles. Turning to slide twenty-four. Slide twenty-four is an overview of our corporate responsibility. At DGL, we're proud of the accreditations and licenses we maintain, that guide us in how we operate our business.
Many external audits and reviews are conducted yearly to evaluate and maintain these accreditations, so we can continue to offer our quality services to our customers. These ensure we remain focused on our people, the community, and the environment, investing in efficient processes to reduce our environmental impact for both the group's impact and our customers. DGL places great importance on strong corporate governance, with the aim of maximizing our capabilities and conducting our business in a sustainable, enduring, and ethical manner. I'll now hand back to our CEO, Simon, for the outlook.
Thank you very much, Alec. Turning to slide 26. Our trading update and outlook. We're experiencing strong demand across all of our various divisions and services, notwithstanding the softness we are seeing in our environmental division, as talked about by Frank.
You've still got challenges out there and shortage of drivers, and also, you've still got these international shipping issues that are affecting the timely delivery of materials into Australia. We've increased our capacity, we've increased our warehousing, and we plan to extract full value out of this expansion throughout FY 2025 and beyond. When we look the outlook for FY 2025, the labor market in New Zealand is softening, but still remains tight in Australia.
We expect the companies that we've bought over the past 12 months to make a significant contribution to profitability in FY25. We are well focused on developing and investing in our shared services hub in Parramatta, which will carry out all centralized payroll and finance functions for the group. Alec, and I, and
Frank have a intense focus on making sure that our costs are under control, and watch every cent of expenditure. Alec is spending a good part of his day developing up our commercial sales team, so that we can get in front of the customers and explain our capabilities better than we have in the past. And to close out here on slide 27, just some investment highlights.
DGL is now a significant, vertically integrated chemical management company operating throughout Australia and New Zealand. We operate in a highly regulated market, and these regulations are increasing, and their enforcement is intensifying. We are able to provide our customers with multiple services relating to the management of chemicals on one platform. We're the only company in ANZ that can do this.
We're well diversified across a number of key industries in Australia and New Zealand. As I've mentioned, there is almost an endless pipeline of organic growth opportunities opening up to us that we plan to take advantage of. We are, as I mentioned on the previous slide, well focused on the integration of the companies that we have bought.
We have an extremely experienced management team now, and senior managers, and staff across the group, and an experienced and supportive board. That closes out the pack. I'll now open up the floor to questions, which will be managed by Andrew Draffin, our company secretary. Thank you.
Thank you, Simon. We've got quite a few questions rolling in, so apologies if you don't hear your question verbatim. I will be condensing a few of them, 'cause they do cover similar topics. But I guess I'll lead off with the first one, this will be directed to you, Frank. There's been an AUD 30 million increase in employee costs versus FY 2023. How much of that relates to the head office relocation versus within the actual operating business?
Yeah, thanks for that question. Look, we're still working through a lot of the quantum of those moving parts. Still very new in terms of the shared services platform here in Parramatta. What I can say is just the overall headcount increase through shared services and the acquired businesses is the big predominant chunk of those costs, and that's, you know, and not forgetting the fact that we have had significant wage inflationary pressures as well.
Excellent. One for you, Alec. In which areas are you facing increased competition?
Yeah. Thanks, Andrew. Predominantly in our environmental services industries, so mostly in the ULAB space. We've got the increased competition, particularly in the domestic market for the procuring of the batteries themselves. That would be really the highlight for me, yeah, across the board, so it's definitely the impact is there in our environmental team.
Okay, and a follow-up to that one, Alec, is: When do you expect the new wastewater treatment facility to come online?
We're expecting that in the second half of FY25.
One for you, Simon. Just a question around board independence. Are there any intentions to appoint additional independent directors?
Yes. We are on the hunt for an independent director, preferably with a finance background. We have an independent director in mind, and we're just working through some scheduling challenges, but I would expect the appointment to be made within the coming weeks, if not months.
Thank you. Back to you, Frank. Why was revenue flat after so many acquisitions?
Thanks, Andrew. So we did achieve some volume growth during the year, and that's mainly due to expanding our customer base. But as you know, we're a business that is exposed to commodity price fluctuations, in particular, cropping chemicals, which impacts our crop protection products, and also technical-grade urea, which is a key input into agricultural products. So these issues have impacted us, but as a result of these factors, revenue in dollar terms was flat.
Thank you. Again, for you, Frank, is the margin expectation for FY twenty-four sustainable? Sorry, expansion, it should be, in FY twenty-four-
Yep.
Is it sustainable?
Look, we believe it is. We've had some customer and product mix wins throughout the year, as we've skewed more towards the higher margin clients and products. But we believe more to the point, it's the economies of scale that we've achieved over the last few years, which are sustainable. We've also seen some benefits in raw material pricing, which might continue. But as I said, we're exposed to market movements with respect to those commodities.
Thank you. One for you, Simon. Just regarding the buyback that was undertaken during FY 2024, whether there's any intention to reactivate that going forward?
Thank you, Andrew. It is something that comes up regularly in our board meetings. I favor buying back shares at their current price. That said, we need to balance that capital expenditure with the organic growth opportunities that we see in front of us at this time.
No problem. Another one for you, Frank. Profit is down 20% after acquisitions. Does this mean organic earnings growth is negative?
Look, there's no escaping from the fact that we did see some challenges through the year. Weather forecasts that weren't entirely accurate, which tempered demand for ag protection products. We also saw the softening commodity prices, which I've touched on. We've seen, you know, limited supply of ULABs in the environmental business.
But importantly as well, FY 2024 was a year where we did make significant investment into the business, which was expensed during the year. Things like our organic growth project initiatives, integration costs, and establishing the shared services platform during the year. We believe that we're gonna see the benefits of this going forward.
No problem. And just another one for you, Frank. Why is EBITDA equal to last year, but cash flow has dropped some 37%?
Yep. So predominantly, that's we had higher financing costs this year, and plus last year, in terms of our working cap movements and other assets and liabilities and provision movements, they were more favorable last year.
Okay. It's probably one for you, Simon. With companies such as Woodside and Fortescue investing in ammonia fuels, has DGL started to look at this?
Thanks, Andrew. It's something that we watch, but as it stands today, if you're talking about diesel and moving freight, there are very few occasions anywhere in the world where long-distance heavy trucks aren't running on diesel. We're not about to become an R&D company, but we will be the first to embrace new, clean technology when it comes along and it's proven to be commercially viable.
Excellent. Back to you, Frank. Expenses are up AUD 37 million, but are up. Sorry, I just need my glasses here. But are up AUD 29.6 million on slides 13 and 16. So that was someone referring directly to the slide pack.
Yep, so that's slide fifteen, I believe it is, is inclusive of depreciation, and slides thirteen and sixteen exclude depreciation.
Okay. Another question for you, Frank: Why was there no audit opinion attached to the financial statements?
Look, we had, so we've had significant challenges throughout the year. The shared services coming over to Australia. My appointment was relatively late in the piece as well. We've had challenges getting our results out and on time, but we managed to deliver a result that we think is that we can stand by, and I think the audit opinion will come shortly.
No problem. This might be one for you, Simon. There was a lot of investment in growth, but revenue has been flat. What revenue growth is expected in FY twenty-five?
... So as the CEO and founder of DGL, I'm not big on revenue. Revenue is kind of meaningless. Net profit after tax is the real exam result of a business. We have a lot of pass-through cost from imported materials. Our focus for FY twenty-five will simply be on producing the biggest net profit after tax profit available or possible, not focused on revenue for revenue's sake.
No problem. Again, back to you, Frank. Sorry, we're leaning on you a bit. Your site cleanup provision reduced significantly. Was that a reversal or was it utilized?
No, it was a reversal of a very conservative position we had at one of our sites, and we came to a point during the year through extensive feedback from our operational guys, and Simon in particular, and environmental auditors, where we felt very comfortable with releasing that. Hence the release.
No problem. Back to you again, Simon. Is the Mount Isa plant a niche opportunity in regional areas that DGL can scale?
That's a good question, Andrew. The Mount Isa plant will be commissioned and go live in the next couple of months. We'll then be able to study the economics and see its profitability, and if it's a economic venture, then we'll look to expand them further afield. That said, there has been some developments with councils in Australia, where they've had permission from the ACCC to gang up to buy chlorine. So we are working in a challenging commercial environment now, but really it's a case of turning the plant on and running it, and understanding its true profit potential before we invest further in these plants.
No problem. Just, I think we've covered most of the questions. There is a lot of questions in there that are sort of forward-looking and that I don't think we can actually answer, you know, without full disclosure to the market itself. So I'll just summarize and make sure we haven't missed anything else. There's one question that's probably for both you and Alec, Simon: How do you plan to defend your market share and margins?
I'm gonna answer that. Being a reliable provider of services and materials to our customers, being a company that's easy to get on with, pick up the phone and get a price, and get the results you want. Making sure that we're agile and nimble and well-capitalized to stand before our customers and deliver the services and materials they require.
And a follow-up to that, I think, Simon, is: In which areas are you facing increased competition?
Oh, well, Frank's talked about the lead-acid battery operations in Australia. We've seen almost a doubling of domestic processing capacity. There are also some sophisticated, I'm gonna call them criminal organizations, exporting large quantities of scrap out of Australia now. That's actually prohibited in law. So that's had a significant effect on the profitability of our environmental division. And you are seeing sort of post-COVID normalization of all the other industries that we work in, whether that be crop protection or automotive. You are seeing that competition coming back into the market as materials free up and people can move around.
Excellent. I think that is it for the Q&A. So I can pass back to you, Simon, to, to close out.
Oh, thank you very much for that, Andrew, and thank you, Alec and Frank. If that's all from me, we'll see you again at the AGM in the coming months, and then, after Christmas for our half-year result. I thank you all for dialing in and listening to our webinar.