FY 2026 was a tough year for DGL. We have suffered significant losses in production and profit due to the hold-ups caused by the rollout of a complex groupwide ERP system. We have also suffered significantly as a result of the conflict in the Middle East. We have also invested heavily to support future growth, which has impacted on profit. We continue to relocate to larger and more efficient chemical storage facilities. We have worked tirelessly to integrate the 30+ companies we have bought since listing to form one large industrial group. Turning to slide six. As I have stated, FY 2026 was a tough year, with management focused on building out the infrastructure necessary to support future growth and integrating the various companies we have acquired over the last four years. The good news is, most of the heavy lifting has now been done, and we are poised for growth.
Let's turn to slide seven . Health and safety. We have made great progress building the internal systems and controls necessary to ensure we operate safely and in full compliance with all the relevant legislation. Turning to slide eight . DGL is a vertically integrated chemical manufacturing and logistics group with an annual throughput of over 1 million tonnes of materials a year. The group is divided into three divisions: chemical manufacturing and formulation, warehousing and transport, and environmental services, mainly focused on the treatment of liquid industrial waste. Turning to slide nine . Since DGL was founded in Wellington, New Zealand, 25 years ago, we have built an extensive and integrated network of assets across Australia and New Zealand. We have an ongoing program to rationalize and improve the efficiency of our network. I will now hand the pack over to Gagan, our CFO.
Thank you, Simon. Next slide, please. We delivered higher revenues in manufacturing and logistics in FY 2026, despite global volatility. However, environmental services revenue was significantly lower. This was mainly due to closing our loss-making battery recycling plant in Victoria in late FY 2025. Higher input costs reduced margins, and low-cost import competition added pressure to pricing. Driver shortages led to more use of contractors, which increased costs. The higher cost and reduced availability of lead-acid batteries for recycling also impacted margins. We expanded capacity in both manufacturing and warehousing, but in the short term, that reduced margins due to underutilized capacity. The driver shortage has been largely resolved, and we are seeing better utilization of our transport fleet. We are also increasing utilization in our larger warehouses in particular. Next slide, please. Our focus on productivity reduced operating costs by AUD 11 million in FY 2026.
This included lower headcount along with other productivity gains. Most of the cost reductions occurred during the year, so we will not get the full annualized benefit until FY 2027. The large statutory loss is driven by non-cash write-downs. These include write-downs of plant and equipment in our environmental division and a write-down of goodwill in our logistics division to more conservative levels. A large part of the drop in operating cash flow is the payment of tax liabilities, which were an adjustment from prior years but paid in FY 2026. Next slide, please. Manufacturing profitability fell despite higher revenues. This was driven by higher operating costs following a significant expansion at one of our major facilities, reduced demand for crop protection products, which was weather driven, and competition from cheap imported chemical products. The ERP system implementation also impacted some production for a period, but this has been resolved.
We are positive about improving utilization and profitability in this division. Next slide, please. Logistics revenue was solid, but earnings were impacted by fuel costs and driver shortages. We pass on fuel costs where possible, but volatility makes it difficult to recover the full increase. Our driver recruitment practices have improved, along with utilization of larger warehouses. However, it was a drag on earnings last year. Next slide, please. Environmental services revenue dropped largely due to the sale of a loss-making battery recycling plant in Victoria. This improved annual profitability, and we have also reduced overheads. Pricing and supply of used lead-acid batteries has improved recently, and we expect our new liquid waste treatment plant will contribute to earnings next year after extensive delays. Next slide, please. On the balance sheet, working capital improved due to lower inventories.
Net assets declined due in part to our underlying operating loss, but mainly due to our conservative approach to nearly AUD 30 million of non-cash write-downs on goodwill and plant and equipment. Next slide, please. Managing our operating cost is a key focus. We have improved productivity and reduced headcount and overheads. Maintaining our focus on costs and realizing efficiencies across the business is a key part of improving our profitability. Next slide, please. Operating cash flow was reduced by lower margins and payment of tax liabilities, mostly from adjustments relating to prior periods, but paid in FY 2026. Our investing cash flows included AUD 30 million in sale of non-core assets and AUD 18 million investment in new plant and equipment. Financing cash flows include the repayment of debt and lease liabilities of AUD 23 million. Overall, our operating cash flow cash conversion remained solid at 100% in FY 2026.
I will now hand it back over to Simon.
Thank you very much, Gagan. Turning to slide 20. Our strategic priorities for FY 2027. Health and safety, the ongoing investment into systems, trainings, and controls to ensure that we operate at the highest achievable standards possible. Increased profitability. Our hard work is paying off, and we are seeing the early signs of a significant improvement in profitability in FY 2027. Organic growth. DGL will continue to reinvest its free cash back into the business to drive organic growth. Integration and consolidation. We continue to fully integrate the companies we have acquired since listing to create one scaled industrial group. Turning to slide 21. Trading update and outlook. We are seeing significant improvement in profit thus far in FY 2027 as a result of the hard work and tough decisions we made in FY 2026. We do expect ongoing challenges from the conflict in the Middle East.
DGL is now a well-structured industrial group of significant scale, and management is very much focused on improving profitability throughout FY 2027. I thank you for listening, and we'll now open up the floor to questions.
Thank you, Simon. We've got a few questions coming through, so I'll just bear in mind that some questions, if you have typed in a question, other people may have asked a question of the same nature, so it won't necessarily be read out verbatim. I will be collating questions as they come in. The first question is: T he board highlighted that the recent capital investments that have dragged on earnings but provided significant growth capacity for FY 2027. What specific capacity utilization targets and/or revenue thresholds across the DGL production and storage networks needs to be reached to bring the group back to underlying net profitability?
It's quite a complex question. Of course, any utilization less than 100% is not ideal, but it's extremely difficult to get all assets to 100%. We do have an internal ambition of driving revenue above AUD 500 million a year, and we are tracking well towards that target, and the early signs here in FY 2027. And we are looking to achieve EBITDA margins between 8% and 9% on that. But it's very early days yet. But they are the internal targets that we are working towards.
Thank you. One shareholder's pointed out that the business was worth more, arguably, prior to IPO without the use of the shareholders' funds. To that end, what is DGL doing to correct the flawed capital allocation process?
Yeah
Are you considering adding people to the board that have a track record in this regard?
Look, it is a valid question or a valid criticism, if I can say that. I believe that we have far better internal controls and disciplines now surrounding or regarding how we allocate capital. I have a solid and experienced CFO at my side. I have an experienced board, and we are much more careful about how we spend capital. We are much more cynical about some of the promises that have been given to us in business, cases of why we should spend here and there. We do not actually need to spend much capital now. We have got the assets and we have got the capacity to achieve the profit targets that we have set for ourselves. Next question.
Thank you. There are several questions regarding the impact of Chinese imports, so I will paraphrase a few of them. First one is, which product categories is this specifically impacting?
I am not going to go into the commercial granular details of it. China has excess capacity across the board with chemicals. We have faced competition in the past from China. They are also our biggest provider of raw materials. It is about being smart and understanding what products are best formulated locally, and not actually competing head-on with some of the commoditized products coming out of China.
Why have Chinese imports only now become an issue, and how can Australian manufacturing compete?
Well, they've always been an issue, or they've been an issue for a number of years. They come and go. How does Australia's manufacturing compete with the cheap Australian imports? Well, it really goes back to my answer before. It's about identifying those products that need to be made locally. Keep in mind that it's expensive to ship liquids. So a lot of chemicals are obviously in liquid form, and that's where we come in by buying the dry raw ingredients and formulating them locally for consumers.
Following on the topic, what's the value of DGL's integrated services if clients are simply willing to shift to lower-cost Chinese products? What strategic changes has DGL made—
Yeah.
To adapt to this problem?
Can you read the question again, please, Andrew?
Yeah. What is the value of DGL's integrated services if clients are simply willing to shift to lower-cost Chinese products?
Yeah. Once again, our customers, our clients, have always sourced some of their materials directly from China, and they have sourced other materials from us. That's the case today. It's always competition from China that keeps us honest and causes us to have to run a very efficient company. For every challenge we face from China with fully formulated materials, there's an equal number of opportunities in Australia for us to tap into other markets and other consumer products that we're not currently involved with.
Thank you. Some shareholders have expressed some frustration at the continued delays in delivering commitments. The New South Wales environmental project is highlighted as one of those.
What strategies have you got in place—
Yeah.
To make sure the commitments can be met year on year?
There are two sides to that question, really. There are a number of projects that we have executed on that have come in on time and on budget. The liquid waste treatment plant at Unanderra has been delayed. Primarily, as a result of the incredibly complex and frustrating licensing processes we have to go through with the authorities, with multiple authorities, with overlapping and conflicting regulations. That said, we are treating liquid waste there. We have treated some liquid waste through the new plant on a trial basis, and I'm confident, as the largest shareholder of DGL, that that plant will come on stream in the coming months and will, over time, prove to be a very, very significant contributor to our profit.
Thank you.
Now, there's another part of that question I want to answer, and it's valid, and that is what are we doing to sort of stop this happening again in the future. It's really about having a quality project manager at the outset of the project with a clear program and timetable and expectations. In the past, we've tried to do it internally, and that has failed, and we acknowledge that.
Next question is, how confident is DGL of filling the capacity, and over what timeframe will it be filled?
The capacity of the liquid waste treatment plant?
No, sorry, this would be related to storage, warehouse capacity.
We run a network of licensed chemical storage facilities. Some of our competition has gone out of business. We've expanded our capacity by 20% - 30% over the last 18 months, and we are well on track to have the entire network, I think it's 120,000 tonnes, near full capacity over the next six months. We are in discussion with a number of large customers who are looking for that national service footprint, and DGL can provide it.
Thank you. Is there any update on the cause of the Envirostore fire?
No. There's lots of rumors and suspicions and suggestions, but there is no factual report or evidence of how the fire started, or even where the fire started.
No problem. Next question will be, what are the expected cost savings estimated to hit the bottom line in FY 2027?
From what activity, Andrew?
The question doesn't specify what activity.
Okay.
But broadly across cost-saving initiatives.
Yeah. Look, it might be directed towards our administration and shared services, which has been one of our key focuses, and we've invested millions of dollars building a sophisticated and professional and efficient service hub in Parramatta. It's effectively built now, and the departments are all established and running well. We believe that the current framework and structure we've got in Parramatta will be able to support a significantly bigger business than we have today without additional expenditure. As we continue to roll out this ERP system and other standardizations of other software systems, further savings will be achieved over at FY 2027. We are committed to getting our administration costs down to less than AUD 0.02 in the dollar of revenue, and we're well on track to that.
What do you expect to be the scale of the liquid wastewater treatment plant, and could we see the environmental business expand back to its size prior to the collapse—
Of the battery processing business?
To answer the question honestly and bluntly, I don't believe that the liquid waste treatment plant in itself will replace the significant profit we were making at the end of COVID out of recycling lead batteries. But I do believe it will be a significant contributor to DGL's profit, and it will certainly lift the environmental division up, as being a, I'm not going to say a third of our profit, but a significant contributor.
Thank you. Are there any road shows planned with investors, brokers, super funds, et cetera?
I am constantly engaged with fund managers and investors throughout the year. I would have to check my diary, but I do not know if anything is booked at this time.
There is a couple of other questions relating to directors' shareholdings. That is not something that Simon can answer, what their plans are about acquiring shares, et cetera. There is quite a few there, but I will just point that out that we cannot answer that. Apart from that, I think we are getting near the end of the questions. I guess one more back to the Chinese competition, and I do not know if you can answer this, Simon, but what are the formulations we are making locally that are uncompetitive?
Yeah.
Are we looking to cease some product lines?
I'm not going to disclose the commercial granular detail of individual product lines. But as with all businesses, we continually assess the lines that we're involved with, those that are profitable and those that are unprofitable. Obviously, we cease those that are unprofitable, and we focus on those that are profitable, and we look to grow those that are profitable.
Thank you. There's another question here is why is the board absent today?
My understanding is that this is a presentation for Gagan and me, and the board is present at the AGM.
That concludes the questions that I have in front of me. If there is a question that you believe that hasn't been answered, please email that through to Barbara. Her details were on the invitation email. We will certainly come back to you. Apologies if I have missed anything, but I think we have captured most of the questions that have come through.
Thank you very much, everyone, for dialing in. Thank you, Andrew, and thank you, Gagan.
Thank you, everyone. Thanks, Simon.