DGL Group Lower profits, cleaner balance sheet, and H2 execution now matters most
DGL Group’s (ASX:DGL) (ASX:DGL) H1 FY26 results are not going to win a beauty contest at first glance. Revenue fell 5.8% to A$225.2m, underlying EBITDA edged down 5% to A$24.7m, and the statutory net loss after tax landed at negative A$12.8m. On paper, that looks like a business going backwards.
But the more useful question is how much of that decline is structural, and how much is noise. Our read is that a meaningful portion of the pain in this result is temporary and tied to three things that are now largely resolved. The Laverton used lead-acid battery recycling facility has been sold, removing A$9.8m of revenue that was also loss-making. The disclaimed FY25 audit that weighed heavily on legal and professional costs is now settled, with BDO appointed as the new auditor and the H1 FY26 accounts fully signed off. And the duplicate warehouse lease costs incurred during the transition to larger facilities are now complete.
Strip those out, and you are looking at a business that held gross margins at 43.5%, actually an improvement of 0.4 percentage points on the prior corresponding period, while also reducing net debt by A$16.4m to A$78.2m. That combination of margin stability and balance sheet improvement is not what you would expect from a business in structural trouble.
The more pressing concern is the logistics division, where underlying EBITDA fell from A$11.7m to A$7.8m despite revenue growing to A$74.4m. That divergence between rising revenue and falling earnings is the part of this result that investors need to watch most closely heading into H2.
Manufacturing and logistics did enough to offset a weaker environmental half
The best part of this result is that DGL still has operating strength in the core businesses that matter most. Manufacturing revenue edged up to A$133.8 million in H1 FY26 and underlying EBITDA improved to A$18.0 million from A$17.6 million in H2 FY25, helped by strong export demand for agricultural chemicals and higher AdBlue volumes across Australia and New Zealand. Logistics also delivered revenue of A$74.4 million, up from A$73.0 million in H2 FY25, although EBITDA fell to A$7.8 million because driver shortages lifted costs and pushed the group toward more subcontractors.
That split is important. Demand is still there in the better parts of the business. The issue is not demand collapse. The issue is that costs, disruption, and weaker performance in environmental services prevented that strength from flowing through cleanly to group earnings.
Environmental services was the main drag. Revenue fell to A$17.0 million in H1 FY26 from A$37.9 million in H1 FY25, while underlying EBITDA came in at A$1.5 million. The sale of the loss making Laverton battery recycling facility cut revenue by A$9.8 million, and used lead acid battery scarcity continued to hurt earnings. In plain English, the division lost a chunk of sales, and the market conditions in battery recycling remained difficult anyway.
Margins held up better than profit, which hints the reset is working
One thing that stood out is that gross margin improved even with lower revenue. That suggests DGL is getting better mix and better manufacturing efficiency in parts of the portfolio, particularly in crop protection. It also suggests the result was not simply a case of broad based operational deterioration.
There were still real negatives. Operating cash flow fell 42% to A$10.5 million, and cash conversion dropped to 72% from 95% in the prior corresponding period. DGL said lower gross profit was the main reason, which tells us the business has not yet rebuilt enough earnings buffer to absorb disruption without it showing up in cash.
Even so, the cost base looks more controlled than it did before. The group reduced headcount, kept a focus on shared services productivity, and is continuing to consolidate entities, systems and sites. Legal and professional costs rose because of additional audit and ASX suspension related work, but that should not be treated as a permanent run rate unless those issues drag on much longer.
So while the profit line still looks weak, there are signs the underlying reset is moving in the right direction. For this stock, that distinction matters.
Debt is falling, but H2 now depends on execution not promises
The strongest financial signal in the update was the debt reduction. Net debt fell from A$94.6 million at FY25 to A$78.2 million at H1 FY26, helped by operating cash flow and asset sales. Gearing also improved from 32% to 27%. That gives management more room to fund operational improvements without the balance sheet becoming the main risk in the story.
Management is also pushing ahead with the new liquid waste treatment plant in NSW, broader waste licensing, more bulk chemical storage, larger warehouse facilities, and group wide systems. Those projects are meant to improve scale, compliance and unit economics. But investors should be realistic here. The company already flagged that ERP rollout delays hurt production earlier in FY26, and the new liquid waste plant has taken longer than expected because of licensing.
That means H2 is less about strategy slides and more about delivery. DGL now needs to show that cost savings land, environmental services stabilises, and the operational disruptions from system change are genuinely behind it.
The Investors Takeaway for DGL Group
For us, this result does not yet prove the turnaround is complete, but it does suggest the foundations are improving. Better gross margin, lower debt, and healthier performance in manufacturing and logistics give investors something tangible to work with.
The key test from here is whether DGL can convert those early signs into a cleaner second half. If the new liquid waste plant ramps, battery recycling headwinds ease, and management keeps taking cost out of the system, the earnings profile should look meaningfully better than this half implies.
The risk is that H2 improvement keeps getting delayed by operational friction. This is still a business coming out of a messy period, and the market will want proof that simplification and investment are lifting returns, not just moving the problem around.
Right now, the story looks less like a growth rerate and more like a recovery setup. If execution improves from here, that can still work. But the burden of proof clearly sits with management over the next two reporting periods.
