DGL’s Audit Disclaimer Raises Questions Over Controls and ASX Listing
DGL Group Limited has reported a larger-than-expected FY25 net loss following an increased goodwill impairment and received a Disclaimer of Opinion from its auditor due to inventory and control issues during a major ERP system rollout.
- Goodwill impairment increased by $3.2 million to $17.1 million
- Statutory net loss after tax widened to $27.9 million
- Auditor issued Disclaimer of Opinion over inventory and internal controls
- ERP system implementation complicates audit and control environment
- Bank syndicate grants waiver; property sales underway to reduce debt
Financial Results Revision
DGL Group Limited (ASX – DGL) has updated its FY25 financial results, revealing a $3.2 million increase in goodwill impairment charges, bringing the total to $17.1 million. This adjustment has pushed the company’s statutory net loss after tax to $27.9 million, up from the previously announced $24.6 million. Despite this, the company reported a healthy underlying EBITDA of $52.1 million and positive operational cash flow of $44.7 million, indicating solid core business performance beneath the headline loss.
Auditor’s Disclaimer of Opinion
The company’s auditor, PKF Melbourne Audit & Assurance, issued a Disclaimer of Opinion on the FY25 financial statements. This rare and serious audit outcome stems primarily from unresolved inventory variances at two key sites, which together hold about 35% of DGL’s inventory by value. The difficulties were compounded by the rollout of a new Group-wide Enterprise Resource Planning (ERP) system during the year-end stocktake, which complicated stock verification.
Additionally, PKF expressed concerns about potential management override of controls due to weaknesses in internal control systems and governance processes amid the complexity of multiple legacy accounting systems and the ERP transition. These issues prevented the auditor from confirming the accuracy of inventory valuations and overall financial statement reliability.
ERP Implementation and Business Transformation
DGL is in the midst of a significant transformation, having completed 30 acquisitions over five years and migrating from disparate accounting systems to a unified ERP platform. This transition aims to standardize processes, enhance financial controls, and improve reporting capabilities across the expanded group. The first phase, including logistics and HR/payroll systems, is expected to complete by the end of 2025.
The company acknowledges that the ERP implementation contributed to the audit challenges but emphasizes that no material misstatements in transaction processing have been identified. New inventory management systems and enhanced control measures are being rolled out to address the identified weaknesses.
Financial and Market Implications
Despite the audit setback, DGL has secured a waiver from its bank syndicate confirming that the Disclaimer of Opinion and ASX suspension do not trigger a default under its syndicated debt facility. Meanwhile, the company is progressing the sale of three non-core property assets, with contracts signed for approximately $25.7 million, exceeding book value, to reduce net debt by nearly a quarter before year-end.
Chairman Tim Hosking reaffirmed the board’s confidence in the integrity of the financial information and the underlying operational performance, stressing the company’s commitment to strengthening governance and controls as it navigates rapid growth and transformation.
Bottom Line?
DGL’s path to ASX reinstatement hinges on resolving audit concerns and completing its ERP transformation.
Questions in the middle?
- How quickly can DGL resolve inventory variances to satisfy auditor requirements?
- What further control enhancements will be needed to prevent future audit disclaimers?
- How will the ERP rollout impact operational stability and financial reporting in FY26?
