Waterco lifts FY26 profit 59% as margin reset delivers
In its FY26 results presentation for the year ended 30 June 2026, Waterco (ASX:WAT) reported statutory net profit after tax up 59% to $15.4m, achieved on a near-flat sales base.
The result was margin-led rather than volume-driven. Sales revenue rose just 1% to $253.0m, yet underlying EBIT climbed 20% to $24.8m and statutory EBIT jumped 42% to $23.8m.
Underlying EBIT margin lifted from 8.3% to 9.8%, while the statutory margin improved from 6.7% to 9.4%. Management attributed the gains to insourcing of manufacturing and cost discipline.
Shareholders shared in the improvement, with a total dividend of 20 cents per share fully franked, up 33% from 15 cents in FY25. The FY26 results reset the earnings profile despite a broadly steady top line.
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FY26 financial results at a glance
The headline financials show earnings expanding well ahead of revenue across every profit measure.
| Metric | FY26 | FY25 | % Change |
|---|---|---|---|
| Sales revenue | $253.0m | $249.4m | +1% |
| Underlying EBIT | $24.8m | $20.6m | +20% |
| Statutory EBIT | $23.8m | $16.7m | +42% |
| Underlying NPAT | $16.1m | $12.4m | +30% |
| Statutory NPAT | $15.4m | $9.6m | +59% |
| Statutory EPS (cents) | 44.0 | 27.2 | +62% |
| Dividend per share (cents) | 20 | 15 | +33% |
The margin gain was driven by tangible cost reductions across several lines:
- Raw materials down $5.6m
- Warranty expense down $1.5m
- Advertising down $1.0m
- Foreign exchange translation losses cut from $2.5m to $1.0m following a treasury restructure
- Effective tax rate steady at 21%
Management framed these improvements as structural, stemming from insourcing and cost discipline, rather than one-off adjustments.
Where the growth came from — a regional split
International momentum offset a softer result in the core Australia and New Zealand (ANZ) market, lifting international sales to 24% of the Group from 21% a year earlier.
- ANZ: Sales declined 3% to $192.0m on European supply realignment and temporary stock constraints during the Malaysian transition, now secured. Underlying divisional EBIT was $12.5m, down 4%.
- North America and Europe: Sales grew 21% to $43.5m, with divisional EBIT up 67% to $7.2m. Waterco reported record US profitability despite tariffs, led by commercial applications and custom-designed pressure vessels.
- Asia and Middle East: Sales rose 11% to $17.4m, with divisional EBIT up 57% to $5.1m. Middle East operations formally commenced during the period.
The regional mix suggests the softer ANZ number reflects supply chain timing during the Malaysian transition rather than structural decline, while international diversification reduces dependence on the domestic market.
Delivering on the FY25 reset
FY26 was reported against the turnaround priorities Waterco set out in FY25, with each area showing measurable progress:
- Treasury and FX clean-up — Foreign exchange losses reduced from $2.5m to $1.0m.
- Davey cost base reset — Warehouse consolidation largely complete, with annual savings expected to flow from FY27.
- Geographic expansion — Middle East operations commenced and a European distribution alliance was established.
- Innovation pipeline — Electrochlor GEN2, the OPTI inline chlorine sensor and a B2B trade portal delivered.
- Earnings — EBIT margin improved from 6.7% to 9.4%, with return on capital employed (ROCE) rising from 12.3% to 13.4%.
What does vertical integration mean for Waterco investors?
Waterco operates as a vertically integrated water technology group, meaning it controls both the manufacturing of its products and their distribution. Manufacturing plants sit in Australia and Malaysia, while distribution runs through channels including the Swimart franchise network of 77 locations across Australia and New Zealand.
A central element of the FY26 story is “insourcing”, which involves bringing production of strategic plastic components in-house in Malaysia rather than sourcing them from third parties.
For investors, controlling more of the supply chain lifts margins, improves supply resilience and captures a greater share of the value chain. The Malaysian insourcing directly drove the FY26 Group margin lift, and land has been acquired to support further expansion.
Balance sheet, dividend and cash position
Capital management reflected a deliberate trade-off: higher shareholder returns alongside increased investment in manufacturing capacity, which lifted gearing.
- Total dividend of 20 cents per share fully franked (final 13 cents), with $0.7m returned via an on-market buyback.
- Net debt increased $6.5m to $31.3m, with gearing at 20% (FY25: 17%), reflecting capacity investment.
- Capital expenditure of $8.6m (FY25: $3.0m), including $6.4m in Asia.
- Westpac facilities refinanced in April 2026 and increased to $52.25m, with $40.0m drawn and termed to three and five years.
- Operating cash flow of $14.3m (FY25: $21.1m), lower on higher tax paid than expensed and an inventory build.
- Net tangible assets of $4.31 per share (FY25: $3.94).
The higher gearing represents growth investment rather than distress, with refinancing secured and the dividend still increased.
FY27 outlook and the growth roadmap
Management outlined a set of priorities for FY27, focused on converting the reset platform into higher-quality earnings:
- Lifting the EBIT-to-sales ratio through closer management of sales growth and margins.
- Warehouse consolidation savings expected to flow through from FY27.
- ANZ growth opportunities, with the supply chain migration now secured.
- European distribution alliance and Middle East upside as conditions stabilise.
- Malaysian capacity expansion progressing to support supply chain resilience.
Waterco describes itself as the largest Australian-owned manufacturer of water transfer and water treatment products, positioned in an industry it identifies as having structural tailwinds including water scarcity, energy efficiency and connected products. The FY26 result balances continued growth investment with rising shareholder returns, and the company noted it remains mindful of the broader economic environment.
The margin-led reset now has a defined runway, with FY27 centred on turning the improved platform into stronger and more durable earnings.
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