My name is Daniel Ireland from DataIR, and I'll be hosting the call today. I'll introduce you to Kesh Nair, Executive Director and CEO (Australia); Marc Lichtenstein, Chief Financial Officer; and Matthew Zimmer, CEO (North America). For viewers' information, we'll be recording the webinar today. For Q&A, we have a question box at the bottom of your screen, so please type your questions in there, and we'll read them out at the end of the presentation. Kesh, I'll hand it over to you to begin the presentation.
Thank you, Daniel. Welcome, everyone. Thank you for joining the call today on Close the Loop's FY 2025 Investor Presentation. As Daniel mentioned, joining me, we've got Marc Lichtenstein, the CFO, and Matthew Zimmer, CEO of the U.S. divisions. Today's agenda, we've got some strategic discussions, which Matt and myself will cover, as well as the financial results, which largely Marc will touch upon. We'll look at outlook, and we'll finish off with some investor queries with Daniel facilitating the Q&A. A bit of overview. Close the Loop, we're a global circular economy company with two key divisions: the resource recovery and packaging. The resource Recovery division has our ITAD processes where we essentially collect products from OEM customers. These products are end-of-life, so we go through a refurbishment process, and then we remarket and sell this onto sales channels, particularly around the wholesale channels or e-com channels.
In addition, we also have recycling processes in Australia, Europe, and America where we recycle printed consumables with a zero-waste to landfill brand promise. We're situated across the globe as well. Moving on to packaging, we have a full scope of packaging services for our FMCG customers, anything between packaging design all the way through end product manufacturing. Our products range from reusable flexible packaging, old bags, and pouches. We also help our packaging customers meet the ESG standards by creating sustainable packaging as well. Overall, we're a company that creates commercial and sustainable value for our global customers through our unique resource recovery and packaging solutions. FY 2025 performance, we've had a challenging year compared to previous financial years. This time around, we've achieved a revenue of $195 million with a gross profit of $58.3 million.
It exceeds a 29% decline, so a 26% decline, which is largely attributed to soft performance in our ITAD business, which we'll go into later in the presentation. Largely, Marc will be discussing through these points. Most notable, though, we've got the net profit before tax at -$20 million, which is largely due to a number of one-off expenses we've incurred in FY 2025. As you can see, the adjusted EBITDA number is at $18.4 million, which Marc will talk through in the coming slides. Reflecting on the results, here's a snapshot of our business performance. Overall, we largely experienced unfavorable returns in ITAD products mix. Essentially, we received products where in the ITAD space we weren't able to achieve the target profit or the target revenue, which resulted in a lower EBITDA. In addition to some businesses underperforming, we have now launched a strategic review.
We also have some restructuring initiatives aimed at operational discipline, as well as looking at increasing overall profitability as we move into FY 2026. People are also very key to this business with the appointment of myself and Matthew Zimmer, the leaders of this space. We're looking at making the right changes and putting the right people in the right spots to ensure a stronger pathway to success as we move into FY 2026. Strategy is key moving from here on. Given the difficult performance the business had over the last 12 months, we've come up with five key strategic areas to focus on. These are things like improving cash flow, looking at packaging performance, increasing ITAD volumes, expanding our OEM market, as well as cost efficiencies. Kicking off in terms of cash conversion, we're restructuring to buy as one group.
Using our group to scale and secure for better pricing in efficient vendor terms is critical to the business. We're also looking at tightening up our working capital, ensuring there's shorter customer returns. We've got fast invoicing. All these processes amount to compressing our cash conversion cycle, which also increases our free cash flow conversion, positioning us to strengthen the balance sheet. We can deploy capital appropriately back into the business where we see higher profit returns. Secondly, packaging performance. Packaging is one of our strongest divisions. It's got a good cash flow and strong profits. The key focus here will be to strengthen and sustain our brand equity. We're looking at cross-selling into our divisions in South Africa, Europe, and also the U.S. Linking products and cross-selling is key for our customers. Our focus is simple here. We're here to deepen our relationship with customers.
We're ensuring that new customers acquire efficiently, and we're using innovation to increase our margins in our sales. I'll now pass on to Matthew to talk about our resource recovery businesses.
Thank you, Kesh. Our third point is increasing ITAD volumes. We will expand globally by leveraging our partner network and collectors selling across the U.S., Europe, and Asia Pacific. We also plan to differentiate by combining certified data security, transparent reporting, and streamlined logistics to maximize asset value and support our clients' compliance and sustainability goals. Our fourth point is OEM expansion by focusing on key clientele to increase volume. Dedicated account management growth inside of the existing customer base is critical by servicing more volume in existing products and adding additional product lines. We want to look at sales presence to expand the number of OEM customers that we have in the portfolio. We will bundle services to increase value accretion within existing accounts. We are also introducing a new centralized test image and standardized operational process, which will streamline global operations.
Lastly, we will improve cost efficiencies by leveraging our Mexicali volume capacity. We will shift ITAD product volume to the new Mexicali facility, which will increase operational cost efficiency. The product refurbishment lines in the new facilities have been established with employees in place and ready to scale greater volumes. Management is focusing on developing a proper hybrid strategy to maximize value with labor and materials, and when value is best to sell as is or to a different channel. The goal is to optimize profitability by touchpoint. The overall goal is to increase market share inside our current customers, attract new customers under a single account management, data, and visibility layer anywhere in the world. I'll now hand over to Marc for the financial statements section.
Thank you, Matt, and thank you, Kesh, for the introduction. The first area I wanted to focus on is the borrowings. You'll see that there's been a big change in our borrowings moving from non-current to current. You'll ask the question, why has this happened? The key point here is that for the first time, there's new accounting standards that apply to the 30th of June. Whilst we breached some of our bank covenants for the March reporting quarter, we were fully compliant with our bank covenants at the 30th of June at year-end. However, the documentation to reflect the bank waiver for March and the new covenants and the new covenant settings was signed after 30th of June. Therefore, in accordance with the new accounting standards, the debt has to be classified as current. The bank debt is classified as current debt at the 30th of June.
However, this debt does revert back to non-current debt post year-end. More importantly, we continue to have the ongoing support of our financiers, and the debt is not due to be repaid until 2029. It's merely an accounting standard that causes this change in disclosure. You'll see that our net debt has decreased compared to the previous reporting period. This is purely a fact of the cash and the cash that has been used within the business and that correlates to the movement in our working capital position. You'll see our debtors have decreased, our inventory has increased, and we'll talk about this in terms of the investment in ITAD and investment in the future. Positively, our payables have decreased quite substantially compared to the previous corresponding period. The other key point to focus on on our balance sheet is the movement in intangibles.
You'll see that the intangible assets have decreased quite substantially compared to the previous corresponding period. Part of that is because of the standard impairment that we incur, the standard amortization that we incur year on year. The intangibles come about as a result of the business combinations and the acquisitions that were made in the previous periods. In particular, it's the customer relationships that we generated, which are an intangible asset. These intangible assets are written off over a 10-year period. That causes the intangible assets to decrease. On top of that, we closed down our O F Resource Recovery business in Melbourne, which was the paper and board recycling business. That took effect from the 1st of November, and there were some intangible assets associated with that business which were required to be amortized in full at the 30th of June.
Furthermore, at the 30th of June, we're required to do impairment testing to see that the carrying value of the assets has not deteriorated during the course of the year. As we went through this exercise in conjunction with an independent expert, a third party in Lidenhall, we determined that the intangible assets associated with the Close the Loop plastic recycling business in the U.S. should be fully impaired at the 30th of June. Accordingly, an increased amount of amortization was taken up, and this goes through the profit and loss statement. However, should performance improve for the Close the Loop plastic recycling business in the future, then that intangible asset will be rewritten back onto the balance sheet, and it will have a positive impact on the P&L as we go forward.
As we turn to the P&L and what has happened in this current financial year, the key point here is obviously the revenue was down. The revenue was down as a result of the reduced performance from our Close the Loop renewed solutions or the ISP business, as many of you would be familiar with it as its previous name. That came about as a change in the product mix, and Matt will talk to this in a bit more detail further on in the presentation. Nonetheless, the change in product mix also had an impact on our gross profit percentage and caused a slight decrease in our gross profit percentage.
Essentially, the business is gearing up for growth in the future, but as we got into the ITAD space, there was some knowledge and know-how that we were required to gain over a period of time, which impacted the performance in this financial year. The other key point that I wanted to point out is that we have what we call an adjusted EBITDA versus a statutory EBITDA. We incurred $7.6 million worth of one-off or abnormal costs associated in this financial year, and we've added back those costs, which are the one-off costs you'll see in the profit and loss that's on the screen at the moment, as well as the costs from discontinued operation, which is the O F Resource Recovery business. Combined, that's about $7.6 million worth of one-off costs that we do not expect to incur in future periods. However, that has impacted the result going forward.
You'll see, as I touched on in the previous slide, the depreciation and amortization increasing because of the increased impairment associated with the Close the Loop plastics and O F Resource Recovery businesses. The other key point here is to understand what we talk about as underlying adjusted net profit after tax. When we look at the statutory result, the losses attributed to the members or the net profit after tax is $16 million. When we add back the impairment, and that's the impairment and the amortization associated with the business combination, it's really a book entry. It's the write-down of the intangibles over a period of time. We add that back, and we add back the one-off costs that we don't expect to occur in future periods. That gives us an underlying adjusted net profit after tax of $7.8 million.
The true performance of the business, if you like, is that it made a profit of $7.8 million. However, once you take into account all the impact of the accounting standards and the statutory changes that are required to be made, we end up in a large loss position. The next point I'd like to touch on is in relation to the cash flow. You'll see here that we talk about in the cash flow what we've always measured as our quick cash conversion ratio, which is running at 92%. The way we calculate that is the cash receipts from customers less what we've paid to our suppliers as a percentage of the EBITDA. You'll see that the net cash position was that we generated $11 million with a statutory EBITDA of $12.8 million, which gave us the 92%.
That's an increase in what we had in the previous financial year. It's important to note that our ending cash balance is $32 million, and we still have ample cash on hand to run the business and to take into account the growth that's required in the future from the organic growth as we expand into different geographies in terms of ITAD and other service areas. The other key point is that CapEx really is an FY 2024 story. In 2025, with $3.3 million of CapEx, that's really associated with the Mexicali facility and other few bits and pieces, particularly in our Close the Loop plastic recycling business, but bits and pieces across the group. The CapEx has been made in this business. It's now about generating greater returns from the assets. Sweating the assets that we currently have in place is the key for the future of the business.
The other key point I'd like to make and point out is in relation to the interest paid, and this is a correlation of the debt. If we look at the interest paid that we incurred in this financial year, it was $8.5 million. The net cash impact is $5.5 million because some of the interest got paid on the 1st of July 2025. The key point there is that the interest has actually decreased compared to the previous corresponding period. The reason for that is twofold. One is our bank debt continues to decrease. As we've announced in previous updates to the market, we are now paying $500,000, and that will increase slightly during the course of this financial year. $500,000 U.S.
of debt per quarter has to be repaid, which is in line with what was put in place in the original facility agreement when we took it out in 2023. As the capital decreases, the interest on that is going to decrease. Furthermore, the interest is based on BBSY or the Fed rate in the U.S. We've seen that rate come down much more than the Australian RBA rates. That's been a positive for us as well. We expect that the rates will come down, albeit we're not economists, but that's what the market is pricing in the future. We would expect our interest to decrease over time. Moving forward, the other key point to focus on is really our capital management. As I indicated, our debt is going to continue to reduce.
Whilst we did breach covenants during the course of the year, the covenants have been reset, and we continue to have the ongoing support of our existing bankers in PGIM. We have sufficient cash on hand at 30th of June to manage our capital, our capital management. Again, the long-term support of the financiers is a key to the ongoing success of Close the Loop. Now I'll hand back to Kesh and Matt, and no doubt there'll be some financial questions as we go forward.
Thank you, Marc. Despite the challenging year, the management team are quite bullish about FY 2026 performance. We see the FY 2025 year as a year of investing in our growth and scale of ITAD operations, as well as streamlining certain underperforming businesses to set us up for FY 2026 and achieve a greater profit. In terms of ITAD, we've got great relationships with our customers. They're giving us the opportunity to go into Europe and Asia Pacific. In fact, in Asia Pacific, we have already set up operations in Malaysia and Singapore and started to process some key jobs for our key clients. In terms of our packaging, the key focus here is to go into regions like South Africa and cross-sell. We've got a great sales team, and we're looking to leverage that. People are our main focus.
We've got great recruitment processes, and hiring great people will continue to drive greater success in the business. We'll look forward to keep on doing that as we go into FY 2026. With that in mind, I want to pass the mic over to Matt to finish off on the ITAD strategy. Over to you, Matt.
Thanks, Kesh. Building reverse supply chain logistics, Close the Loop is at the forefront of reverse supply chain logistics for the circular economy. By becoming one, encompassing a solution for our clients, we can win more market share and become a bigger player in the circular economy. This is the reason I actually came to the company. I believe ITAD in the next three to five years will go through a similar growth to what contract manufacturing went through 20 years ago. Most OEMs have pledged 70% returns multiple times to the supply chain, but the entire reverse supply chain today is built at 10%- 15% capacity. This is about who can design the best reverse supply chain, execute it globally under single account management, data, and visibility layer.
We need to become product agnostic, leverage our current customers, but move into products that are more than just consumer electronics. The large global OEMs struggle on global consistency. We hear it today from our OEM customers, as well as others I've spoken to. I believe that's the vision in terms of where we're going to move ITAD moving forward. I'll now hand it to Daniel for Q&A.
Thank you, Matthew. Now we'll go to Q&A. We've got quite a few questions. The first question for Marc is, Marc, can you provide a bit more information on the bank debt facility? Can you explain what occurred during the year and where that facility is now up to?
Thank you, Daniel. As I indicated, we continue to have the ongoing support of our bankers. As I indicated previously, at the covenant testing date of 31st of March, we breached one of our bank covenants. We received a waiver from the bank for the breach of that covenant during the course of the year, and the covenants were reset. The covenants were also reset going forward. The key point there is that some of the covenants are based on the last 12 months' trading. Hence, because there had been some soft trading earlier in the year, some of the covenants were required to be reset until such time as the trading improves going forward. As I indicated, ongoing support of the bank, very supportive bank, new covenant set. We complied with the covenants at 30th of June .
There's an expectation that we'll continue to comply with the covenants based on our forecasts and our budgets going forward. We do have sufficient headroom in the covenants as well to ensure that we'll continue to comply. That's really where the bank situation is. The key point was that some of the agreements were signed post 30th of June , and therefore there's a requirement for some of the debt to be classified as current as opposed to non-current.
Okay. We have a question here from Larry. What can you say about cash from operations and CapEx next year? What factors will drive increased cash from operations? Do you anticipate that debt won't increase in FY 2026?
Yeah, so the overall bank debt isn't going to increase. The overall bank debt is going to decrease because we've got a requirement to pay $2.75 million in repayments over the course of the next 12 months. The actual bank debt will decrease. The cash from operations will improve as performance of the business improves. That's really going to be a key factor as the business drives forward. Our packaging business already produces significant free cash flows. We've seen historically in the ISP business, when it performs well, it spits out cash and produces plenty of cash. We expect that our net debt position will improve going forward, and we expect the business to produce strong free operating cash flows over the entire FY 2026 year. Maybe not on day one, but certainly over the full year.
Okay. I have a question from Ben. Which new jurisdictions is CLG expanding ITAD into? Which OEM clients is this in collaboration with? How large is that expansion? Might be a question for you, Matt.
Yeah, we're being pushed globally by our OEMs. Today, those OEMs include HP and Xerox, our main ones that we're working on. Both of those relationships are pushing us over to Europe as we speak, in connection with Kesh on how we go build out an APJ environment. As I said before, what most of the major OEMs are looking for in the ITAD reverse logistics space are people that can go take them globally and be able to operate it globally under a single platform. The large OEMs or the large organizations I used to be a part of struggle globally. In every region, you start to act differently. Reporting is different, visibility is different. We need to build a consistency around our management layer moving forward that everything around that moves. I also think we have opportunities to move into more hardware-agnostic work in both the consumer space.
A lot of the work that we do is inside of Windows, laptops, monitors, printers. Those are great products, and we'll continue to keep building on those for OEMs. There are other products, as well as in the ITAD space, being able to move up into server and storage, configure to order within region. It really is about our global build-out, which will be absolutely imperative. Being able to do that under that management layer, I think, is what's going to attract the OEMs.
We have a question from Raul. Hello. My first question is about expected guidance for 2026, considering the decline in impairments in 2025 and the condition of the company's covenants and debts. That might be from Marc.
Yeah, I'll take that one on. Look, at this stage, we provided no guidance. We will provide guidance as the year, potentially as the year progresses. We have an obligation and a legal requirement that if there is a ± 5% - 10%, depending on if you're looking at profit and/or revenue, that we are required to inform the market and keep them fully informed. There's a continuous disclosure obligation as per the ASX listing rules that we're required to comply with, and we certainly will comply with those. Having said that, as the business and as Matt and Kesh take control of the business and drive it forward, it's still too early in the financial year, being six weeks into the financial year, and Matt's really only been with us for five weeks before we can provide guidance to the market.
We put our hand on our heart to say this is the number we're going to achieve for FY 2026. We're acutely aware of what happens if you miss your guidance. You get heavily marked down for missing it. Nobody does anything if you actually make the number. We want to be a bit further into the trading period before we would consider providing formal guidance to the market.
Okay. We have a question from Ashley. How much debt in millions of dollars are you forecasting you'll be able to pay down in the coming year? What is the target for net debt in this business? I don't think you've provided that, Marc.
We haven't provided that. The only comment would be that's disclosed in our financial statements is the amount of debt that we are required to be paid down. 1.875% of the debt per quarter. It effectively works out in the first part of the year, it's $500,000 that we're required to pay per quarter, and then it increases to $750,000 per quarter that we're required to pay. It is disclosed in the financial statements in the details. In total, it's about $2.75 million that we'd be required to pay over the course of the financial year. We think that, you know, we still got the $30 million in cash or $32 million in cash, so it won't be a factor for us.
Yeah, we have a question from Isam. Clarify the, can you talk to the one-offs and then $5.6 million ITAD and $2 million in packaging? Is that where the one-offs are coming from? Just a high-level overview of the.
I can talk to that one, Daniel. The one-off costs, essentially, the vast majority relate to the resource recovery division. They shouldn't be looked at as $2 million from packaging and $5 million from resource recovery. In terms of what makes up those costs, it's essentially the costs and inefficiencies with the Mexicali facility coming online. For example, when you open a new facility, you hire new staff. They don't start off at maximum capacity on the first day. It takes a period of time for them to build up momentum. The same way when you buy a car, you don't drive it off the showroom floor at 200 km an hour. It takes a period of time to get up to speed. We brought the outsourced printer processing and commercial printer processing into our Kentucky facility. There were costs associated with that.
There were some fixed assets that were written off during the course of the year. There were also the costs associated with the discontinued operation, being the O F Resource Recovery, as well as a couple of other costs, as well as the take-private exercise. Whilst the costs associated with the take-private exercise, which is the private equity piece that didn't proceed, there still is a distraction for management during the course of the year that does have an indirect impact on the overall result of the business.
Okay. We have a question from John. Can you give an indication of the capacity utilization at the Mexicali plant and the relationship between capacity and people employed? Might be a question for yourself, Matt. Yeah.
Sure. Yeah. We have about 50 or 55 people employed down in Mexico, roughly about the same headcount that we do in our South Lake. I've managed Mexican facilities most of my career through there. We get two massive advantages with that facility. Number one is we obviously get improved labor conditions. We got to be smart about total cost of ownership with tariffs and freight as a total cost of ownership and how we think about product movement. There's no doubt labor is better there. The movement of goods through there is also a benefit. Within my first 30 days on the job, we've done benchmarking across all of our operating plants, benchmarking to hold every plant to the highest guidance and highest standards. There is no doubt what we're seeing out of Mexico right now is higher, what I consider hours per unit, output per person per unit.
Right now, that has allowed us to go back to the table with full review of all products that we have, from laptops to monitors to printers to any new products that we're doing and making the best decision on where to go move that. Very pleased about the output and most importantly, the quality of what we're doing out of Mexico.
Okay. We've got a few questions here from Oliver. We won't be able to get through all of those, Oliver, but I'll ask a couple of those. CapEx expectations for 2026 and then forecast for growth and revenue around the Mexicali plant. I think that'd be Marc, but there's been no guidance.
Yeah, thank you, Don. Daniel, I'll talk to the CapEx. As I indicated earlier, CapEx was an FY 2024 story. FY 2025, you'll see there was only $3.3 million worth of CapEx. The vast majority of CapEx is now being incurred across the business. The next investment is in human capital. When Kesh and Matt talk about expanding businesses in different geographies, it's about having boots on the ground potentially or partners in those different geographies. For example, if I look at Europe and you expand into Europe, you might have a person that is managing the ITAD capabilities in Europe sitting in our existing European facility. It's just another desk. There's no CapEx there. It's about the salary and wages of the individual. As we mentioned in the one-offs, it takes a bit of time for people like that to get up to speed.
They don't walk in on the first day and do six deals. We do expect them to do six deals by the end of the financial year. We haven't provided any guidance, and we're going to shy away from the guidance at this juncture.
We have another question from Isam. Can you give more color on the product mix change in ITAD, which impacted margins?
I can answer that. I think in FY 2025, we got a little bit flat-footed on. Most of the returns were what we consider as-is, very easy products that you move into the system. These products that we're moving to now, still as-is, but there's a volume increase, are what I consider refurbishment levels, grade A through D, as well as slight repair. The amount of labor that goes into that is completely different. How do you have technical staff to be able to do that? How are you thinking about your cash flow conversion cycles? These were all things I think we got a little bit flat-footed on.
There's no doubt that all of the technical expertise the team has put in place, and what we've been able to do since I've joined the business around that, is the new mix, and that's the new norm moving forward, which is absolutely imperative. One of the big things we've been working on is, we talked about cash flow conversion a lot, but it's also the channel. I think the channel is probably the number one thing I've worked on since I've been here. We got a great demand stream of products coming back from HP and so forth. You have to have a channel that goes and matches that. How do we think about marketplace versus wholesale, that right hybrid sales model to go do that? A, to generate cash, but secondly, to be able to do better margin increasing is absolutely imperative.
I think as we move over to Europe, which is definitely a hot area for our largest OEM customers today, operational capability is absolutely paramount. Marc is 100% right. We think about that through partner networks and our own, but also building out that sales channel is absolutely imperative. We have to have the channel built before we ever go into region. While we're doing the product buys, while we're bringing back all of these units, we have a channel that can go do that. That's not an afterthought after we go live the program through operations.
We have a question from Emily on the convertible notes. Can you provide a bit more information on the convertible notes that are due in April 2026? What's the company's strategy to address the maturity of these notes?
Yeah, I'll take that one. In summary, the notes, there's two notes that are outstanding just for everybody on the call just so they're familiar with what we're talking about. There's two convertible notes, both for $7.5 million that were put in place at the time of the acquisition of the ISP business in April 2023. They'll mature in April 2026. One of them converts at the discretion of the company in cash or shares at $0.74 per share, whilst the other is also cash or shares, but at the discretion of the vendor. Naturally, the vendor would probably want cash, and naturally, we would want to pay in shares given where the current share price is. Having said that, we have not commenced any discussions about what to do with those convertible notes. It's something that we will address between now and April next year.
It is important to remember that the notes are held by Sammy Saloum, who is a related party and a Non-Executive Director of the company and is the second largest shareholder. It is a related party transaction, and closer to the time, we will enter into discussions with Sammy as to how best to manage those notes.
Okay. We have another question from Ben. What contribution can we expect from cartridge collections in Europe over the next few years?
I'll take that question. I can't give a definitive number, but what I can do is that the opportunities that we've indicated for many, many years in the European market with the cartridges and the cartridge collection business is immense. The regulatory tailwinds, we're currently in discussions with a number of OEMs, and there's this right to repair that's coming down the train tracks in Europe where the OEMs are all looking at, you know, how do we refurbish and recycle the cartridges that previously were being crushed and destroyed? That's the big change that's happening in that space. It's still commercially sensitive information. Needless to say, we're in significant discussions with a number of OEMs about how we might be able to add value to their business going forward. The outlook for the European business looks very positive at this juncture. Matt, I don't know if you want to add anything to that.
I just want to add, Marc, in relation to the Australian programs, the program in Europe we're running called Circular Planets is very similar to our retail program here. Currently, it makes up about 37% of our market, so it's quite sizable. We expect Europe to be significantly better than that as well, given that they've got more countries and more people and more people returning cartridges. It is a big growth strategy for the business.
Okay, very good. That's the questions that we have for today. I'll thank Kesh, Marc, and Matthew for their time this afternoon. Thanks for the presentation and thanks for everyone who attended the call. Appreciate your time. Thank you.
Thanks.
Thank you.