Close the Loop (ASX:CLG) used its first-half FY2026 investor presentation to outline a “stabilization period” shaped by a strategic review, divestments of non-core operations, and a renewed emphasis on the cash-generative packaging division. Management also addressed softer IT asset disposition (ITAD) results, an impairment of intangible assets tied mainly to the U.S. business, and expectations for improved cash flow in the second half.
Business overview: two divisions
Executive Director and CEO (Australia and South Africa) Kesh Nair said the group operates through two key divisions: resource recovery and packaging.
- ITAD (IT Asset Disposition): collecting end-of-life devices such as laptops and desktops, refurbishing them to improve recovery value, and selling them through wholesale and e-commerce channels. Nair said profitability depends on asset grade.
- Recycling services: “zero waste to landfill” recycling in Australia, Europe, and America, focused largely on printer consumables, along with recycling for cosmetics and soft plastics.
The packaging division was described as a “one-stop shop” for FMCG customers, covering design through manufacturing. Nair said products include flexible packaging and bulk bags for agriculture and construction. The division also has R&D initiatives aimed at “smarter packaging design” to support circular economy objectives and customer ESG strategies.
First-half results: revenue growth, statutory loss driven by impairment
Nair reported first-half revenue of AUD 92.3 million, up 2% from the prior corresponding period. He attributed the top-line growth primarily to packaging, citing 18% sales growth in South Africa and the company’s core Australian operations.
However, the group recorded a statutory loss that included a substantial AUD 23 million write-down of intangible assets. Chief Financial Officer Marc Lichtenstein said the impairment resulted from the company’s required discounted cash flow assessment of business units at each reporting period. He said the U.S. ISP business had produced “soft results,” which lowered forecast cash flows and led to a finding that intangible assets were overstated by about USD 15 million (AUD 23 million).
Excluding impairment and one-off costs, management said the group delivered an underlying net profit after tax and amortization of AUD 2.5 million, compared with AUD 5.7 million in the prior corresponding period. Nair said the main driver of the decline was softer ITAD volumes and an unfavorable product mix that increased factory processing time and pressured margins.
Lichtenstein also highlighted that the result reflected continuing operations, while divested businesses (Alliance Paper and the OF Flexo business) were treated as discontinued operations. He said the financial statements showed a loss from discontinued operations of AUD 5.7 million, which he described as partly “clean-up of the balance sheet,” including lease-related accounting effects that management expects to reduce in the second half.
Operational highlights: Mexicali ramp-up, Europe actions, packaging leverage
Management said the Mexicali facility continued to increase throughput and deliver labor efficiencies, reducing direct costs and supporting scale. In response to questions on inventory and backlog, Lichtenstein said progress has taken time as the facility added capabilities and knowledge, including offering new services such as a paint booth. He said the company expects better progress on the backlog as efficiencies improve.
In ITAD, management said sales teams are focusing on marketplace channels to capture higher-margin “premium assets,” while using wholesale channels to move slower products more quickly to improve cash conversion.
In Europe, management said it had set up a company in Italy to support a pan-European collection program, while scaling back Spain because it generated revenue but was “not very profitable.” It also cited a new OEM joining in Germany that is expected to improve profitability. Management said Europe did not deliver revenue growth in the half, in part because Italy was not yet online and Germany’s impact had not yet been realized. They also said a U.K. contract win was affected by Brexit-related requirements such as bank guarantees for shipping waste products from the U.K. to Europe.
When asked why the expected ramp in Europe was pushed from FY2026 to FY2027, management cited longer-than-anticipated contract implementation timelines, OEM budget cycles, and the time required to transition away from incumbent suppliers.
In packaging, management described the division as “financially very strong,” citing premium demand in flexible packaging and innovative carding solutions from South Africa. Lichtenstein said packaging revenue rose 18% while packaging EBITDA increased 27%, describing the segment as volume-based with operating leverage as revenue grows.
Balance sheet, cash flow, debt, and financing
Lichtenstein said receivables rose due to a stronger Q2 versus Q1, reflecting revenue growth that had not yet converted to cash. Inventory decreased, which he attributed partly to Alliance Paper carrying significant inventory and to faster processing through ITAD during the period.
He said net debt increased slightly due to cash usage, even as borrowings declined. Lichtenstein stated that total borrowings fell by nearly AUD 4 million over the six-month period, and that the company had around AUD 24 million in cash on hand. He said the company had “ongoing support” from bankers and expected continued covenant compliance for the remainder of the year.
On cash flow, he said operating cash flow was negative due to supplier payments and divestment-related costs, with the timing of divestment proceeds weighing on first-half cash. Management said funds from divestments were received in January after being held in escrow pending post-completion conditions. Lichtenstein said operating cash position improved into January and February.
He also noted net finance costs rose because the company had breached covenants in the prior reporting period, triggering a higher interest rate. Later in the Q&A, he said the company’s bank debt carried an interest cost of around 11%, while cash in term deposits earned about 4% to 5%, creating a “negative carry.” He said part of the strategic review is considering whether to use cash to pay down debt.
Strategic review, divestments, and other Q&A takeaways
Nair said the first half was a “critical stabilization period,” with divestments intended to reduce financial burden and allow greater focus on core, higher-margin, cash-generative businesses. Management said strengthening the packaging sales team and expanding into markets such as New Zealand and South Africa were priorities.
Additional items addressed in the Q&A included:
- Asia operations: Nair said Close the Loop has physical ITAD facilities in North America, Belgium, and Australia, while Asia Pacific programs currently use third-party partners until volumes justify a dedicated facility.
- ITAD “headwinds” and HP relationship: Management said ITAD performance had strengthened in recent months (January and February) but was not reflected in the first-half numbers. On the HP relationship, management said it is “as strong as it’s ever been,” noting upheaval at HP during the period and recent one-off programs in the 30-day return space.
- Data center decommissioning: Nair said the company has programs with key clients in Australia and is seeking to scale in other regions, but described the work as cyclical, often occurring on three- to five-year asset turnover cycles.
- Proceeds from divestments: Management said no proceeds were received in the reporting period and referenced approximately AUD 1 million in cash proceeds expected in the second half.
- Convertible notes: Lichtenstein said there are two $7.5 million convertible notes: one convertible at the company’s discretion into cash or shares (with shares priced at $0.74), and a second convertible at the note holder’s discretion into cash or shares. He said the company will work with the note holder to renegotiate an outcome “best for all shareholders,” noting the holder is a major shareholder aligned with the company’s strategic direction.
- Guidance and timing: Management said it expects positive cash flow in the second half but declined to provide a specific time frame for returning to historic profitability levels, saying it would not give guidance.
- Board composition: Management said the board is reviewing a skills matrix as part of the strategic review, with plans to recruit non-executive director expertise after that process is completed.
- Mexicali capacity: Lichtenstein said the facility is currently running a single shift and could increase capacity with additional shifts, but emphasized feedstock and profitable work are more important than maximizing utilization.
- Synergies across divisions: Nair described a link between collecting end-of-life soft plastics and converting material into TonerPlas (combined with toner) used to improve road performance, which he said supports customer sustainability narratives.
Management closed the call reiterating its focus on debt reduction, strengthening the balance sheet, and prioritizing growth in packaging while continuing to pursue improvements in the resource recovery businesses.
About Close the Loop (ASX:CLG)
Close the Loop Ltd engages in the collection and recycling of imaging consumables, plastics, paper and cartons, and other related activities in Australia, Europe, South Africa, and the United States. It collects, sorts, reclaims, and reuses resources activities. The company also offers print consumables, eyewear, cosmetics, and electronic products. In addition, it provides flexible and flexographic, seafood packaging, and bulk storage solutions. Further, the company supplies thermal paper and other paper products.
