How Close the Loop’s $32.8M Loss Masks Underlying Growth and Strategic Shifts
Close the Loop Limited reported a significant half-year loss driven by intangible asset impairments, yet underlying operations show promise with packaging sales up 18% and positive adjusted earnings.
- Half-year revenue up 1.8% to $92.3 million
- Net loss of $32.8 million largely due to $23.2 million impairment and $6.2 million amortisation
- EBITDA declined 23% to $9.3 million amid operational challenges
- Packaging division achieves 18% organic sales growth
- Disposal of two non-core subsidiaries and potential further divestments underway
Financial Overview
Close the Loop Limited has released its half-year results for the period ending 31 December 2025, revealing a net loss of $32.8 million. This stark figure is primarily attributed to significant non-cash charges, including a $23.2 million impairment of intangible assets related to the ISP Tek Services acquisition and $6.2 million in amortisation expenses. Despite these accounting impacts, the company’s revenue edged up 1.8% to $92.3 million, reflecting steady top-line performance.
EBITDA from continuing operations declined by 23% to $9.3 million, influenced by a challenging shift in the consumer electronics mix within the resource recovery division and the ongoing ramp-up costs at the Mexicali facility. The company notes these are short-term hurdles it is actively addressing.
Operational Highlights and Segment Performance
Close the Loop operates two main segments: resource recovery and packaging. The resource recovery division, which collects and processes a broad range of waste products for reuse, faced headwinds from an unfavourable business mix and capacity ramp-up expenses. However, it continues to expand its footprint across Australia, the US, Europe, and South Africa, including growth in a pan-European multi-vendor collection program driven by regulatory and sustainability trends.
Conversely, the packaging segment delivered robust organic growth of 18%, driven by improved sales in South Africa and Australia. This division has managed to increase profits despite some margin pressure, benefiting from volume-driven sales without significant capital expenditure. Demand remains strong for its sustainable packaging solutions.
Strategic Divestments and Financial Position
During the half-year, Close the Loop divested two non-core subsidiaries: O F Flexo Pty Ltd (flexible packaging manufacturing) and Alliance Paper Pty Ltd (thermal paper and rolls business). These moves align with a strategic focus on core operations. The company is also exploring further divestment opportunities for other non-core units, though no binding agreements have been reached yet.
Net debt increased modestly by $3.5 million to $57 million, primarily due to cash used for discontinued operations, working capital, and interest payments. The company successfully complied with banking covenants following a reset after prior breaches, with loans denominated in USD and subject to foreign exchange translation impacts.
Outlook and Considerations
Excluding amortisation and impairment charges, Close the Loop’s adjusted net profit after tax was $2.3 million, indicating underlying operational profitability. The company expects the full financial benefits of its expanded European collection programs and Mexicali facility ramp-up to materialise in the 2027 financial year. Meanwhile, the packaging division’s growth trajectory is forecast to continue, supported by strong demand for sustainable products.
While the headline loss may raise concerns, the company’s strategic divestments and focus on core sustainable businesses position it for a potential turnaround. Investors will be watching closely for updates on divestment deals and operational improvements in the coming months.
Bottom Line?
Close the Loop’s headline loss conceals operational progress and strategic refocusing that could reshape its financial trajectory.
Questions in the middle?
- What is the timeline and expected financial impact of the potential divestments currently under consideration?
- How will the company manage foreign exchange risks associated with its USD-denominated debt going forward?
- Can the resource recovery division overcome its current challenges to deliver sustained EBITDA growth?
