The green energy movement has emerged as a transformative force in the global economy.

Driven by the urgent need to mitigate climate change and reduce our dependence on finite fossil fuel resources, the concepts of recycling, regenerating, and reusing products have gained prominence. These practices are not only environmentally responsible but also present significant economic opportunities for companies operating within the green sector. In this article we’re taking a look at one of TAMIM’s holdings, Close the Loop (ASX: CLG), a small-cap ASX-listed business at the forefront of this movement.

The Business

Close the Loop is a global player in sustainable solutions, operating across Australia, Europe, South Africa, and the United States.

The innovative company specialises in creating eco-friendly products and packaging with a strong emphasis on recyclable and recycled materials. Furthermore, Close the Loop plays a pivotal role in resource management by collecting, sorting, reclaiming, and reusing materials that would otherwise end up in landfills. The company’s expertise spans a wide spectrum of sectors, including electronics, print consumables, eyewear, cosmetics, plastics, paper, and cartons.

Notably, Close the Loop excels in transforming post-consumer soft plastics and toner into valuable resources, highlighted by their groundbreaking asphalt additive, TonerPlas.

Close the Loop’s strategic positioning within the circular economy came about by the merger of the O F Pack Group with Close the Loop Limited in November 2021, coupled with its ASX listing. The successful $12 million IPO in December of 2021 has enabled the company to provide end-to-end solutions across packaging and consumables, serving diverse markets. With a keen focus on innovation, product development, and comprehensive end-of-life recovery systems, Close the Loop is steadfastly committed to reducing waste sent to landfills.

The Financial Position

Close the Loop reported its FY 2023 results at the end of August showcasing strong revenue growth of 52%.

The significant growth was driven by acquisitions which we’ll touch on later, the company detailed organic growth of 19%. The impressive revenue growth flowed through the profit and loss with Earnings Before Interest Tax Depreciation & Amortisation (EBITDA) up 70% to $24.3 million and Net Profit Before Tax (NPBT) up 113% to $14.9 million.

Chief Executive Officer Joe Foster commented:

“We are delighted to be reporting strong performance across the CTL group. In the financial year, our existing businesses have demonstrated substantial growth, showcasing a 19% increase in revenue. We have also continued to deliver on our inorganic global strategy and achieve the goals we set at the time of our IPO.”

The business produced strong improvement in its cash flows with operating cash flow for the year of $22 million up from an outflow of $3 million in the prior period. Following a number of acquisitions, a capital raise and debt funding, Close the Loop finished FY 2023 with a cash balance of $49 million.

Growth by Acquisition

Close the Loop has been incredibly busy acquiring businesses over the last financial year.

There were several minor acquisitions completed including Alliance Paper Pty Ltd, The Pouch Shop, Oceanic Agencies, In-Plas Recycling and Crasti & Company Pty Ltd assisting the business expand overseas and into new and existing areas.

Its largest investment was the successful acquisition of ISP Tek Services LLC and Captive Trade Corporation (ISP Tek), a US-based electronics refurbishing and trading platform, for up to US$66 million (A$99.7 million).

The strategic purchase, completed on April 28, 2023, significantly bolsters Close the Loop’s capabilities in consumer and commercial electronics remanufacturing, expands its presence in the US sales and trading market, and extends its distribution networks. It also enriches the company’s service portfolio by adding reuse capabilities, enhancing support for original equipment manufacturers (OEMs), and promoting sustainability and circular economy initiatives.

The acquisition was funded through a combination of debt and equity placement, aligning with the company’s capital management strategy. Close the Loop conducted a A$45 million placement of new fully paid ordinary shares to sophisticated and institutional investors. Additionally, Close the Loop partnered with Pricoa Private Capital to secure a US$40.0 million senior secured term loan, a US$7.5 million revolving credit facility, and a US$5.0 million delayed draw term loan facility to support the acquisition and future growth aspirations.

ISP Tek, in the brief two-month period under Close the Loop’s control, generated a substantial revenue of $16.362 million. This acquisition is poised to improve Close the Loop’s profitability by expanding its market reach, enhancing its technological capabilities, and solidifying its position as a leader in electronics remanufacturing and trading in the US.

Outlook

Close the Loop management is bullish on its FY 2024 outlook expecting revenue of $200 million and EBITDA of $43 million, growth of 47% and 77% respectively. With its dedication to sustainability and a circular economy, Close the Loop is well-positioned for a promising future, offering investors an optimistic outlook on their growth potential in the environmentally conscious market landscape.