Close the Loop Ltd (CLG) Earnings Call Transcript & Summary

Hello, and welcome to the Close the Loop FY '26 Conference Call. Today, we have CEO and Managing Director, Kesh Nair; and CFO, Marc Lichtenstein. We have a Q&A function at the bottom of the screen, so please ask your questions there. I'll now hand it over to Kesh to take you through the presentation.

Thank you, Daniel. Hello, everyone. Thank you for joining us today. As Daniel mentioned [indiscernible] we're presenting the FY '26 results. So today's presentation, we'll essentially be discussing the reset of the business transformation and restructuring and what we've done to essentially produce a healthier balance sheet indictor what we have previously reported. We've acknowledged the challenges of the past and taken for responsibility addressing these issues within our control. But having said that, we've worked really hard in what has been a tough year in FY '26. We've had to make some strong decisions to essentially simplify our business structure and also look at exiting some of our underperforming businesses such as Alliance and O F Flexo. So alongside this, we've also experienced some market dynamic changes in our itech business, maybe particularly in America, ISP Tek. We've experienced some commercial challenges where we saw the ISP business to really fit into our operational structure as well as perhaps our provincial structure as well. given the state of our balance sheet. So from a commercial perspective, when it's appropriate to look at divesting ISP and further reduce the risks in our balance sheet. In addition to that, we've successfully restructured the convertible notes with [indiscernible], which was really important to the business. It gave us certainty in our capital management find and alongside this is hates look at the business, that one better foundations. And just sort of summarizing FY '26 we've stopped the cash drain on the underperforming businesses, we've used the proceeds of the ISP divestments as well as cap reserves essentially doing aggressive pay down of our bits the developed as an announcement to materially change our balance sheet, reducing net debt from $38 million all way down to $18.3 million, plus the settlement of convertible notes. What this really means is we've created a platform for our true organic growth for continued operations. But it's very important to say that the turnaround is not the conclusion. It's not our destination. It's a platform that we're using to propel us into FY '27. We've done an extensive review of our businesses to understand what works, what doesn't and credit specific strategies for our divisions to firmly focus on debt reduction increasing our cash conversion and, of course, increase in shareholder value as well. So moving forward, Daniel, into our business review. So we've got 2 primary divisions: Resource Recovery and the Packaging division. We're still going to look at some [indiscernible] regions where we believe in good margins as well as shorter cash conversion cycles, basically the mix things to the business will proceed. But really, as you can see from the results, Packaging has been private growth engine to clear set and form of. We've got a very good sales team that deliveries every year results is showing a 10% revenue increase as well as EBITDA of 47% in the FY '26, it's great. it's a business where our customers really like us to provide an end-to-end solution from designing packaging to creating packaging going into premium products such as bulk bags and pouches. We're confident this will continue in FY '27. As for our Resource Recovery division, we've got a global election network. It's quite extensive. It's got 260,000 collection points where we're continuing to collect such as printer cartridges, cosmetics and due to recycling and reuse these products. But we're also really sitting on despite logistics models and customized not to capture capabilities, which really help -- not only does it help from a compliance perspective, but also helps customers credit quite a competitive value change that they can take on to their customers as well. And I'll move it on to Marc to talk about the operational and financial results.

Thank you, Kesh. I just wanted to touch on the highlights, and I'll get into some details as we go through the presentation. The key points here on this slide are very much a very positive outlook and a good performance for FY '26 in spite of the restructure of the business. And the reason for that is we report on continuing operations. So any of the businesses that we got rid of during the course of the year, are classified as discontinuing operations and essentially get excluded from numbers, and I'll talk to that in a bit more detail as we go through. But most importantly, our revenue is up. So this is from the businesses that we had last year and the same businesses for the full year this year. So that was the $125 million. That's why you see it's up almost 6% from the previous corresponding period. What's pleasing is our gross margin percentage has gone up from 31% to 36%, which then drives the gross profit increasing overall. So that's a good outcome. And on the back of that, with an increased gross profit and an increased gross profit margin, naturally, our EBITDA has increased. EBITDA has increased by 34%. So it's a good outcome for the business. And the EBITDA margin itself has increased. And as we've said in previous presentations, to some extent, we're a volume-based business. We put more in the funnel at the top mill comes out the bottom, and our cost base is relatively steady. So that's where you see the gross profit margin increasing. And as we get more growth in the future, we will expect that gross profit margin to rise to levels where it's been in previous corresponding periods. And our NPATA, which is net profit after tax and amortization. So we take the net profit after tax, and we add back the amortization component. Now this was a very important number in previous periods when we own the ISP Tek business, and with all the intangible assets that we have recorded on our balance sheet. But at 30 June, we've written off a number of these in a result of the sale of 3 of the businesses and the restructure of a fourth business, and I'll talk to these in a bit more detail. but the NPATA is still a positive number, and it's moved to a positive number from a loss position in previous periods, which reflects the improved performance of the business. So Daniel, as we go through to the next slide. This financial year, if you take a look at the snapshot, where is the area that we focused on? Well, the key has been about the portfolio reshaping. It's the sale of the IST Tek Services, Alliance Paper and O F Flexo businesses, which all 3 of those were divested during the FY '26 period and form the basis of the results from discontinuing operations. So these get excluded from our overall result. And then we've also restructured the plastic recycling business. And that was a very important exercise that we undertook during the course of this year where we had 3 sites, and we rationalized them down to one profitable site. Again, we'll touch on that as we go through. So as I said, the continuing operations which is the rest of the business has grown by 6% in revenue and grown at an EBITDA level and grown at a gross profit level in both terms of absolute dollars and percentage points. And remember, we pay our bills with dollars, not percentage points, but it's grown in both parts. And the other key point that I'll touch on or get into a bit of detail, but that's really the key focus has been the net debt position. And perhaps this is a good time to talk about our net debt because our balance sheet had to be restructured during the course of this year. We've managed to achieve that with the sale of the 3 businesses. We've been able to pay down a substantial amount of debt from the proceeds that we received from the sale of the 3 businesses as well as additional cash that we have sitting on our balance sheet, which allowed us to reduce our debt by approximately USD 16 million. And the reason I use U.S. dollars is because our debt initially was classified as U.S. dollars. And post year-end, there's been a further reduction in debt because our convertible notes, we were able to restructure them and the shareholders agreed on the 9th of July with our process of restructuring, and we converted a big chunk of the convertible notes into shares. I'll talk to this as we go through the slides further on. But our net debt after year-end has reduced by a further 52%. So our net debt is only $18 million, which makes our balance sheet very much stronger. So I'll hand back to Kesh to talk about the strategic initiatives, and I'll cover more on the financial piece as we go forward.

Thanks, Marc. Echoing Marc's commentary there in terms of our strategy is still caught quite consistent in our 5 pillars. They're still designed to gear towards organic sales growth, creating operational efficiencies using increasing the free cash in the business and obviously, ultimately providing sustainable returns for our shareholders. The goal, as a business, we still want to be in the Packaging circular economy space in voyage. We are best innovative in terms of the products we've created through our Packaging solutions wherever we converted jars into pouches to help our customers, their supply chain costs. as well as tone players where we're getting end-of-lives Packaging materials and trained credit cartridges to track just sustainable part for the market. that still will be the focus of the business moving forward. But really, the underlying strategy is to really focus on how you manage these goals that we have, a strong heavy loss for sales, strong KPIs and how we manage positivity through it. And if you go to the next slide, Daniel. I'll pass it on to Marc to talk to the first initial question coming through.

Thank you, Kesh. So we talk about Packaging performance and how we're going to improve Packaging performance. Well, we've seen some good growth in Packaging performance, particularly over the last quarter of FY '26 and into FY '27. But we've managed to invest in the sales team. We've invested in people. We're also focusing on increasing our customer share of wallet. So make sure they buy more from us. That's what we mean by share of wallet. Can we get more out of their cash and out of their available resources? And we're looking to leverage the South African and Australian businesses that gives us more buying power. There's a lot of similarities between the businesses and making sure that we share the knowledge and know-how that we generate in each of the businesses. And as part of sharing that knowledge and know-how is to continue to invest in R&D. R&D is what keeps us ahead of our competitors, which gives us our competitive advantage in the marketplace. And for example, if we're doing development is the facade say, we're going to replicate it in Australia or vice versa. So those are the key pieces of the Packaging performance, investing in our people, investing in our capabilities, managing to get more from the share of wallet and an R&D component. And then if we look to improving our cash conversion, that's something that we should always be doing as a business. It's a good corporate governance. It's a good way to operate the business. And it's really about a focus in measuring people and KPIs and making sure we collect our debtors on time, making sure we use terms that we have available from our suppliers, albeit paying within terms. But nonetheless, making sure we have a focus on cash flow and cash flow conversion. And what we find is that we focus on cash conversion and our collection terms improve over a period of time. And we've seen that in some of our businesses, where we're focused on that, and we've been able to bring in our debtors days significantly over the FY '26 period. And now that we've been able to do that in some businesses, we need to replicate that across the entire group. It is often challenging with OEMs, as we call them, regional equipment manufacturers, the likes of HP and Xerox and Brother and those sort of big conglomerates what difficult to bring in your collection terms, but it's something that we focus on because they always pay you, but they pay you on their terms, not your terms. And that's one of the challenges dealing with these large multinationals. So cash conversion is right at the front of the queue of where we need to focus as a business going forward for continued improvement. Kesh, I'll hand back to you.

Just to touch on the packing piece there. It really comes out to how well we execute sales and we're constantly working on our sales processes, training to refine our cost and really recruit people with intent to ensure we're getting the right hunters and salespeople to build a strong pipeline over to years very done a good job in relationship building and delivering reliable service to our customers. And from that, I just want to make a call out to the South African Packaging Division where they've done a great job on increasing their revenue by and also the EBITDA is up by 42% to the direct result of the hardware, that guy that's been doing their lease. The OEM expansion, so we've got 260,000 collection points, infrastructure is predominantly geared to collect printing consumables. We're also looking at getting way spread out, cosmetics in growing that market. So if we were at the site and you're already collecting printer cartridges. We can all set to U.S., what it does is takes our cost of logistics relatively large while we are on site, and we can add on more products, and therefore, increase our revenue and keep our cost base relatively low. And we also are looking at moving into address refurbishment processes currently when we collect consumable products. We did data capture and we essentially shred it, so they get destroyed where we want to move into the space where we can reuse the product. So this creates a better commercial outcome for our customers that can recirculate the same products in the supply chain. And also that enables [indiscernible] to charge higher margins for these premium value-added services. In terms of cost efficiencies, as Marc touched on earlier, we're always looking at managing costs better. We're not only looking at cutting costs down. We're also looking at optimizing bus, particularly in our U.S. plastics recycling division we're able to consolidate sites and reduce our overheads. So essentially, we had about 3 facilities, we now consolidated that to 1 facility, just given us more capacity but also a better possible outcome in that division. Our recycling park in America is delivering a 30% labor gain, which basically means it's increasing throughput. So we can have greater volumes coming to the site without adding much cost in the labor force and managing labor and logistics. It's really important for the recycling divisions because directly, you can depress profit for these businesses. And well, this will be a key area of focus moving to [indiscernible]. And Packaging division, while mainly streamlined, we're continuing to do software integration to streamline the administrative costs, which enables free time for our sales and customer service teams so they can trade design customer relationships and building a stronger pipeline. Over to you, Daniel.

Thanks, Kesh. Now we talk about the financial statements. This is the bit where I watch the numbers of all the participants disappear because they think it's boring. And we're talking about accounting standards, but I get excited. So let's talk about the financial statements. So let me just explain that again about what do I mean by continuing operations and discontinued operations. The accounting standards say that discontinued operations in business you get rid of it. You don't count it. So when we look at the revenue, you say $118 million, how is that possible? What happened to ISP? What happened to the other 2 businesses that we sold in Alliance Paper and O F Flexo? Well, we don't count it. It goes below the line, it disappears. So what that means is the $18 million for last year, that's our continuing operations. And for the same businesses, like-for-like, we did $125 million. So that's how we get what we talk about continuing operations versus discontinuing operations. We're trying to compare like-for-like, and that's what the accounting standards says we need to do. So Kesh touched on that's why you see the increase in revenue. Our core business, the businesses that we go forward with have grown and have shown good improvement at both the gross profit level at a revenue level at an EBITDA level. So that's a good story for us. And included in these numbers is the cost that Kesh touched on, the cost of restructuring the plastic recycling business. So the costs associated with closing down those new facilities are included in our profit for the year, right? And so because that's not classified as a discontinued operation. We've got rid of the business, we just changed the business. So that's included in there. And for the savvy readers of our financial statements and those who couldn't wait to get their hands on them this morning, they would have looked at the segment note, and they would have seen hang on, you've made a loss in your Resource Recovery business and what's going on there? Well, let's just jump to the chase for that one. That's the restructuring costs associated with plastic recycling and the head office costs because historically closed the loop had some Resource Recovery costs going through the holding company. So for instance, the holding company costs get put in resource recovery. So the Packaging side gets a little bit a free kick, so to speak. And so the Packaging profit is slightly overstated in the segment note and the Resource Recovery is slightly understated. But nonetheless, we report as a consolidated group, and it doesn't really matter in which bucket everything goes. The key number is that we had a $12.4 million EBITDA. Right. So that's the main thing that we want to show here. Obviously, you'll see our depreciation and amortization has decreased quite substantially year-on-year. That's because we wrote off at 31 December. We wrote off some of the intangibles associated with the restructure of the plastics recycling businesses. So as I touched on before, NPATA used to be a big number for us and very important for us to say what's the true position of the business. But as we go forward, net profit after tax will be the true number that we look at because all those intangibles are going to disappear from the business combinations because we've disposed of those businesses. And overall, even after a net profit after tax, we made a small profit of $31,000. So we have been profitable for this year in spite of having a year of restructuring and reperforming and rightsizing the ship and we still manage to be profitable. So the future looks positive as we go from this. And then you'll see the final bullet point here, the loss from discontinued operations. You say, well, how did you lose $105 million. That's the intangibles that we were carrying on the balance sheet that we had to write off we wrote those off because we've got rid of those 3 businesses. And so the accounting standard says you must pull out your profit from discontinued operations and showed separately what we call as accountants below the line. So that's the $ 105 million that we've lost, but that really is book entries. We didn't lose $100 million in this current year, and you'll see that as we talk to the balance sheet. So as we go to the balance sheet, you'll see here, probably the most important numbers on this is what's happened with our net debt position. And I touched on that earlier. But the key point here is that you'll see our net debt has gone from $53 million down to $38 million. And then as we put in this morning's announcement, reduced a further amount to $18 million. So there's a further almost $20 million reduction that's occurred effectively on the 10th of July. That's because we really negotiated and settled on the convertible notes. So if I can remind everybody at this moment in terms of what we did. We sold -- we sold Alliance and we sold O F Flexo. We took the proceeds from those businesses and paid down debt. We also had some excess cash, which is why you see our cash balance going from $32 million down to $16 million. We took AUD 10 million of cash and decided to pay down debt at the same time as we settled on the ISP Tek Services business on the 19th of May. Thereafter, we also renegotiated the convertible notes that you recall, we had 2 convertible notes of USD 7.5 million each payable to [ Savi and Daniel Salon] who are related parties. We agreed to settle the first note by converting it into shares of $0.37 per share. And we also agreed to settle the second note by way of a conversion at $0.20 per share and a balance of $ 4.5 million that will be paid in cash. That's USD 4.5 million and repaid in cash. The first $2.5 million will be paid at settlement when we go through our refinance, we'll refinance on the next slide when we get there. And if you look here at our balance sheet, you'll see all our borrowings, everything is current. It was current last year. and that's because we've reached our bank covenants. We've complied at our bank covenants this year. And so in theory, we could have carried out borrowings at noncurrent borrowings for a big chunk of that. But because we've indicated to the market and our bankers, PGIM, have indicated that we will complete refinance by 31 December, we have decided and elected that all the borrowings should be classified as current because they will be repaid in the next 12 months. even though we have a facility that expires in 2029, and we continue to have the ongoing support of our bankers. We are looking to change bankers. We'll talk about the implications of that. So that's a key point. And the key focus here is the borrowings, the net borrowings, the strength of the balance sheet, naturally, people might notice and say, why is your inventory gone down from $24 million to $6.3 million. That's because of the sale of the ISP and Alliance paper businesses, which had strong inventory amounts. So to confuse people even further, we restate the income statement for continuing and discontinuing operations, but the balance sheet remains the same as what it was at 30 June last year. So that's just a test to see if anybody is still listening. And I'll ask questions afterwards. So as we go forward, you see that our covenants were reset during the course of the year. We complied with all our covenants at 30 June. And our net debt really is the big story here, which has improved. If we go forward to the cash flow slide, please, Daniel, and the key point here is perhaps the focus where over the years gone by the analyst says chased me and said, "Marc, your quick cash conversion rate? And how does that work? Needs to be 100% of EBITDA." What we're saying is that the cash receipts that we received from customers less the payments to suppliers and then you have a net difference there, divided by the EBITDA, gives you what with a car, a quick cash conversion, which you'll see here is 90%. It's improved from previous the previous year. And here is a good example where you see the cash receipts last year, $204 million versus $135 million this year. We don't restate the cash flow statement. But what we do see is that our quick cash has improved year-on-year. Now another key point to focus on is the CapEx. Our CapEx has reduced from $3.3 million to $2.4 million. I've always said historically that our CapEx will be similar to our depreciation. Well, I'm happy to announce that I think our CapEx over the coming years will be less than our depreciation. We've made all the investments in the businesses that we needed to make over the recent years. If you actually go back to 2024, our CapEx spend was $10 million. Now I've said before on previous presentations that when we invest in resource recovery, whereas the vast majority of our capital expenditure goes, we invest in equipment that we might write for the 5 to 7 years. But actually, in reality, the equipment last 10 to 20 years. and it's really maintenance that we incur some costs. And if you look after these pieces of equipment, they lost for a very long time. And that's where we start to see the benefits now where we've taken the pain in previous years. There isn't significant capital that's required to be invested in the various businesses. Our most recent investment was made in the plastics recycling business, and that's been well reflected in the improved performance of that business since that new capital investments come online, and that's improved the profitability of that business. And that's been very pleasing to see, and our return on investment is coming to life. It wasn't just a piece of paper. It's actually showing through the actual results and cash generated by that business unit. So we would expect our CapEx in future periods to be in the range of 1 million to $3 million, but we don't think there's significant capital that's required to be invested in the business. And our maintenance is maintained by people on staff so it comes through salary and wages rather than having to be outsourced to seeing it being capitalized. I've touched on already about the disposal proceeds being used to pay down debt. The other one is the lease payments being lower than previous periods. We have fewer facilities. I've touched on the plastic recycling facility, but we've got rid of a couple of facilities across the group and be able to streamline the business, which makes our lease payments decrease. And I wanted to touch on then on capital management. I've touched on the borrowings and all that already. But I want to reiterate that we are well advanced in our refinancing process. We've told the market that we would be refinancing by 31 December. We completed a pre-lending refinance review last Friday, and we will advance with a couple of major first-tier banks. That will allow us to make some significant savings in the interest rate that we were paying. So we're expecting between 350 and 400 basis points or 3.5% to 4% savings in the interest build. Obviously, we have a slightly lower borrowing amount that we'll be going forward with, but nonetheless, it's a significant saving to our interest expense, which is a true cash positive outcome for the business as we go forward. So that's the key financial piece that I will hand back to Kesh. No doubt there might be some questions on the finance piece as we go forward.

Thank you, Marc. So, so far, everything we are doing in FY '27 or everything we've done in FY '26 as well. It's all designed to build a better sustainable business model and increase shareholder value for the long term. And the key word there is long term. As Marc mentioned, you've got cost heavy areas like braces recovery, it's were actively managing those businesses have factories and large labor force that do processing of these recycling products. So we're making sure we're using on each of these that can streamline the cost in those areas. We're also making sure that every dollar that we're spending on working capital is sparing or intelligently where rice know it's got a quicker and a more profitable return he's been a key learning over the years for us. cutting in terms of the top line. We're investing in a smarter system in salaries, software for Packaging divisions as well as procurement and innovation, particularly on procurement, where every day, we're focusing on restructuring procurement by a single company as a unified group, which helps us unlock better purchasing terms as well as help us manage our cash better as well. And we're pivoting into selling high-margin products and expanding in regions. We recently gone into New Zealand, we've got a small sales team day that has already shown positive results, which is just great to say. And Packaging is a division where the sales processes can be quite easily replicated to refine the art from quotation to manufacturing really well. And it's a business going through life recite ease regions, and that will be a key focus moving forward into FY '27. So all these initiatives, they're all designed to reduce that improve our balance sheet and provide better intent for our shareholders. I'll pass it on to Marc now to go to the next slide to talk about forecast and outlook segment.

Thank you, Kesh. So the key point here is about strengthening our balance sheet. We've taken the last year, FY '26. We're not 100% of the way there yet, but we are a long way towards the restructure of the business, restructuring, strengthening our balance sheet. -- in order to do that was about the ISP tech divestment. We sold the business for USD 9 million that was paid at settlement and then a seller note of $1 million. Those proceeds have been straight to our financiers to reduce debt. So that was a big step through the restructure. We continue with our debt reduction post end of the year with the restructuring of the convertible notes that I've touched on already. And then the refinancing funding costs, I've touched on that already. I guess I'm savvy investors are going to ask me, what does it mean when you reduce your debt 3.5% to 4%. Well, overall, the back of the envelope amount is your interest bill decreased by about $1 million. in terms of -- and I can go through that in more detail later on, but that's really a key point that it's cash that we don't have to spend and that's a key point. So the real key focus here was the divestment, the debt reduction and the refinancing and the refinancing will be done in the first half of FY '27. Kesh, back to you.

Thanks, Marc. Marc had mentioned debt reduction quite a lot as well as it's really important to emphasize the benefits of that is really what is studies credit a platform through the divisions to excel in FY '27 and focus on the actual organic proto worrying too much about how we manage our capital project for it is something we're going to this on through presentation. But more importantly, it's given managing the flexibility to really 0 in on the underlying performance of our core business and really work out what is working and what's not and how to create intricate strategies to improve the profitability of those businesses. We do believe we've geared a much stronger foundation for organic growth and clinic phase is all about execution, the reset of the business is good. And yes, we really want to focus on reliable planning with some reliable revenue and cash generation moving forward. yes, I'll pass it back to Marc to close off the forecast spend.

Thank you, Kesh. Look, we wanted to reiterate our guidance through this process. We had -- previously when we sold our ISP business, we announced that we expected FY '27 EBITDA to be in the range of $14 million to $16 million pre-AASB, that means before we adjust for the rent. $14 million to $16 million will produce strong free operating cash flow for the business. That's after paying interest and any debt that will be required of a new finance facility to be repaid. So we would still have some free -- quite significant free operating cash flow -- and that then ties what does the Board think and consider for its capital management options. Well, the key capital management option in the first instance is to continue to reduce debt. That has to be the key focus for the business, reduce debt. And in the medium term, they can think about dividend, share buybacks or any other form of capital management. But the initial reaction is pay down debt as quickly as we can. -- and that we think will produce the best return for shareholders over the medium to long term. We're continuing to see growth in both our Packaging and Resource Recovery divisions. Our business has started off very well. As we said, quarter 4 was good in the first 6 weeks of trading have been excellent across the entire group. All the businesses have started off very well. So that's a very positive sign. And if we can reach our $14 million to $16 million EBITDA guidance, then we would be in a net debt position of absolutely less than 2x at $16 million based on the refinance and paying down debt during the course of the year. And that's a 2x EBITDA without taking into effect the cash and additional cash that will be on hand. So that's why we talk about 1 to 2x EBITDA through this piece. But that's really the key points I wanted to focus on, I touched on the CapEx already. I've spoken about capital management. We certainly have been through the metrics of the convertible notes. And as I say, reducing the debt post year-end has been the big talking point that's not necessarily in the annual report, although it is in the subsequent events note. So Daniel will -- I don't have anything else to add. We want to take a couple of questions, please.

Thanks, Marc. So we've got a number of questions to that have been asked. So the first question is on the debt and the capital structure and the refinancing. So debt position post the convertible note settlement and then the interest cost savings from that debt restructure?

Yes. I touched on the presentation, so I'll just go backwards to the potential cost savings. That was the 3.5% to 4% in terms of the interest, which was calculated out to approximately million, maybe $1.1 million, depends how you do the calculation in terms of interest savings during the course of the year. The net borrowings as we indicated, have decreased by a further $ 19.8 million post year-end, which is really the convertible note component that's converted into shares. And obviously, the reduction -- that gives us an $18 million net debt position at the end of the period, which is made up of essentially USD 19 million worth of core PGIM bank debt that's in U.S. There is a small component of the convertible notes that still has to be repaid. So it will be paid at settlement of the refinance and then a 5-year interest-free loan to the tune of $ 1.75 million although the first payment is only paid 12 months post settlement. And then obviously, there's a cash component and our cash balance has remained steady at $16 million. I'll also remind everyone that we paid back the last or the required payment of debt reduction on the first of July. So we paid USD 750,000 on the 1st of July of our core debt and our cash balances remained constant in spite of paying down the interest and the debt on 1 July rather than 30 June, which shows the free cash that the business has continued to generate in the first 6 weeks of this trading period.

For the debt reduction, how much further can net debt fall on delivery of the FY '27 plan?

Well, we haven't gone into the market to make an exact number as to what the FY '27 number looks like, assuming that we will pay down a couple of million dollars of core debt as per the requirements, depending on what the refinance looks like. But let's make an assumption, we paid down $2 million of core debt in the first year. There'll still be a good few million dollars' worth of excess cash. so that will reduce our net debt position even further. So as I said, $2 million plus the additional cash generated from earnings from EBITDA, so anywhere from $2 million to $5 million.

There's a question here on the ISP Tek divestment. What was the exit rationale and the benefit to the group in doing the transaction?

Yes. So the exit rationale was in relation to -- we had a number of large players coming into the market, we are term market encroachment. And -- there's a lot more competition in that space with bigger players with bigger balance sheets and the market was changing upon us. And so we -- whilst the business performed exceptionally well in the first few years that we owned it, we saw a change in the market. We saw bigger players coming into the space with bigger balance sheets. We're prepared to take bigger bets, and we thought it was most appropriate that we're not able to compete at the same level with those folks and it's best to exit the business as best we could.

To add to that as well, the bigger businesses that Marc is referencing these business of how any some cash reserves so they can essentially buy products at a higher price and also wait for a very long time to get a return, sometimes beyond 90 days or 120 days. and they're doing this quite aggressively in the market to capture it, and the market is heavily moving to as there's more assets being developed, particularly give of the AI period. range. That's the market dynamics that we're seeing and really impacts on higher spend.

Earnings and outlook. Resource Recovery in the FY '26 result, the FY '26 segment loss in Resource Recovery and what sits inside that?