Ecofibre reports $40m loss as impairments and legal fees dampen profit turnaround

The group reported a headline loss of $40 million for FY24, which is fairly similar to the previous statutory result even though revenue was down 8.6 per cent and EBITDA for two leading divisions was back in the black towards the end of the period.

Ecofibre is currently staring down legal claims in the US from its former chief scientific officer (CSO) Dr Alex Capano and other former senior executives, including Jeff Bruner who was the president of the group's highest-revenue division, textile operation Ecofibre Advanced Technologies (EAT).

Capano has filed another employment-related claim, while the group also revealed that Elixinol Wellness (ASX: EXL) believes it has a claim against Ecofibre relating to its purchase of Ananda Food earlier this year.

Ecofibre denies the claim from Elixinol and reports that the parties are likely to refer the matter to an independent expert in the current quarter, in accordance with dispute resolution provisions in the contract.

"As it relates to the litigation brought by a former employee terminated for cause and then joined by two other ex-employees, we have filed a motion to dismiss and are vigorously defending all claims," Ecofibre chair Vanessa Wallace said in a company webcast today.

"We do not see this action as a significant threat or impediment to the future operations of the business," she said.

Both Wallace and chief financial officer Jonathan Brown highlighted the improvement in the June half as the textiles business EAT delivered $1.6 million and Ananda Health, the medicinal cannabis division, stood at $200,000 in the black.

"For the last two years operating momentum has been steadily improving, largely due to our actions," Wallace said.

"In the first half of 2023 our EBITDA loss was $8.6 million for the half. We saw that narrow in the second half of 2023 and the first half of this year. In the second half of 2024 we saw EBITDA approach break even with a loss of $0.9 million and this included additional compliance restructuring, advisory and litigation costs that are not typical."

These results were weighed down by net impairments of $31.3 million, including write-downs on cannabinoid extracts, a pyrolysis machine and multicomponent yarn extrusion machine, as well as impairments to a building in Georgetown and various polymers and yarns.

Ecofibre registered intangible asset impairments of $27 million on the impairment of goodwill recognised on the acquisition in August 2020 of TexInnovate Inc, founded by Jeff Bruner, which formed much of the foundation for the EAT division.

The company's loss was partially offset by a $12 million reversal of provisions for earn-out considerations required if the acquired business delivers EBIT of US$6 million for two annual years in a row within seven years of the acquisition. Given there are still three years remaining until that 2027 deadline, this reversal may indicate a lack of optimism in its potential for substantial growth after the recent operational turnaround.

Wallace said that overall there is "still much to do across the business" but the group is making "pleasing progress".

"Our priority focus is on returning the business to cash flow-positive status," she said.

One of the priorities for Ecofibre's cash flow plan announced in November 2023 is to lower operating costs and debt. Operating costs were reduced by 27 per cent over the year, including cuts to staffing costs and a 38 per cent haircut on research and development (R&D) spending.

Wallace noted a comprehensive restructuring of Ecofibre's debt was progressing, but at a rate that has been slower than anticipated.

As it stands, the group currently needs to pay back US$10 million to Nubridge and US$1 million to Thiele by the start of 2025, and a further US$6 million to pay Thiele by mid-2025 along with $3.5 million repayable to the superannuation fund of substantial shareholder Barry Lambert.

"The sale and leaseback of two of the group's freehold properties did not proceed to completion," Wallace said.

"As a result, we commenced the debt restructure program at the end of FY 24 - the first step being to extend the maturity of our secured and unsecured loans, providing us time to work with Chiron Financial on a comprehensive debt restructuring plan.

"We expect to provide investors with a further update on progress during the first half of FY25."