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Pleasant Prospects of Lightweight Wheel Tech Provider, Carbon Revolution Amid COVID-19

  • April 29, 2020 08:45 PM AEST
  • Kunal Sawhney
    CEO Kunal Sawhney
    2299 Posts

    Kunal Sawhney is founder & CEO at Kalkine and is a richly experienced and accomplished financial professional with a wealth of knowledge in the Australian Equities Market. Kunal obtained a Master of Business Administration degree from University of T...

Pleasant Prospects of Lightweight Wheel Tech Provider, Carbon Revolution Amid COVID-19

New vehicle sales report released by the Federal Chamber of Automotive Industries (FCAI) for March 2020 has revealed a drop of 17.9% in sales figures as compared to the previous corresponding period (pcp). Total sales during March 2020 stood at 81,690 units, with passenger vehicle sales noted at 21,777, down by 24.9%. SUV sales declined by 14.2% to 39,171 units. Moreover, sales of light and heavy commercial vehicles declined by 15.5% and 21.7% to 18,162 and 2,580 units, respectively, during the period.

Gold MTF non-AMP

Since 2018, the automotive industry has witnessed a negative growth, majorly due to weaker consumer confidence, strict lending criteria by banks and drought. However, given the COVID-19 outbreak, drop in new vehicle sales figures was much sharper this time.

Meanwhile, several dealerships remain open to support customers with vehicle servicing covering critical emergency service vehicles.

Also Read: A Glance at Australia's Car Dealership Sector Amid COVID-19 Pandemic

In this backdrop, let us discuss Australian company, Carbon Revolution Limited (ASX: CBR), which recently reported strong performance for the March quarter and operations progress. But before that, let us first know about the Company and its business.

Carbon Revolution – A lightweight wheel technology provider

Catering to the global automotive industry, CBR is into the business of designing, manufacturing and marketing single-piece, high-performing carbon fibre wheels. Its lightweight carbon fibre wheels are used in some of the premier cars in the world. The Company made its ASX debut on 29 November 2019.

Wheel Sales Up 184% y-o-y in March Quarter

On 24 April 2020, Carbon Revolution released business activity report for Q3 ended 31 March 2020.

Owing to the coronavirus pandemic, wheel sales were negatively impacted during March 2020. The business was impacted due to disruption caused by global supply chains, affecting freight availability and cost. There were some supply issues related to key raw materials during the period.

Despite this situation, there was an increase in sales of wheels by 8.3% as compared to the previous quarter and by 184% from the same period a year ago to 3,749. Revenue reported during the quarter was $10.8 million, up 190% on pcp.

The Company also registered an increase of 31% in the moulded wheel rate during the quarter.

CBR Operations Progress

CBR focuses on boosting production efficiencies, investment in industrialisation capability, work on new programs as well as ongoing investment in R&D projects.

While the coronavirus had an impact on the volume ramp up, production continues across every shift with the Company implementing all safety measures related to COVID-19, such as shift separation & restrictions on manufacturing staff employment.

The industrialisation program remains on track. The cutting, layup & rim creating assets installation was completed in the third quarter. The Company has also acquired new tools to improve asset uptime.

During this period of global slowdown, Carbon Revolution has focused on fast tracking the development and implementation of an industrial technology that enhances the aesthetic features of the finished wheel. As per the Company, this area represented an ongoing challenge. The higher moulding rate has resulted in a rise in short term in the inventory of wheels in process. This increase, along with the new technology, facilitates a boost in the wheel sales rate through the remaining part of CY2020.

There is an ongoing development & launch activity associated with new OEM programs, new technology development and research activities covering fibre & resin technology.

Fund Raising to Strongly Position the Business

In the month of March and April, the Company completed an institutional share placement and a share purchase plan (SPP), respectively.

  1. Through the non-underwritten institutional share placement, CBR raised approximately $25 million by issuing ~ 16.7 million new shares. The placement was undertaken with the objective of strengthening the Company position to address the COVID-19 outbreak impacts on the business.
  1. The Company raised ~$2.73 million under the SPP with the issue of around 1,820,070 new fully paid ordinary shares.

CBR Financial Position

Carbon Revolution reported a cash balance of $48 million at the end of 31 March 2020. The net cash flow during Q3 FY2020 was $8.8 million.

Cash inflow/Outflow - Operating activities - The Company reported a net cash outflow of $7.535 million in operating activities. During the quarter, $11.077 million was received in the form of receipts from customers. It also received $0.130 million as interest and $0.516 million as government grants and tax incentives. The major cash outflow was because of the payments made for:

  • Research and Development.
  • Product Manufacturing and Operating Costs
  • Advertising and Marketing
  • Leased Assets
  • Staff Costs
  • Administration and Corporate Costs

Cash Inflow/Outflow - Investing activities - Net cash used in investing activities of the Company stood at $7.276 million. The cash outflow was due to payments of $5.803 million for the acquisition of property, plant and equipment as well as for other non-current assets.

Cash inflow/Outflow from the Financing activities - Net cash inflow from financing activities during the quarter was noted at $23.196 million. The Company generated $25 million by issuing equity shares. However, it had to bear the transaction costs related to issue of shares or convertible debt securities of $1.659 million.

Update on Sources and Application of IPO Proceeds

In the prospectus, the Company highlighted to have received $30 million by issuing the shares.

Meanwhile, number of customers have requested Carbon Revolution Limited to maintain production to meet the demand expected post lockdown.

Stock Information - CBR stock has delivered a negative YTD return of 60.80%; however, the last one-month return of the stock stood at 40.54%. On 29 April 2020, the stock closed the day’s trade at $1.500, down 3.846% from its previous close. CBR has a market cap of $227.58 million and ~ 145.89 million outstanding shares.



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