AFR online:
Light wheel maker Carbon Revolution in race against time
Simon EvansSenior reporterNov 2, 2022 – 2.39pm
Lightweight wheel maker Carbon Revolution is in a race against time as it attempts to make a big leap onto the Nasdaq exchange in the United States through a merger, but risks running out of cash in the short term.It is in talks to cement a merger with an unnamed special purpose acquisition company (SPAC) from the US which, if it comes off, would result in Carbon Revolution leaving the ASX and becoming part of a bigger group listed on the Nasdaq.Carbon Revolution makes lightweight wheels which are increasingly sought after by electric vehicle makers. The company’s shares were in a trading halt on the ASX for almost 48 hours from Monday afternoon. But on Wednesday that turned into a voluntary suspension. It has been asked to provide more information to the market “in response to ASX queries” over a quarterly sales announcement made on October 31.Carbon Revolution’s carbon fibre wheels are between 40 per cent and 50 per cent lighter than traditional aluminium rims, and are increasingly used by automotive manufacturers for electric cars, where cutting the overall weight of a vehicle is important.It has supply contracts with companies such as Ferrari, Ford and General Motors, but a cash flow drain has dragged on its share price, which sunk to 20.5¢ a week ago. This compares with its issue price of $2.60 when the company listed on the ASX in 2019.Investors had a rare upward movement in the share price on October 31, when it rose 77 per cent to 38¢, after Carbon Revolution said it had signed a non-binding letter of intent over the planned US merger proposal. The company won’t comment further on the specifics of the proposal deal.That merger proposal announcement was part of the usual quarterly cash flow statement to the ASX, which also outlined the company “will require short-term bridge funding to meet cash flow requirements until the proposed transaction closes”, sometime in the June quarter in calendar 2023.Crunching the numbersCarbon Revolution said its sales revenue for the September quarter was $10.4 million, up 66 per cent on a year ago, and that it had sold 3739 wheels. But wheel sales for the Corvette Z06 model made by General Motors were “much weaker than expected” in August and September, after GM experienced supply chain disruptions which prevented the ramp-up of production of that model. Carbon Revolution responded by cutting back on staff employed via labour hire firms at its Geelong plant.Sales to Italian prestige car maker Ferrari were still strong.Carbon Revolution’s cash balance at September 30 was $10.7 million. Net cash outflow in the September quarter was $12 million.Under the SPAC merger proposal, the company had an enterprise value of $US200 million ($313 million), which equated to a nominal value of $1.49 a share.This was before the potential injection of $US50 million being sought “in connection with the merger” through a committed equity fund, which would go towards strengthening the balance sheet and funding the next leg of production expansion. Under the terms of the merger, Carbon Revolution would be de-listed from the ASX and the merged entity would list on a US exchange.But Carbon Revolution pointed out there was a risk that a binding deal might not eventuate.Carbon Revolution shares climbed to about $4.60 shortly after it listed in January 2020. But when the COVID-19 upheaval hit financial markets, it moved early to raise capital, bringing an extra $28 million in the door in March 2020 to shore up its balance sheet. That capital raising was priced at $1.50. The company raised $95 million in two components in April last year; a rights issue and an institutional placement, at $1.60 per share.
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