Carbon Revolution Public Limited Company (CREVF) Earnings Call Transcript & Summary

Hello, and welcome to the Carbon Revolution 2021 Full Year Financial Results Webinar. I'm Andrew Keys, and I will be facilitating today's event. In a minute, Jake Dingle, CEO of Carbon Revolution; and CFO, Gerard Buckle, will be presenting. At the conclusion of their presentations, there will be a Q&A session. [Operator Instructions] Good morning, Jake, over to you.

Thanks, Andrew. Good morning, everyone, and welcome to Carbon Revolution's full year results announcement for financial year 2021. FY '21 was our first full year as a listed company. It was an extremely challenging year right from the first month given the impacts of COVID-19. It's affected us in 2 primary ways. Our key markets, the global automotive centers of North America and Europe were massively disrupted. And at the same time as a team here in Australia, we had to deal with the pandemic and take measures to protect the workforce on the ground here from an outbreak. When a key customer moves around 6 months of orders overnight without warning, the first days of the new financial year, it's going to be challenging. That marked the start of what was an unprecedented year of shocks across the global automotive supply chain. What the team achieved though through this period to position the business as strongly as we have despite the pandemic has been quite remarkable. I'll talk about some key elements of that during this presentation. In the summary slide on the -- summary page, Slide 3 of the deck, we called out 4 primary areas for discussion in relation to FY '21. They are new programs that have entered production, new program awards and Mega-line progress and the operational and capability improvements that we've made across the business during the year. 2 new programs entered production in the final months of the financial year. So despite our customers delaying programs by more than 12 months, they've continued to work around their own challenges. Importantly, the programs that we're now bringing into production coming with new and improved technologies such as Diamond Weave which we've previously referred to as fascia, things which our earlier programs didn't have. The larger programs that we secured formal detailed design and engineering agreements for earlier this year and then have underpinned our decision to kick off phase 1 of our Mega-line are on track. These programs are progressing well and involve deep collaboration and interaction with our customers. Fair to say that the size and strength of wheels being developed for the largely EVs within the large SUV and pickup truck space is something that we and our customers believe are really going to excite the industry when they are launched. As we've previously stated, the first of these is expected to be in production of our first Mega-line from the first half of calendar 2023. The $95 million capital raising earlier this year was conducted to fund phase 1 of this first Mega-line. This activity is on track, both in terms of timing and in terms of budget. The purchase orders relating to key elements of the Mega-line are now in place, and our equipment partners are off and running. First signs of progress in the factory on the floor are expected to be in the first quarter of next calendar year. Operationally, in spite of the challenges posed by COVID, we've made a significant amount of progress. While our workforce was heavily reduced due to the reductions in orders by key customers, we managed to drive some important outcomes. Diamond Weave technology was introduced and is now on all of our major programs. This was a challenging and complex technology introduction, giving us uniqueness and it was made all the more challenging by the difficulties in coordinating teams that were not always able to work together on site due to COVID restrictions. This technology is now in, and really showing what it can deliver as we're well through the initial bidding in phases. Again, a huge reflection of what the team can achieve and has achieved in a difficult year. You'll see from the COGS charts later on in this presentation that despite the challenges of the year and the difficult first half, in particular, the trends are now hitting in a really positive direction. In the first half, we were dealing with the early stages of COVID and dramatic volume reductions, as I mentioned earlier. This also impacted the stability of manufacturing operations. These issues are reflected in the high first half costs. One key customer pulled back on 6 months of orders, as I mentioned, orders that were in our forecast, meaning that we had to dramatically reduce the workforce. Those that remain in the factory had to be separated both within shifts, and separations had to be put in place between shifts. And these are the sorts of things that run counter to all normal manufacturing initiatives or efficiency initiatives. But obviously, we had good reasons in this instance. The second half was also challenging, particularly with the emergence of the chip shortage and its impact on our volumes towards the end of the financial year. These came just as we were starting to see momentum in the factory. Despite this, we saw a big shift down in both direct and indirect elements of costs. The indirect cost elements reduced due to added volume albeit curtailed by the chip shortage, while the direct cost benefits directly reflected the improvements within the specific processes on the shop floor. And 1 major step forward that we've made as a business during this past 12 months is to bring significant leadership capability into the exec team. With the strong prospects now emerging for the business, it's become more possible to attract world-class talent to the team. Andrew Higginbotham, joined the team towards the end of FY '21. And his decades of experience and an agile approach are already really paying dividends within the factory. As a result, we're certainly expecting the positive trends in our cost of goods to continue as we set the business up for a much higher volume and lower cost of production. Moving to Slide 4. It's worth just reiterating what it is about this technology that's appealing to our customers and why we maintain the view that it will be truly disruptive across the industry over the coming decade and beyond. It's clear that carbon fiber wheels are now already seen as the performance technology of choice to making cars perform at the highest levels. The Ferrari SF90 Stradale has just broken a couple of new records, including fastest lap at the Indianapolis track that was done on our wheels as was there 0 to 100, time of 2 seconds [flat]. This adds to the records that we've already seen falling for vehicles like the Pista and the Renault Megane with our wheels on tracks like the Nürburgring and Hockenheim over the past couple of years. So there's not too much debate anymore about the topic of this as a performance technology. What's becoming increasingly clearly understood by our customers as this EV replacement cycle takes hold globally are the clear benefits that come from our technology in terms of range extension and noise reduction or NVH. When we combine our significant mass and inertia benefits with the ability to create aerodynamically efficient shapes without weight or durability trade-offs, there's a huge value equation coming from the technology. When the NVH and its knock on weight reduction benefits are added, it becomes even more valuable. So given the desire for these kinds of benefits in a world where vehicles are getting heavier due to battery mass and range anxiety is a key driver of the major OEM development programs. We are increasingly very well positioned. To add to this, size of automotive wheels has been increasing for at least the past 25 to 30 years, and this trend is continuing. We will progress with launching 23-inch wheels for our first SUV program and have 24-inch wheels progressing rapidly through the engineering design phase as part of our first Mega-line suite of programs. To do this in aluminum is prohibitively heavy. As wheels get bigger and as they need to take heavier loads, our technology extends its lead even further. 50% weight savings are certainly feasible. And for these bigger wheels, that can mean remarkable weight reductions across the vehicle at 50 kilograms or more. That's an enormous and exciting amount of weight reduction for any design team. Moving to Slide 5. I've mentioned a number of the topics on this page already, but will talk about the results of the year and put those into some context. Lots of challenges during the year and lots of important learnings, too. As I said, the year kicked off with major reductions in volume or in demand, including 6 months of orders being removed. And the last part of the year was characterized by orders being canceled due to chip shortages. We ended up 8.5% down on the prior year in terms of volume, which is far from what we hoped for, particularly given the trajectory coming out of financial year '20 and pre COVID. It does, however, need to be viewed in the context of what happened with the demand change to those customers during the year. The situation was extremely challenging, and the final outcome reflects careful management by the team at a very difficult situation. Revenue was down slightly more at 10%, reflecting the mix shift to slightly lower priced wheels due to those initial cancellations. Pleasingly, our cash management initiatives resulted in a much better outcome from an operating cash flow perspective. Gerard will discuss this a little bit more later on in the presentation. Safety performance was somewhat disappointing relative to the prior year, and reflects a couple of primary things. Firstly, our FY '20 safety performance was truly remarkable. And the industry average was 8.4, and we achieved a 1.1 lost time injury frequency rate in FY '20, it's always going to be hard to match. In our manufacturing environment, we have a number of new items of equipment that can represent a higher risk that mature and off-the-shelf equipment. Incidents that occurred during '21 were all relatively minor compared with other heavy industry environments. But having said that, the safety of the team is the #1 priority. We're working hard to drive this performance back to the extraordinary levels that we've demonstrated we can achieve. Our target was 5, and we achieved 5.6. So we were just outside that. Finally, our performance with customer programs has been strong in spite of the interruptions that their teams have faced during the last 12 months, and I'll talk about that more on the next page, Slide 6. Despite some quite substantial delays to customer programs and launches due COVID. Good progress was made with customers and programs during the year. As I mentioned, 2 programs came into production during the last part of the year, both with Ferrari. A further program will enter production in financial year '22, current financial year, and expected to add -- it's expected to add significant volume through the factory. It will be at the larger end of the spectrum for what we currently have in production. Five new programs have kicked off with formal agreements for detailed design and engineering, including the 4 that underpins the phase 1 Mega-line investment. In a year that saw a delay in many of our customer activities this progress with new programs is really encouraging, supports our view that in spite of the temporary COVID impacts on the industry. This technology is gaining a global toehold, and one that will lead to widespread disruption. Our very first OEM program, the GT350R came to an end during the year after around 6 years of production. The majority of the newer programs that are coming through now are of a substantially larger scale than our early programs, which is an encouraging trend and clearly what we're setting the business up for. Slide 7, before I hand over to Gerard to walk through the financials and update on our phase 1 Mega-line activities. These activities are on track with detailed design activities well progressed and orders now placed for long lead time items. The Mega-line connects existing discrete process modules together with automated part flow. So all the improvements that we're seeing in our direct costs are pre-Mega-line implementation, will then get further boosted once this automated flow is established and more hours of labor fall out. In essence, conveyors and robots replace lower-value manual activities that are currently consuming valuable labor hours. Expecting the first elements of the Mega-line to be installed in the first half of calendar '22. The careful management and coordination of this activity, so not to interrupt the current production is a major focus for the industrialization and production teams. Over to you, Gerard, to talk through the financial results.

Thanks, Jake, and good morning all. The 4 key highlights I would like to mention before going into the detailed results. Firstly, as Jake said, financial year '21 certainly was a challenging year for business. COVID-19 had a major impact on our customers, which translated into lower wheel sales in FY '21 compared to our pre-COVID expectations. This was particularly problematic for us during the first half of the year. However, we did begin to build some momentum in the second half until late May when the semiconductor chip shortage in Ford led to extended production cuts and a related reduction in our wheel sales at the end of the year. Secondly, it's pleasing that with some stability coming into production in the second half of the year, we were able to begin to lower our cost of goods sold. This is an important first step and we expect a reduction in COGS to continue in FY '22. Thirdly, we've strengthened our balance sheet during the financial year by refinancing our term debt, completing the equity raise and introducing a new receivables financing facility that helps us manage the growth in our receivables. And lastly, we did significantly improve our operating cash flow from the previous year through a strong focus on both cost and working capital management. Turning to Slide 9. As we stated, COVID-19 and the related global semiconductor chip issues have significantly impacted the results. We can see that in our revenue being $34.9 million, down 10% on the previous year. And our gross loss of $14.3 million, which was $2.7 million [adverse to] FY '20. We did see 2 very different halves during the year, the first half where we had to deal with the rapid and significant reduction in sales orders. This resulted in a large reduction in staff numbers and 6 months of very lean production. We were not able to achieve stability in our operations, and our cost of goods sold was high. In the second 6 months, we did see some improvement in our sales orders. We did have more stability in our operations, and we introduced the Diamond Weave Technology on the GT500 wheel, all positives. Our overheads increased in line with our expectations for the year. The increase of $1.7 million in research and development spend, in the year reflects the increase -- it reflects the investment related to the Diamond Weave Technology and also an increase in the amortization of capitalized intangibles. The key drivers of the $4.8 million increase in SG&A are: There was $2.5 million of growth in expense related to noncash share-based incentives. These are 3-year incentive programs typical of any listed company. In the FY '20 results as we listed on the stock exchange at the end of November, in 2019, we only had 7 months of this cost in the previous year. Whereas in FY '21, we had a full 12 months of the 2020 program and 12 months of the '21 program. We also had a full 12 months of other costs typical of a newly listed and growing company whereas in FY '20, we carried a proportion of these costs for only 7 months. Examples of these costs include business insurances, worksite costs, legal costs, ASX fees, IT systems and communication costs. The balance [of the movement] relates to various costs, including additional professional staff costs, primarily our engineering team that work across product development, industrialization and operations. We did have 2 one-off costs during the year. Firstly, we implemented a new ERP system. We moved from a very basic and unsupported IT system to an ERP that will support our future growth. There is future benefit of this spend. However, the accounting rules changed during FY '21 mandating that this cost be expensed in the year it's incurred. So therefore, we have an $800,000 cost, which would previously have been capitalized and amortized over a longer period of time. We did undertake an organic -- inorganic growth project during the year, which completed, this had a cost of $1.5 million. Moving to the next slide. In the next slide, we can see the improvement made in the second half in our cost of goods sold. We're able to increase production during the second half, which enables better flow through the factory. We introduced Diamond Weave Technology on the GT500 wheel. Both of these items have led to a significant improvement in COGS in the second half, but also and most importantly, a $277 improvement on the FY '20 average cost of goods sold. The improvement in COGS has just begun. We expect further improvement in FY '22 to come from 2 key areas. They are, stability in operations and our Diamond Weave Technology. Firstly, stability in operations. While globally and in the automotive industry, there remains significant uncertainty related to COVID-19. We do expect a significant waiting. Approximately 75% of our FY '22 sales to come in the second half of the year. However, we are planning to run our operations with stability and maintain reasonably constant production during the year. This stability of production will enable our operations team to continue to work on the COGS improvement initiatives, and also get the benefit of our industrialized assets for the full year. This strategy will result in a build of finished goods inventory during the first half of the year, which we expect will be sold and depleted in the second half of the year. COGS benefits will also come from Diamond Weave Technology being implemented across all major wheel programs. This technology is now across all of our Ferrari programs, and the new development wheel that is expected to come into production in FY '22. On Slide 11. We strengthened our balance sheet during FY '21 and made a strong improvement in our operating cash flow. We've increased the tenure of our term debt, rose sufficient equity for the phase 1 Mega-line investment, and introduced a receivables financing facility, which we will use as our receivables grow in line with our expected sales growth. The business is exiting the year with the funding in place for our phase 1 Mega-line investment. Back to you, Jake.

Thanks, Gerard. Slide 12. In terms of the summary and outlook for FY '22 and beyond. So the focus of the team through the financial year '22 is very much around delivering the operational outcomes required to build the foundations of the business to be a major and disruptive player in the auto industry over the coming years. This means new program launches and the associated volume ramps that we have in our plans are a key. In the short term, we expect to see volume increases in the second half, as Gerard has mentioned, as our next major program enters production. The promotional activities that are a feature of new vehicle launches and are a terrific way for our technology and our leadership position to be promoted, and we're expecting a number of those. As new applications such as SUV programs enter the market. Again, heavy promotions from the OEMs that are launching them. We're increasingly being involved in helping to promote these vehicles and how our technology enhances their desirability for end consumers. The all important operational improvements that we've spoken about at length through this presentation are central to the operations team's focus and really do deliver the foundations for much larger scale and delivery of our technology, particularly combined with the industrialized economics that we delivered via our Mega-line. We'll talk in more detail in the coming months about our industrialization and phase 1 Mega-line progress and how that's tracking relative to key milestones. The first of the new programs will be manufactured on phase 1 of the Mega-line, come into production in calendar 2023. And having said that, we're also looking at all opportunities to gain benefits for existing programs and pre-Mega-line programs through the work that we're doing to implement the Mega-line. So in closing, while FY '20 has had its share of -- sorry, FY '21 had its share of challenges to all of us that participated in the global automotive industry and associated supply chains. We made a great deal of progress. Though there remains uncertainty in relation to the ongoing impacts of COVID-19 on the global automotive industry, there are very positive signs for Carbon Revolution, and we're excited about the year and years ahead. For us, every step we take forward with new programs with improving manufacturing efficiencies at current levels of technology and with the implementation of our industrialization strategy. We gained greater traction with our overarching strategy to scale the business to a disruptive level. The learning curve that we've written to get to this point delivers the basis for a sustainable leadership position. Any new entrant that aims to compete in this space will also have to navigate this kind of learning curve and tackle the complexities of the technology. And what's more, our customers have now shown a real willingness to believe that what we are striving to do is achievable. This isn't because they're passively watching as interested observers, it's a lot more than that. The automotive industry needs technologies like ours in order to deliver the best possible vehicles technologically and esthetically to their customers and to man their -- maintain their own leadership positions as the world transitions to an EV future. What's really important to understand is that they now seem to share our belief that Carbon Revolution is the company that is available to make this happen for them. Thank you.

Okay. Thanks, Jake. A reminder for attendees. [Operator Instructions] We have Cameron McDonald from Evans & Partners. Cam, you need to unmute your line, please.

Can you hear me?

Yes.

Couple of questions for me. Just in terms of that second half skew, how certain are you of the -- that contract coming online, supporting the increased production in the first half and the inventory buildup? So is there a possibility here that, that gets delayed, and then you've incurred all the costs and then you've got the inventory sitting there at the end of the year.

Yes. We're, I think, we're pretty confident about this one, Cam, Given forecasts, given ordering cycles and given imminent launches and those sorts of things. So yes, we're obviously -- there have been challenges in the past in relation to COVID. But I think in this case, we're confident -- as confident as we possibly can be about what we're doing here.

Yes. Cam, the inventory build will be split over that wheel that we're expecting to come into production, but also the GT500. We'll ramp up that new wheel throughout the course of the second half of the year as it enters production. And we want to make sure that's a smooth ramp. So we'll build ahead a few GT500 wheels to allow the operations team to ramp that new wheel safely.

Yes. I was going to ask about the GT500 because PWH actually said that there was an extension of the GT500 the other day in their results. So I was going to ask whether you have you seen a similar...

You're dropping in a bit there, Cam. The GT500, that's been in our plan for next year, a model '22, has been in our planning for next year for some time. So we've got a good relationship with Ford, and that discussion has been there for some time. So we've been planning that for some time.

Okay. Great. And just a final question -- well, actually 2 final questions for me. One on the receivables balance, Gerard. Obviously, there was -- you previously spoken about, I think it must have been Ford that's delayed payments. Is that payment cycle being normalized now?

It has now, Cam. Yes, it has. You'll see the receivables were larger at year-end. And that is because of that move to see freight -- when we move to see freight forward, their system just wasn't able to pay us until the wheels turned up and [were received] into their warehouse in America. That didn't understand that, that was going to be the way, but that did turn out the way. So we've renegotiated there. We do have extra receivables now with Ford, but we have reflected that in the commercials around that contract as well.

Okay. Great. And just a last question for you Gerard -- sorry, Jake. The -- I note that the Bentley Bentayga has come out with now full carbon fiber wheels as well. What involvement did you guys have in pitching for that or being involved with Bentley? And why did they not choose to go with you? Or -- and has now this created a new competitor?

Yes. It's a good question, Cam. That's been -- that project has been in the public domain for quite some time without disclosure about who the OEM was. Obviously, we keep pretty close to what's happening or as close as we can to what's happening in the industry. It was -- as we understand it, it was a project that's been going on for several years to develop a single wheel, which is that square fitment on that vehicle at a very low volume. So it's available as a fitment through sort of the coach building part of Bentley. It's our understanding is very high cost, very low volume. I don't think it's a bad thing to have more exposure of carbon fiber wheels in the industry. But certainly, given the volumes that we've delivered and the way we have set the business up, we don't see this as being directly competitive at the moment, and we're certainly not getting feedback from the market or from our customer base that they see this as being any kind of direct competitor to us. But as we always say, we work on the basis that we will have competition and that is why we're driving our industrialization strategy so hard and our scale-up strategy so hard. But I think on balance, the fact that there is visibility of SUVs, even at that end of the spectrum adopting the technology is -- there's some positives from that. And certainly, this is a project that's been going on for some time. It's now disclosed as to who it's with. But we haven't -- I guess we haven't seen sort of any legitimization of that as being a competitor in the sort of realm that we're dealing with at the moment, which is higher and higher volumes for the sort of less and less premium [indiscernible] an ultra-premium vehicle. But Yes. That's really all I can disclose about at the moment.

We have is Hamish Murray from Bell Potter on the line. Hamish, can you please unmute your line?

Guys, can you hear me?

Yes. We can, Hamish.

Yes.

Yes. Perfect. Maybe start with just a bit of an addendum to some of Cam's questions. Just on the Ford GT500 and the closures, they had in Detroit. Is there any sign that they're going to do a catch-up on the GT500 program or prioritize that in the back end of the year? Or is it looking like they might be caught up over a longer period of time?

Yes. So they're obviously back in production now, Hamish. They are switching over to a new model at the end of this program. So yes, we don't have any definitive feedback other than sort of the volumes that were expected through the final sort of model year of this program coming through. Gerard, if you want to add anything.

Yes. It doesn't look like, Hamish. From what we can see in orders, we've nearly completed our GT500 wheels for this model year. If they were catching up, I think there'd be more orders upon us at the moment.

Okay. So back to sort of normalized run rates is what we can sort of think about it in the second half?

For the GT500?

Yes. Correct.

Yes. The GT500 as you know, it has a seasonal outage so they can't build that vehicle in the sort of depth of winter in Detroit. And that means that we would normally stop supplying wheels around now and that's consistent with what's going on now. So we expect to start selling GT500 wheels again sort of late in the calendar year for Christmas, for their build for next year.

Perfect. And just on the GT500 and PWH, they've come out with a chart that looks like -- and you guys are sort of discussing this now in terms of final model year. Looks like confirming that program is going to roll off in the first quarter of financial year '23 or first half of financial year '23. That would be a large part of the current lines utilization. Now we should see those new programs that were confirmed at the IPO plus the SUV come back on to that line. But how are you going to keep this line highly utilized as these programs roll off? Because I assume OEMs will want to be on Mega-lines, given they're going to be lower cost for their consumers and they can get a higher margin.

Yes. With our forecasting, Hamish, we're seeing that capacity taken up. We expect to see it taken up. Obviously, Mega-line comes in the following calendar year, as we've said. So there are sort of pre Mega-line and then post-Mega-line programs. But the growth in subsequent programs, including the ones coming on this year and in the subsequent year, we expect to take up that capacity.

Yes. And just to extend out, Hamish. When the GT500 rolls off production for us. We will be ramping -- and we expect to be ramping the new program, which comes into production. So I guess the -- none of us know at the moment, that we will look and see what the demand looks like -- looks like that on what the take rate looks like. We expect that to be all of GT500 size or maybe even more, but we don't know and we'll need to see what that looks like.

Yes. Okay. So you guys are still confident that you'll be able to utilize that line and produce high unit economics given that the price point on that line is higher as well.

Yes. We've got, I guess, after -- we've got one wheel on development, which we expect to come in during the course of this next calendar year. That line, there is still more programs, which will come in during '23 and '24. So the utilization of those assets, it's not going to be fully utilized during '23. We'll gradually increase the utilization of that. And we'll see that probably more like '24 when a lot of programs are on board.

Perfect. And again for you, Gerard, just looking at these COGS coming through. The second half looks greatly improved off pretty benign volumes, which is really promising given the leverage to volumes. Just wondering, if I back out very quickly, the depreciation costs in the second half, I sort of bring cash COGS back to around $2,700 and a cash GP of negative $160, which is getting pretty close to cash breakeven. Is that the right way to think about it? Does that sound right, back of envelope?

It's pretty close. There's a little bit of depreciation, which will follow wheels into not into COGS, and that will go into the [mining up on] the balance sheet with or end up some R&D validation of wheels. So not all of that validation shouldn't back at all that. But $2,800 would be a sort of cash cost. So if the cash loss there in that second half is more like sort of $220, certainly significantly improved from the first half, where we saw it was over $800. You can see that -- as you're saying, you can see the leverage to volume, the volume increase, it was healthy over the first half, but it's still a pretty low number. So we're looking forward to sort of volume increase -- the benefits of the volume increase as we ramp up new programs over the coming years.

Yes. And I mean just an extension on that, how do we think about that just broadly across next year? I mean I've -- we've got 75% odd roughly sales coming in the second half, but it sounds like you guys are going to smoothen out the production profile, which should see the COGS that you recognize against revenue relatively stable half-on-half. Is that the way to think about it? And does that mean that we should be hopefully getting cash breakeven at that top line, obviously not on an absolute basis, but at a cash level, you guys are going to be pretty close over there this year.

Yes. Hamish, I guess there's 2 components to it. One is the sort of a sales outlook or production outlook component of that, which we can't consume like we're not giving outlook information at the moment just due to uncertainties. So exactly where it will finish. That's difficult to say. But we will have -- we are planning consistency in production. There will be a little bit more production in the second half than the first half. And because of that, we do expect to be able to just make continued and just sort of gradual improvement in our COGS through the course of the year.

Yes. Perfect. Maybe I'll ask it just another -- a different way just so that I don't put you in a corner, but I mean -- so if we're talking $220 GP margin negative, at 6,350 wheels in the second half, which is by your guys standards pretty low. And that means that thinking about GP is that first half if you're stabilizing your production, it should be at least stable. Is that the right way to think about it?

Yes. Sure. Yes.

Yes. Perfect. And then the other question, just this pricing per wheel. It does look like it's just slightly below the pre-2021 run rates. Is that a function of mix or currency? Or is it a function of both? Because I know, obviously, like it seems like the Ford one is cheaper, but what effect does currency you have on that?

Yes. It is a function of both mix and currency. The currency wasn't a big player, $10 or $15 here in currency and the majority of that average selling price reduction is mix related.

Perfect. That's just one more, and this is a bit of an extension on Cam. I know you guys try as best you can, but are you getting any assurances about that additional volume you'll create? Or are you just really confident that, I guess, the major delta being the GT500 and the new program, you expect hopefully to come in the second half will take up that volume. So we won't be in that same issue we had, I guess, if we're looking back 12 months [indiscernible].

Yes. It's very different. So if we look back 12 months, an increase in inventory there was mainly in work in progress. What we've got now is we've got 1 program in production. It is going into its final year. We won't be building all the wheels for that final year. We'll have some of them built at the end of the year. That will be finished. That'll be in boxes and ready to sell. And the other line will be this new program -- there's expectations that with that OEM that this program is going to go quite well. It's a long program. It will run for quite a few years. If we build 1,000 or 2,000 wheels in advance by the end of December for that program, that will be sold. We would imagine that, that would be all sold in the first half. But if that doesn't play out for some reason, that will be sold through the course of that next year, I would imagine.

Okay. We have some questions through Q&A, firstly, from [Chris Kayle]. Can you expand on the commissioning of the Mega-line? Is there support from the equipment suppliers and what performance guarantees are there, if any?

Yes. Thanks, Christopher. So we have 1 particularly large partner and equipment supplier that we're involved with for Mega-line. Somebody that we've worked with over the years and a lot of them and a provider of a lot of the equipment that's being pulled together. So close integration of teams, a significant amount of work around risk management and ensuring that milestones are met. And the kind of performance guarantees that you would expect in a pretty involved contract between us, you'd expect for this kind of large-scale project.

Thanks, Jake. And from [Justin Breeze], is there any rough time frame on when Carbon Rev might achieve positive gross profit or EBITDA?

Thanks for the question, Justin. No, we won't give any time frames on those type of metrics. Look, there's uncertainty in the industry, COVID, and semiconductor chip related. The other factor that does come into the -- so just when we think about that, we're going to think about sort of where the volume needs to be. And we can't really say when that volume -- in which year [indiscernible]. The volume for new programs, we've got development of wheels, development programs, they'll be coming through '22, '23, '24. But exactly when the start of production is not up to us. What the take rates look like, not up to us. The demand is not up to us. So the OEMs are going to be marketing those programs and really coming back to us and putting demand for wheels on us in due course. So it's very difficult for us to be able to make that call, exactly when that might occur in which different periods of time. We'll certainly keep the market updated. We're working as hard as we can on reducing our COGS. We've seen some of that in the second 6 months, and we'll keep working to reduce our COGS throughout the course of this year and next. And then when the volume does come in, we will see the leverage to volume, and hit those targets as quick as we can.

Thanks, Gerard. A question for you Jake, from [Troy Cans] in regards to the program that would be coming into production this year. When is this likely to be announced and promoted by the OEM?

Yes. Thanks, Troy. The -- we can't -- we haven't got a specific date for the announcement. We are involved in the process, which is good. There hasn't been any fall acknowledgment that it will have our wheels. Although there's sort of -- there's been leakages that often is with these sorts of things. But yes, we're expecting to see certainly this side of Christmas that vehicle launch.

Thank you, reminder for attendees. [Operator Instructions] This is the really the last caller for questions today. Okay. There are no more questions in the queue. So that concludes today's webinar. Thanks to Jake and Gerard for the presentations and answering the questions. And thank you to all the participants for dialing in today and listening. Have a good day, everyone. Thank you.

Goodbye.