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

Morning, and welcome to Carbon Revolution's FY '22 Financial Results Presentation and Earnings Call. I'm Andrew Keys, and I will be facilitating today's event. In a moment, Carbon Revolution CEO and Managing Director, Jake Dingle; and CFO, Gerard Buckle, will be presenting material released to the ASX earlier today. Following their presentations, Jake and Jared will take questions. Over to you, Jake.

Thanks, Andrew. Good morning, everyone, and welcome to Carbon Revolution's full year results presentation for financial year 2022. It's been a year of challenges, both locally and globally, but also one of significant achievements for our team. Pandemic continued to challenge our industry impacting the ability of all of our customers to build vehicles and to maintain smooth and predictable ordering patterns. It also impacted our own team with heightened absenteeism, particularly through the middle quarter of the year, as the Omicron variant took hold. So, we were challenged to run our factory smoothly, given volatile ordering by our customers and unpredictable workforce attendance. In addition, we faced some serious and unexpected technical issues related to supply materials imported equipment also impacted our operations in a significant way. These issues were exacerbated by the limitations that the pandemic imposed. Having said that, the team has achieved some remarkable outcomes for the year, putting the company in the best operational position that we've been in to exploit our leadership with a technology that is becoming increasingly well understood by the world's major automotive OEMs as a game changer for next-generation vulnerability. I'll touch on these challenges and the achievements as we walk through the highlights and outcomes for the year. When we established Carbon Revolution well over a decade ago, it was with the intention of developing a technology that could offer something truly disruptive to a very large global market. With time, we were aware of the value that step change reduction in unsprung mass would offer to our customers. We weren't, however, aware of the factors that would trigger the acceleration in relevance and adoption that we're now seeing due to electrification. Our technology has quite clearly now established itself as a key enabler in the market for performance vehicles, the programs that are launched in the public domain with Ford, Ferrari, General Motors and Renault are all examples of this. Successful launches on halo programs with these highly respected OEMs have now earned us the right to take the next meaningful step. The industry is now focused on the bottom 3 boxes on the page that's up on the screen. Efficiency, which equals range; design, which equals size and aerodynamics; and road noise transmission reduction, which equals knock on weight and cost advantages in other parts of the vehicle. In addition to all these attributes, there's a growing understanding that rather than common misconception of our carbon fiber products being less robust than metals, our wheels are actually, in fact, incredibly robust and durable relative to aluminum equivalents, have the freedom to be even more so should our customers desire. You'll see response we're seeing to this revelation in the quote from Tadge Juechter, Corvette Chief; the carbon fiber wheel is much, much stronger than an aluminum wheel. And this big advantage is delivered with a massive weight saving versus its aluminum equivalents. Historically, new technologies that enter the automotive space follow common adoption curve. This is characterized by gradual early adoption on premium performance vehicles, which enables the industry to understand the technology without betting the farm. What then follows is an almost vertical adoption curve as the industry takes up on mass. We've seen many examples of this and a number of these shown on the page. Often, there's a trigger, things like oil shocks, global events, things such as the GFC. In our case, we're witnessing this occur due to the global replacement cycle that's underway as all major OEMs rapidly electrify the vast bulk of their range. Despite the interruptions and significant delays caused by COVID, which are evident in our revenue trajectory shown here, the momentum is certainly building. It appears that our customers have used this pause to actually accelerate their planning activities for the EV transition. Importantly, for Carbon Revolution, we've now established a track record with some of the world's most reputable car makers. Since our first OEM program was launched back in 2015, that was the Ford Mustang GT350R, we've successfully launched multiple programs with Ford, Ferrari, Renault, General Motors and our most recent launch on the C6 Corvette platform. There are more to come in the coming months. This chart will extend further and include the first of our SUV programs. This will be an exciting and highly visible indicator of what's now coming down to fight for Carbon Revolution. So, with almost 60,000 wheels now sold to OEMs, we've established a deep moat to protect our position from aspiring competitors, which just adds to our ever-expanding suite of proprietary and protected intellectual property. So, what is it that's so compelling about our technology for the emerging EV platforms, particularly the SUVs and other large passenger vehicles. As the global OEMs electrify their vehicles, they're particularly focused on the most popular and profitable segments. These are typically the larger formats like SUVs and the enormous pickup truck segment in the U.S., what we refer to here as utilities or use. These vehicles have almost -- have always been large in stature but now as they're electrified, their mass is increasing significantly more. At the same time, wheel sizes continue to increase, a theme that's been evident for almost 3 decades. It's driven by the designers of major global OEMs needing to match large vehicles with large wheels. As the head of one of our North American customers design studio said to us about one of their new EV SUVs coming to market; this is a big beast and a big beast needs big feet. By feet, he was talking about the wheels, of course. As wheels get bigger and vehicles get even heavier, carbon fiber is emerging as a key enabler to date to deliver this outcome where aluminum wheels are now just becoming so heavy that they're challenging the overall structure of the vehicle, particularly in relation to the structures around suspension. So, this is not just about efficiency and range, it's about structural viability now as well. There's also emerging regulatory issues relating to vehicles remaining within their intended weight categories or classifications and there are significant penalties faced if OEMs can't achieve this. These are problems that we can solve in significant and meaningful ways. Enormous benefits arise from a mass reduction of 40% to 50% in the most important mass on a vehicle being the rotating unsprung mass. Given what I've outlined here, we are delivering total weight savings to these vehicles that are in some cases more than 50 kilograms. This is an astronomical amount of wait saving in an industry where engineers are challenged, we're taking brands out to meet weight targets. So, we're no longer adjust a major efficiency technology, we're now rapidly being seen as an enabler to achieve platform outcomes that simply don't appear feasible any other way. Designers are not going to step back down from launching these large 23- and 24-inch wheels. In fact, they appear likely to keep demanding even larger wheel sizes in the future. This is all very good news for us. The bigger the wheel, the more value we can deliver due to the efficiency of the carbon fiber as a structural material. So, coming out of FY '22, we have good momentum after 2 particularly challenging middle quarters. We've increased revenue by 15% over the prior year and have done this with a very strong final quarter. Our program pipeline is stronger than it's ever been and the themes that are driving adoption are strengthening and accelerating. The factory is now starting to show that we can deliver volume and efficiency with good and smooth flow. We're still in the middle of delivering our potential there. The contribution margins of over AUD 400 per wheel in the final quarter, a very clear indicator of what we have ahead. Our industrialization strategy with the Mega-line as its centerpiece is progressing well and rapidly taking shape in the factory. We'll be producing our first wheels fully on the Mega-line early in the June calendar year -- during the next calendar year or Q3 of this financial year. Commissioning is kicking off in phases from this week. All of the above has been achieved with a remarkable safety record. The culture of safety and mutual care and respect amongst this team is absolutely world-class and a hallmark of how the team is establishing itself. Gerard will spend more time on the financial outcomes from FY '22, in just a moment, but I'd just draw your attention to a few specific items on this page. Our volumes and associated revenues have been -- have seen strong increases. And at the same time, our average pricing has also increased by over AUD 200 a wheel. Contribution margin, which we're now reporting and which Gerard will discuss in more detail shortly, was just under AUD 2 million for the year but was particularly strong in the final quarter at over AUD 400 per wheel. This is an important indicator of the scalability of our business and the benefits that arise when efficiencies are delivered at the direct cost level. These are going to be a very strong focus throughout FY '23. From a cash flow perspective, we were negatively impacted by the operational challenges that impacted us particularly in the middle quarters of FY '22. As I mentioned earlier, we're seeing new levels of momentum with business development activities and the developing sales pipeline. The remaining 3 programs -- original programs that underpinned our Mega-line other than the one that's already awarded are progressing well through design phases. These are being coordinated together with our customers. They are serving complementary platforms and they require timing and resources to be managed carefully both on us and our customer side. We're pleased with the progress of these. However, the demand for them is clearly driven by the unique solutions that we can provide and are providing to the challenges of electrifying large vehicles, as I outlined before. Pricing and duration of these programs means that we'll enjoy strong revenue per wheel well into the future. Program duration for these larger vehicles is typically 6 to 8 years. We're excitedly anticipating the launch of our first SUV program in the coming months. This has been delayed significantly by the pandemic that appears now to be on track. We're working closely with that customer to ensure that the launch is successful and that our technology is well represented as a key enabler on this -- or a key innovation on this high profile vehicle. We're very supportive of this as well. As I mentioned earlier, the Mega-line is progressing well and early commissioning work is already underway with many of the large orange robots cycling through their operations in advance of starting work in earnest. It's a very exciting factory to walk through at the moment. There is a transformation underway that will see our advanced manufacturing operation take a new step forward in terms of advanced automation and industrialization. ESG and particularly environmental sustainability is an increasingly important topic for us, for our customers and for global industry in general. We're progressing actively now with our strategy in relation to this. We offer a technology that delivers a step change in efficiency relative to conventional products. So as such, the environmental benefits that we deliver in use on vehicles is evident, whether it's a range extender for EVs or a CO2 emission reducer for traditional internal combustion engine vehicles. We're not just focused on optimizing our sustainability value in used so. As an increasingly significant player in the global composite industry, we're focused on the upstream sources of our key raw materials with a view to transitioning them to renewable sources over time. We're also focused on transitioning our facility in Geelong progressively to be 100% powered by renewable sources of electricity. Our landlord, Deakin University is a key partner in relation to this activity and has a 7-megawatt solar array literally on our back door step sets the potential to power the entire campus, including our factory. Energy-efficient processing will increasingly be a focus for us during this transition. Recycling and reuse of our process waste and end-of-life product is the final plank of this sustainability focus. We're not only driving towards these goals given the desire of the global industry to find meaningful solutions to reuse scrap and waste, we do expect to be one of the global leaders in this area on a rapidly establishing what we believe to be the right partnerships to enable us to have them. Our Scope 1 and 2 emissions targets are being fleshed out during FY '23. And from a social standpoint, we're now internationally recognized as the global leader with an advanced product and manufacturing technology. This is entirely produced and exported from our regional location in Geelong to a major and large world market. Our development partners are largely also local and we have successfully pushed them to innovate alongside us to deliver world-first outcomes in support of our goals. Clearly, this is a model that delivers on a number of important criteria for the strengthening of Australia's economy. A large and increasingly diverse team is very proud to be doing this from our base in Geelong, Victoria. I'll hand over to Gerard now to discuss the financial results for FY '22 in more detail, and I'll finish the presentation with some further discussion about the year ahead. Gerard?

Thanks, Jake, and good morning all. I will review the financial section of our results presentation today, starting with financial highlights separately and I will cover more detail in the coming slides. The highlights, we delivered strong revenue growth of 15% in FY '22, driven by new Ferrari programs and the launch of the Corvette programs in the last quarter. We finished the quarter with improvement in our production costs and a very healthy contribution margin. We are continuing to invest in the future through the stand-alone Mega-line and the development of new wheel programs and we are managing to spend very tightly and we have an intense focus on reduction in our production costs. Turning to the next slide where we have our summary profit and loss statement. Our total revenue for the year was AUD 40.3 million, which is 15% growth over FY '21. The growth is driven by 2 new Ferrari programs, which ramped production throughout the year and have now reached stable production levels and the Corvette program, which commenced production shipments in the last quarter of FY '22. Corvette, the Z06 Corvette wheel is early in production ramp for us and we understand that start of vehicle production for Z06 has commenced, following delays during this calendar year. We are watching the vehicle production ramp closely and our forward orders to this vehicle carefully at present as this is an important part of our FY '23 production. For the first time, we're reporting contribution margin. With the 2 production issues from the middle of the year result and strong sales in Q4, we recorded AUD 1.9 million contribution margin for the year. As Jake noted early, the 2 one-off production challenges we've had midyear did materially impact our cost of goods sold in Q2 and Q3. These one-off impacts were AUD 4.6 million for the year. Our team solved these issues and we're back in more normal -- we were back at more normal production from early in Q4. Like many other businesses, we've been dealing with cost inflation during FY '22. And we have seen this especially in carbon fiber. Oil and energy prices have risen, have increased the input costs of carbon fiber and we've had to absorb price increases. Offsetting these cost increases is our increasing average price per wheel, which rose by AUD 206 in the last quarter. Our research and development costs in FY '22 was AUD 12 million. Included in our R&D expense is the amortization of capitalized development costs, which is a non-cash item, it totaled AUD 7.7 million in FY '22 and makes up AUD 3.9 million of the AUD 5.5 million increase in these costs for the financial year. The increase in this cost is planned and it's driven by investment in the development of new programs, which will deliver sales in the coming years. Our selling, general and admin costs was AUD 16.9 million, which is AUD 0.9 million lower on the prior year, which reflects our close management of costs and the benefit of investment in IT infrastructure in the previous year, which allows us to grow the business and hold administrative costs reasonably flat. Our other income is AUD 4.3 million, which is AUD 6.2 million below the previous year. This variance results from JobKeeper brands ending in FY '21. We reported an EBIT loss of AUD 41.7 million in FY '22, which was AUD 10.9 million versus the prior year. This is largely due to the end of JobKeeper in FY '21 and a one-off production impacts of AUD 4.6 million in FY '22. Turning to Slide 15, we have announced our contribution margin by year and quarter. This is a key measure for our business, which we are reporting to the market for the first time. Contribution margin is revenue less direct cost of production. These are variable costs and they consists mainly of materials, labor and attributables. Contribution margin does not include production overheads and depreciation, which are relatively fixed costs and in our cost of goods sold. Contribution margin measures our variable profit, which is a profit which will grow and cover our fixed costs in due course. This is a very important measure for our business. And as our volume grows and our direct costs reduce, we expect to see significant growth in contribution margins. As you can see from the chart, our contribution margin was likely during the year, impacted by our resin quality and TBC issues. Very importantly, we finished the year with AUD 1.9 million of contribution margin in the last quarter due to improved average pricing, improved production performance and increased volume. And when combined, we have strong -- we had a strong finish to the year. The last quarter's AUD 402 contribution margin per wheel is also stepping in the right direction with further volume growth and cost reduction and this will continue to increase. Turning to Slide 16, where we have our cost of goods sold by year and by quarter. At AUD 3,903 per wheel and cost of goods sold per wheel in FY '22 was AUD 111 per wheel higher than the previous year. On the right-hand side of the chart, you can see a significant impact in Q2 to Q3 that the resin quality and TBC issues had on our business. As I stated earlier, these one-off items had AUD 4.6 million impact during FY '22. During the year, we also dealt with increased carbon fiber prices and the COVID impact on our labor. Pleasingly, we did see a reduction in the direct cost per wheel in the last quarter and total COGS per wheel falling to AUD 3,620. The improvement in Q4 was delivered despite absorbing raw material cost increases of roughly AUD 100 per wheel. Our operations and engineering teams are very focused on reducing our production costs. And with production slowly and more consistent, coupled with ongoing initiatives, we are confident of reducing our production cost per wheel during FY '23. Slide 17 has our cash flow summary. Operating cash outflow was AUD 32.1 million for the year. As compared to the prior year, operating cash flow was impacted by our TBC and resin quality issues of AUD 4.6 million, the ramp-up in production and increased sales in the last quarter, which led to an AUD 8.2 million growth in receivables and the end of JobKeeper in 2021, which reduced our grant inflows by AUD 6.8 million. Net investing cash flow of AUD 33 million reflects the investment in new program development, including new tooling and the Mega-line in 2022. We've spent AUD 15.6 million on plant equipment. Of this, AUD 11.6 million was spent on the Mega-line and the remaining AUD 4 million was on minor capital items and program tooling. The AUD 17.3 million R&D investment consists of AUD 12.4 million investment in new programs and AUD 4.9 million in new technology, which was mainly completing Diamond Weave technology rollout across all of our wheels. Net finance and cash flows were AUD 1 million for the year, which reflects a small net increase in funding facilities after loan repayments. Our working capital grew by AUD 7.8 million to AUD 26.1 million in FY '22. This increase is driven by growth -- the growth in sales from new programs. Our working capital, especially receivables will grow as our sales grow and we plan to use receivables -- receivable and working capital finance to fund this growth in working capital. We are managing our spend very tightly. Along with an intense focus on the reduction of current operating costs, the following controls were in place. Research has only undertaken its grant funding to develop its spend confined to contracted wheel programs, which will lead us to future wheel sales unless the OEM has paid upfront for development activities. The Mega-line project and related spend has been reset. Expansion of capacity outside this current phase will only be forgone when existing capacity is fully utilized and customer forecasts early support additional capacity. Other growth capital spend is being matched very closely to growth in customer demand. Turning to Slide 18. At the end of financial year '22, we have AUD 23.4 million in past due facilities in place. During FY '23, we expect to add AUD 20 million of new grant and debt funding, which consists of first tranche of the MMI Grant, which we estimate to be AUD 6 million. This grant is now approved and is moving into the documentation stage. The drawdown of the remaining AUD 4 million line of credit facility, which we have in place with Export Finance Australia. There are business growth milestones required to access this additional AUD 4 million in funding and we do see our business achieving these milestones in the coming 6 months. The expansion of our working capital facility by AUD 7.5 million leasing of AUD 2.5 million. We've had the security arrangements with EFA organized for these additional facilities and we are in the process of sourcing a provider that will work for us now in their business and our business continues to grow over the coming years. For the longer term, we also expect to have second tranche, second AUD 6 million tranche of the MMI Grant and additional capacity of AUD 7.5 million of working. In addition to these grant and debt funding activities, we're investigating a number of strategic alternatives to assist the growth of the company. We have growing demand for our wheels and a clear pathway to profitability. Balance sheet constraints affect our ability to address these growth demands. We are actively pursuing a range of strategic opportunities, including engagement with potential strategic partners that have investment capability and complementary strengths in manufacturing. These activities are at early stage and remain confidential. We will provide information as our plans develop. I'll now hand back to you, Jake.

Thanks, Gerard. FY '23 will be another growth year. The Corvette program will be a major focus to ensure that we supply General Motors seamlessly to support the wheel for that new and exciting vehicle. Despite the challenges they've had with their facility, which was hit by a tornado some months ago and with their supply chain in general, it's clearly a halo vehicle for GM and one that's characterized by a very forward order book. We're seeing pleasingly strong demand coming from our Ferrari programs with increases coming through relative to our prior expectations of demand. Early in the second half, our first SUV program will be in production followed by the first of our original Mega-line programs. Launching these programs seamlessly for those 2 customers will also be a priority for the whole team. With these 3 elements combined, we do expect to see a stronger second half in FY '23 than the first half. Production efficiencies are a major operational focus for us, as mentioned by Gerard. With greater stability through the factory, this is now coming on well, albeit having seen delays driven by the challenges of FY '22. Continued growth in our contribution margins program by program will be assisted by the switching on of our Mega-line from Q3. We'll continue to focus heavily on minimizing spend and cash strain among securing new debt facilities to support the growth that I've outlined above. As Gerard mentioned, we're pleased with the engagement that we now have with a number of potential capital and operational partners as we consider the best way to deliver on a further growth that the global automotive industry is now demanding from us. There's a strengthening understanding of the unique leadership position that we've established and the important role we stand to play in the disruption and replacement cycle that's occurring across the industry. I look forward to being able to talk more about these emerging opportunities with potential international partners as they develop. So to recap, we've certainly now cemented our technology as one that delivers significant and unique value to our customers. We're unquestionably the global leader with this technology, having delivered almost 60,000 wheels to the major automotive OEMs and with a clear strategy for scaling up and fully industrializing our operations to support this accelerating demand. The global market that we play in is enormous and uptake of our technology is accelerating due to the EV transition that's underway across all of the major global players. We've established high entry barriers to ensure that we can sustain and grow our current leadership position. These include the protection and aggressive further development of our unique intellectual property portfolio as well as the way we serve our customers and ensure that we're extremely difficult to compete across all facets of what's important to them. Thank you to all of our shareholders for their support of the company through what's been a challenging but transformative year. We're looking forward to being able to communicate exciting developments with our technology, our customers and our plans for growth through the coming year. Now, I'll hand back to Andrew for your questions.

[Operator Instructions] Cam McDonald, Evans & Partners.

Just a question on the line item below the contribution margin, just with the direct manufacturing costs that you've highlighted of AUD 19 million of manufacturing overhead and non-absorb -- non-cash absorbed costs, like that's up 33%. And so what's driven that, please? I don't quite understand why that's up as much as that?

Cam, I guess that contribution margin and the direct cost vary through the course of the year, as you can see from that chart on Slide 15. There's obviously a volume impact. So, we've seen growth in volume. So, when you look at an overall cost, there's certainly a volume component to it. The middle 2 quarters, we do have an issue dealing with both the cost issue dealing with [indiscernible] the resin quality issue and the TBC issue, which cost us AUD 4.6 million. That all comes through in our direct costs. So, there is quite a bit of extra one-off costs in there related to those 2 issues and there is volume growth, which is in there as well.

So -- okay, sorry. So, Page 16, what you're saying is those -- okay, so it's only the direct costs that are in that contribution margin in the dark blue is effectively what that is.

In that -- so Cam, I was talking to on the direct cost. Sorry, you're talking about to the manufacturing overhead.

Yes, yes. So, the AUD 38.5 million is the direct costs. And then the rest of it is the AUD 19 million in the gray and the light blue, yes.

Yes. Okay. Got it. And look, there's quite a large increase in depreciation, which is a key driver of that in our cost of goods sold, outside of those direct costs, which I described just a second ago, there's depreciation and then there's the manufacturing overheads. There's a small increase in manufacturing overheads as we're growing and manufacturing capabilities, there's a small increase there, but the large increase is depreciation.

And the AUD 400 contribution per wheel that you've highlighted versus the 19 or call it, AUD 20 million because it's easy to do the math on those manufacturing overheads and indirect costs. That implies a 50,000 wheel need for a breakeven gross profit. I thought it was a much lower number than that.

That's exactly right, Cam. So, what you see there in that last quarter is a normalized production, but we've got a lot of cost reduction in our plans and to come during FY '23. So, a AUD 400 really just the start of our improvement in contribution margin of the business. So, I don't think -- I don't think the readers should judge pick up that sort of AUD 400 contribution margin and multiply that at work out breakeven levels. The breakeven levels are at a gross profit level. As we've said, they're holding at 25,000 to 30,000 wheels at an EBITDA level with 35,000 to 40,000 wheels and sort of 45,000 wheels and over for or cash flow breakeven, assuming maintenance capital spend.

Thanks, Cam. We have some questions through Q&A. [ Ann Prior ] has asked are you investigating other uses for carbon fiber technology. Mentioned helicopter wheels today, which have been mentioned previously. Is there any application for such item using carbon fiber on things like in wind turbine bladed?

Yes. Thanks for the question, Ann. So there's certainly applications but I'll talk about the helicopter wheels first. And certainly, our focus is on wheels because of the size of our main focus market, which is automotive, aerospace, industrial wheel applications come behind those as the next possible adjacencies. The helicopter wheel program, we are still in the process of sourcing a fully funded mechanism for proceeding with that. There's certainly interest and demand from the market. But our focus very much is on delivering on our automotive wheel strategy. But I think it's fair to say that there is significant demand for aerospace applications of this technology. And there will be for industrial applications for freight logistics fleets and those sorts of things as well, which is all unlocked as we scale up further and as automation unlocks further cost reductions. In terms of wind turbines, obviously, wind turbines are already made with a fairly high content of carbon fiber. We're not looking to diversify into those sorts of applications. Having said that though, as part of the global composite industry, the use of recycled than the reuse of material does incorporate other users of carbon fiber and there's potential partnerships that can emerge in those areas as well. There's certainly applications, the things that we've developed to do wheels and wheels are close to being the most sophisticated or complex structures made from carbon fiber. So, there are things that are definitely applicable, but we're very focused on what we're trying to achieve here at Carbon.

Thank you, Jake. Another question through Q&A. [ Patrick Cody ] has asked with the flag completion of the Mega-line in Q3 FY '23 and noting Gerard's comment about improving cost per wheel, where do you see or hope the cost can be reduced to?

Yes. Patrick, thanks for the question. Look, we're looking at -- we've got strong plans to continue to reduce our cost per wheel and we're looking to continue that at over FY '23 and into FY '24 as well. I guess we're not sort of giving outlook of actual numbers, but those breakeven points are really important. So, the 25,000 to 30,000 wheels per annum to have gross profit breakeven and then 35,000 to 40,000 wheels per EBITDA breakeven. To do that, we need to keep increasing our contribution margin per wheel. Our pricing is reasonably fixed. So, it's not going to change, that's all going to come out of cost reduction over the coming year or 2.

And I think just to add to that, so we've talked about contribution margins of about AUD 400 in the last quarter, we've previously talked about [ AUD 600 to AUD 800 ] from Mega-line level of production, which obviously takes account of both pricing and cost. And we're still confident that as the Mega-line technology comes in, that's still the target where we expect to get to that, I guess, incorporates the different wheel sizes, different wheel pricing, different costs associated.

Another question. Can you make any comment about, should this means first quarter FY '23 on COGS per wheel relative to the improvement in Q4 FY '22? So, have equal cost settle down.

Yes. So we -- those -- you can see from the bar chart that COGS per wheel in Q1, Q4 are relatively consistent. Direct cost is slightly lower than Q4 versus Q1. And that is -- there is a few things going on there. So, we've reduced the labor cost per wheel and we've dealt with some increased material cost per wheel. Material costs increases have been in part of fiber and some of the metals we use in some of the backing plates and the ball joint. The metal pricing has settled down. I think it's too early to call the carbon fiber prices. We certainly dealt with increases in carbon fiber pricing. But some of our carbon fiber is sourced from Europe and with an input cost and input of energy and European energy prices are sort of widely talked about as facing upward pressure at the moment. We certainly dealt with pricing. We've got materials on hand for the coming months. But could there be an increase in cost in carbon fiber pricing in the next sort of few months as winter hits Europe that could happen. We've certainly got our supplies sorted out for the coming months.

Just while we're waiting to see if anymore questions coming through, I want to flag that all participants, we'll be sending around a video this morning, which is a short one capturing progress that's been made on the Mega-line build, exciting visual summary of what's been happening in factories. So, that will be [Technical Difficulty] a little later this morning. We don't have any open questions, so we will close the webinar there. Thanks to Gerard and Jake. Thanks to all the participants for tuning in and watching today. Have a good rest of your Monday. Thank you.

Good-bye.