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

All right. Thank you. So good afternoon, everyone, for the second meeting today. Obviously, I've introduced myself already. I'm James Douglas, the Chair of Carbon Revolution. I'm going to be chairing today's General Meeting. I'll apologize because we do need to replicate much of what we did in the Scheme Meeting, but I'll try and get through it in a reasonably timely fashion. I do want to note that we have a quorum of Carbon Revolution shareholders present, and so I will declare the General Meeting open, and welcome you all to this General Meeting. This General Meeting was convened to consider the proposed Capital Reduction under which Carbon Revolution Plc, which as I've noticed as an Irish company, we'll refer to as MergeCo, will acquire Carbon Revolution in connection with the scheme of arrangement and capital reduction. MergeCo, through a wholly owned subsidiary, will also acquire Twin Ridge Capital Acquisition Corp., which as I've noted, is a SPAC via a business combination. The scheme of arrangement, capital reduction and the business combination are together called the transaction are interconditional. Today's meeting is being held in person and online, which allows shareholders, proxies, representatives and guests to attend the meeting in person or virtually. For those participating online, attendees can watch a live webcast of the meeting. In addition, Carbon Revolution shareholders and proxies have the ability to ask questions and submit votes. I have noted that we have today the Board of Carbon Revolution, my Directors and other Nonexecutive Directors, Mark Bernhard, Lucia Cade and Dale McKee. And we also have the Chief Executive, Jake Dingle; Chief Financial Officer, Gerard Buckle; and General Counsel and Company Secretary, David Nock. I will present the Capital Reduction Resolution to be considered. And as in the previous meeting, there'll be time for questions and discussions if there are any. I'll also display the proxy votes for the Capital Reduction Resolution before putting that resolution to a vote by way of a poll. The results of today's General Meeting will be announced to the Australian Stock Exchange later today. Before moving to the formal business, I'd like to say a few words about the transaction. Details have been outlined in the scheme booklet and the supplementary scheme booklets, which are made available to Carbon Revolution shareholders. Carbon Revolution and the SPAC entered into a Scheme Implementation Deed and Business Combination Agreement on 30th of November 2022 to give effect to a proposed merger between them. Under the Scheme Implementation Deed in the Business Combination Agreement, the merger will be effected by MergeCo, an entity, which has no trading history or operations and only nominal share capital, acquiring both Carbon Revolution, by way of the Scheme and Capital Reduction; and the SPAC by way of a wholly owned subsidiary of MergeCo in the SPAC being combined under the Business Combination Agreement. These two transactions are interconditional and are together, the transaction discussed in the Scheme Booklet. The consideration to be provided by MergeCo to Carbon Revolution shareholders and SPAC shareholders is MergeCo shares. And in the case of acquisition of the SPAC MergeCo Public Warrants, which will replace SPAC Warrants currently on issue. As a result, Carbon Revolution and the combine SPAC and will become subsidiaries of MergeCo. The resulting group will be the combined group and the existing Carbon Revolution shareholders and SPAC shareholders jointly own MergeCo, which will be listed on NASDAQ Capital Market. As I've noted, for the purpose of determining the number of MergeCo shares received for Carbon Revolution share, the Scheme uses an enterprise value of Carbon Revolution of USD 200 million. Based on Carbon Revolution's cash and debt position at 31 March 2023 and applicable adjustments, this corresponds to an equity value of USD 186.7 million as of the same date. Taking into account the number of Carbon Revolution shares expected to be on issue on the Scheme Record Date, which, as I've noted, is about 213 million shares, the structured equity facility is discussed in the Supplementary Scheme Booklet dated 28th September 2022, and the 10:1 share consolidation discussed in the Second Supplementary Scheme Booklet dated 6 October 2023, the deemed value of MergeCo shares of USD 10 each. This means that each Carbon Revolution shareholder -- sorry, each Carbon Revolution share will be exchanged approximately the 0.00643 Mergeco shares. I'd like to note, as I previously noted, the 10:1 share consolidation discussed in the Second Supplementary Scheme Booklet does not impact our shareholders' ownership in MergeCo. Scheme Shareholders and SPAC shareholders received 1/10 of the shares that was previously the case, with the same relative holding as between them and no change to the total value of shares held by any shareholder. If the Scheme becomes effective and the Capital Reduction is approved on the implementation date, all of the Carbon Revolution shares and all the rights and entitlements attaching to them as at the implementation date will be canceled by way of a capital reduction. In exchange, MergeCo will issue a Scheme Consideration to the MergeCo shares to Carbon Revolution shareholders. Carbon Revolution will then immediately issue one Carbon Revolution share to MergeCo. This will result in Carbon Revolution becoming a wholly owned subsidiary of MergeCo and Carbon Revolution shareholders becoming shareholders in MergeCo. This will occur in accordance with the Scheme and the Deed Poll. In making their recommendation, your Directors have considered an extensive range of issues and have had regard to their overarching responsibility to act in the best interest of Carbon Revolution shareholders. In particular, the Board has identified a number of reasons why you should vote in favor of the Scheme and the Capital Reduction and a number of reasons why you may wish to vote against the Scheme and the Capital Reduction. These are set out in detail in the Scheme Booklet and are summarized on the current slide. Having regard to these matters, your Directors believe the reasons to vote in favor of the Scheme and the Capital Reduction outweigh the reasons to vote against the Scheme and the Capital Reduction. The Carbon Revolution Directors appointed Grant Thornton as the Independent Expert to assess the merits of the Scheme and the Capital Reduction. The Independent Expert concluded the Scheme and the Capital Reduction are not fair but reasonable, and in the best interest of Carbon Revolution shareholders, in the absence of a superior proposal. The Independent Experts' conclusions are set out on the current slide. The Independent Expert estimates the underlying value of Carbon Revolution shares to be between $0.408 and $0.561 per share on the basis that a voluntary administrator is not appointed. The Independent Expert's report is set out in full in Annexure 1 of the Scheme Booklet. The Carbon Revolution Directors continue to unanimously recommend that Carbon Revolution shareholders vote in favor of the Scheme and the Capital Reduction in the absence of a Superior Proposal and subject to the Independent Expert continuing to conclude that the Scheme and the Capital Reduction are in the best interest of Carbon Revolution shareholders. Carbon Revolution shareholders should have regard to the interest of Carbon Revolution Directors when considering the Board's recommendation. These details are disclosed in Section 7 of the Scheme Booklet. At the time of the general meeting, no Superior Proposal has emerged, and Carbon Revolution Directors are not aware of any Superior Proposal that is likely to emerge. Prior to this General Meeting, each Carbon Revolution Director who holds Carbon Revolution shares, instructed that these shares be voted in favor of the Capital Reduction. I'd like to comment on the conditions precedent into the Scheme by noting that Carbon Revolution Directors are not aware of any circumstances would cause any of the outstanding conditions precedent not to be satisfied except as set out in the Scheme Booklet. Carbon Revolution, the SPAC and MergeCo continue to make progress in relation to the satisfaction of those conditions precedent that are required under the Scheme Implementation Deed and scheme of arrangement. The Scheme also remains subject to a number of other customary conditions, including shareholders approving the Scheme Resolutions at the meeting, and the Federal Court of Australia approving the scheme. Although Carbon Revolution shareholder approval is a condition precedent, it does not need to be the final condition to be satisfied. Accordingly, Carbon Revolution Board considered it was in the interest of Carbon Revolution shareholders to proceed with a vote today to reduce any potential delays for implementation, including transfer of consideration to Carbon Revolution shareholders. If the Capital Resolution is passed by the required majorities at this General Meeting, the Scheme Resolution is passed by the required majorities at the Scheme Meeting we held earlier. And when the conditions precedent to the scheme are satisfied, Carbon Revolution will apply to the Federal Court of Australia for approval of the Scheme. And we've scheduled a court hearing for the Scheme Meeting on 18 October 2023. When the court approves the Scheme, a copy of the court orders will be lodged with ASIC, following which the Scheme will become legally effective, and Carbon Revolution shares will be suspended from trading on the Australian Stock Exchange with the final trading day expected to be Thursday, 19 October. Subject to all conditions being satisfied, Carbon Revolution shareholders can expect the transaction to be implemented on 30 October 2023. If the outstanding conditions are not satisfied or waived, or the Scheme or the Capital Reduction are not approved by the Carbon Revolution shareholders in the court, the transaction will not proceed and Carbon Revolution will continue as a stand-alone entity listed on the Australian Stock Exchange. Before moving to the formal business of the General Meeting, there are a number of procedural matters that I would like to bring to your attention. And again, I'll apologize. They're pretty much the same as the previous meeting, but I'm required to go through them. For Carbon Revolution shareholders who are attending the General Meeting in-person, you'll be given the opportunity to ask questions in a moment. Please raise your green or pink attendee card to indicate to the Company Secretary, who will act as question moderator, if you have a question or a comment you wish to make. For Carbon Revolution shareholders who are attending the General Meeting virtually, questions can be submitted at any time. To ask a question, select the Q&A icon and type your question in the text box. Once you finish typing, please hit the send button. For virtual Carbon Revolution shareholders wishing to ask a verbal question, please follow the instructions written below the broadcast. If you have any technical issues, please resubmit your question in writing. Please note that while you can submit questions via the online platform from now on, I will not address them until the relevant time in the meeting. Please also note that your questions may be moderated or if we receive multiple questions on one topic, we may combine them together. The Company Secretary will read out any shareholder questions submitted via the online platform during the course of business at today's General Meeting and introduce any shareholders with a verbal question. For Carbon Revolution shareholders who are attending this General Meeting in-person, voting today will be conducted by way of a poll as it was for the previous meeting. The persons entitled to vote on the poll are Carbon Revolution shareholders, representatives and attorneys of Carbon Revolution shareholders and proxy holders who hold green admission cards or who have registered to vote via the online meeting platform. On the reverse of your green admission card is your voting paper and instructions, and attached to proxy holders' admission cards are details of the voting instructions. By completing the voting paper, you are deemed to have voted in accordance with those instructions. In respect of any open votes, a proxy holder may be entitled to cast, you need to mark a box beside the motion to indicate how you used to cast your open votes. Carbon Revolution shareholders need to mark a box beside the motion to indicate how you wish to cast your votes. A Link representative will collect your completed voting paper at the appropriate time during this meeting. For Carbon Revolution shareholders who are attending the General Meeting virtually, voting today will be conducted online by Link. To provide you with enough time to vote, I'll shortly open voting. At that time, if you're eligible to vote at the meeting, once voting opens, press the vote icon and the resolution will be activated with voting options. To cast your vote, simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. You'll receive a vote confirmation notification on your screen, and you can change your vote up until the time I declare voting closed. I now declare voting open. The polling icon will soon apply on the Link platform. Please submit your votes at any time, and I'll give you a two-minute warning before I move to close the meeting. In relation to proxies, I advise the meeting that a number of valid proxies have been received by Carbon Revolution, and I'll provide the proxy details after discussion on today's resolution. In relation to proxies that I'm holding as Chair, I advise that if a member has directed me to vote in a certain way, I will vote in accordance with that direction. If I've not been directed to vote in any way, I intend to vote in favor of the Capital Reduction Resolution. With this background, we'll now move to the formal business of the General Meeting. If there are no objections from Carbon Revolution shareholders, I propose to take the notice convening this General Meeting as read. The Capital Reduction Resolution, as set out in the Notice of General Meeting is displayed on the screen and is as follows: it's subject to and conditional upon the scheme of arrangement proposed to be made between Carbon Revolution Limited and holders of its fully paid ordinary shares becoming effective in accordance with Section 411 subsection 10 of the Corporations Act of 2001 Commonwealth Act. And for the purpose of Section 256C, subsection 1 of the Corporations Act, and for all other purposes, the share capital of Carbon Revolution be reduced on the Implementation Date, as defined in the Scheme, by canceling all Carbon Revolution shares on issue on the Implementation Date in exchange for the Scheme Consideration in accordance with the Scheme and all other transactions and arrangements described in the scheme booklet of which the notice convening this meeting forms part of. The Capital Reduction Resolution must be passed by the required majorities. The results of the valid proxies received are shown on the screen and in the announcement released to the Australian Stock Exchange this morning. I'll now ask for questions from the floor or online.

Chair, we do have an online question from [ Luke Carter ]. So I'll read that out. When the proposed merger was first announced, there was an indication that CBR shareholders would achieve the approximate equivalent of AUD 1.40 per share when factoring in exchange rate and a strike price of USD 11.50. Can you please give us an indication of where this AUD 1.40 equivalent sits now after all the changes that have been made since the original announcement?

Sure. So first, let me say that obviously, the share price of this company will be defined by the market demand after completion. And so this exercise is somewhat an intellectual exercise as opposed to a specific one. I don't think any of us are sure where it will trade. And I'll also clarify that I think in relation to that question, the strike price of $11.50 is the warrant strike price. The actual relevant price is the USD 10 per share of the SPAC shares at the time of the transaction. So the share price has been modified by a series of things in relation to both the performance of the company and our net debt position as well as the additional steps we've made in relation to our capital position and changes in things like the exchange rate during the period, but it's a fairly simple analysis for shareholders to think through. Essentially, there are three or four things to take into account. So firstly, at the time we announced the merger, the assumption was an equity value of about USD 200 million. In fact, the equity value based on some of the adjustments we talked about in the speech we've just been through and others, means that the actual equity value for the purpose of the transaction, which obviously takes into account our net debt and cash position was about 25% lower than at the time of the announcement. So it's the first piece to consider. The second piece that we need to take into account is that we now have clarity on the dilution effect of the SPAC sponsor shares. And so at the time we announced this deal, that was not clear. And I think it was our hope that there would be significant capital left in the SPAC trust. There wasn't, and so as a result of that, the dilution effect of the SPAC sponsor shares is somewhat increased, and that has an effect of about 20% on the residual share price outcome. And then there's also the effect of the Orion share dilution, which affects our shareholders to the tune of about 25%. So it's difficult to do the math standing here. But in actual fact, the resultant outcome, if we do trade at what is effectively now $100 a share, is that our shareholders will receive something like 50% of that original target price is where we end up. So it's not where we hope to be, but I would say that the flip side is a couple of things that is still above -- well, firstly, obviously, it is uncertain where it will actually trade because obviously, the market will define that. But if we do trade somewhere in that vicinity, it is still materially ahead of where the Independent Expert gave their opinion about the value of the company. And between that point and today, we've accessed very material capital as we noted. So the USD 60 million debt facility with PIUS, and USD 110 million structured equity facility with Orion, as well as although we haven't accessed it yet, and it's clearly somewhat dilutive, the contingent equity facility with Yorkville. So if you think about our position when we originally looked at this deal at the end of last year, we were in a very difficult position from a capital perspective. Where we are today is that once this deal completes, assuming shareholders approve it and it's approved by the Federal Court, the company actually has sufficient capital to deliver what it needs to do in relation to completing the expansion of the facility here in growth and move to profitability, including completing the existing new wheel programs that we have. And so it's not going to be anything like the $1.40, but it is still almost certainly very much higher than where we currently are. And the company is in a much stronger financial position than it was at the time when we announced this transaction.

There are no other questions online, Chair.

Any other questions from people here? Okay. I will continue then. So that brings us to the end of the formal procedures. I want to just again take this opportunity to thank you all for being here today. And obviously, for your support of the company. And I think to reiterate and to your question, I think the Board is absolutely well and truly aware of some of the concerns and questions you raised as shareholders and as Directors of the company, but we do thank you for your support. I do want to thank my fellow Directors here. I think it's been a difficult period. You really have demonstrated terrific leadership and stayed the course to get the company to this point. I want to thank the executive and management team and all the employees of Carbon Revolution. I know it's been a tough 12 months. There's been a lot of uncertainty and a lot of extra demands put on people. I do think, though, it is really extraordinary when we take away the capital-related issues and look at what's happening in the business, the team has done an incredible job over the past 12 months. And that really -- it's a real credit to the whole team. So that concludes the official business. I just want to finalize as a reminder, and it does come back to that last question. Sorry, let me just touch this. So there's going to be a two-minute period to complete voting if people want to complete voting. But I do want to say just in closing, that this merger really does have a lot of benefits for us. And it really was something that was, I think, in our minds, the best choice we had at the time when we looked at it last year. But we're bringing on to the Board some really quite extraordinary individuals, some of whom are genuinely globally famous in the auto industry, and I'm pretty excited about that in terms of what they can deliver. That listing in North America is really going to make a difference, and we've already seen that in terms of access to capital that we could never have got. There is no way as an Australian listed company we could have accessed to USD 60 million debt facility. We'd never have been able to get the kind of transaction that we've got with Orion that delivers a USD 110 million. And so we really have been able to access capital that I just don't think -- we didn't think as a Board was available. And that's going to allow us as a business to continue the expansion here, which we're really committed to continue on those new wheel programs and continue our pathway to profitability. I will remind you, too, for those that haven't done the conversion to DTC, it really is pretty straightforward. We can help you. And you do need to do it, but the clock isn't ticking. You'll have plenty of time to get it done. So thank you for your participation today. I'm going to declare the General Meeting closed for all purposes subject to the conduct or conclusion of the poll. And thank you, again, everyone, for coming today and being our supporters over the journey.