Aston Martin announced their Q4 and full year 2020 results this week. In December, Executive Chairman Lawrence Stroll gave an interview to the Financial Times in which he stated that “demand right now is phenomenal” so I have been eagerly waiting to find out what Stroll’s definition of phenomenal is as certainly the first three quarters of 2020 were a fairly trying time for Aston Martin. When I last took a look at Aston’s results coming out of Q3 (Aston Martin’s Q3 Results), the summary was:
To say Stroll, Moers, and their teams have their work cut out for them is the understatement of the century. The new Mercedes Benz technical partnership gives Aston Martin access to the technology it needs to be able to relaunch the current line up and deliver the next generation of cars. It also allows Mercedes to “rent” Aston before they decide to “buy”. The lack of transparency on the DBX order book is highly concerning, but the plans for the relaunch/facelift of the current line starting in the back half of next year is reason for hope. Financially Aston is a long way from being out of the woods, but they have bought themselves a few extra years at a fairly steep price. There is likely more pain for the organization as a restructuring is in store to address the excess manufacturing capacity. I do give Stroll and his new management team high marks for getting the deal with Mercedes done and the financing in place while standing in the middle of a massive turd of a situation. While the confidence and vision are refreshing, it’s going to take flawless execution to get them out of what is still one big odious mess.
In terms of the positives going into Q4 2020, Stroll and his new team had gotten new financing in place, signed a strategic technology agreement with Mercedes Benz, and shipments of the DBX were well underway. Despite all this, to quote Queen Elizabeth II, 2020 was an “Annus Horribilis” for Aston Martin. The final full year numbers for 2020 were 42% decline in vehicles sold to 3,394, sales decline of 38% to £612 million, EBITDA had a swing of £189 million to negative £70.1 million and an operating loss of £322 million. Free cash flow was a negative £539 million. All the refinancing activities did allow Aston Martin to finish the year with £489 million of cash on hand. Given the disaster of a year, it was good to see the new Aston management team to use opportunity to do a bit of house cleaning and write down £13.5 million in inventory and take an impairment charge of £79.3 million. £70 million of the impairment charge was a write down on the hybrid powertrain development. This follows the £40 million write down on EV development Aston took in 2019. The two year total on a couple of poor decisions, £110 million. To say this is all do to Covid would be very unfair to Covid. Aston was well on its way to a disaster of a year coming out of 2019 in which sales dropped 10% and operating profit declined by £152 million.
Moving on to the financial reality of Aston today, this has basically been addressed by kicking the can down the road until 2025/2026 with the new £1.3 billion debt and equity package (£125 million via new share placement, £840 of 1st lien notes and £260 million of 2nd lien notes). These funds have used to retire the debt coming due in 2022 and provide an additional £200 million of liquidity. This funding is not coming cheap, the £260 million of second lien notes carry a 13.5% coupon which puts them firmly in the “junk” category. Aston Martin also paid out £41.9 million in transaction fees in 2020 and the early redemption of the prior Senior Secured Notes resulted in a premium payment of £21.4 million. Post the Mercedes Benz Technology deal, the number of shares had ballooned to 9X to 1.824 billion. The initial shareholders, who at this point had been diluted to the point of drowning, got a final coup de grâce when Aston Martin implemented a reverse 20:1 stock split and then paid out and cancelled any resulting fractional shares. For the Aston Martin enthusiasts who bought a share or two at the initial IPO back in 2018, this was the final ignominious end.
Which brings us to Aston’s Q4 results. There are still ugly but a bit less ugly than the proceeding 3 quarters and are a good indication of what the run rate likely will be for 2021. The key Q4 numbers were vehicles sold wholesale 1,839 and retail 1,398, sales increase of 4% vs. Q4 2019 to £342 million, EBITDA -14% vs. Q4 2019 to £47.5 million and an operating loss of £93.8 million. Free cash flow was a negative £25.7 million. The guidance that Aston Martin provided for 2021 was very high level and calls for 6,000 cars wholesale, EBITDA margin in the mid-teens, Capex & R&D of £250-275 million (which in line with 2020 spend) Free Cash Flow in the low negative triple digit million range and interest costs of £155 million. Using Q4 2020 as a guide for filling in the rest of the key 2021 P&L numbers this would deliver sales of £1.4 billion, and EBITDA of around £200 million.
The earnings call as usual provided a plethora of insights. This time it was just the new CEO, Tobias Moers & the new CFO Kenneth Gregor on the earning’s call. Lawrence Stroll was nowhere to be found and Marek Reichman, the Chief Creative Officer, was also not present. It was interesting listening to Moers on the call. He seemed more comfortable sparing with the analysts than Stroll ever did and it was more entertaining to listen to Moers non-answers on a range of questions. Looking at a few areas of interest in a bit more detail:
Regarding the current Sport & GT range, in the Q3 call, Stroll implied that he expected a current Sports/GT range facelift/relaunch to begin within 12 months. There was no mention of current range facelift this time around and the only reference I could find in any of the documentation pointed towards 2023 for Mercedes supplied technology to start showing up in the powertrains and infotainment systems.
A few more interesting comments that did emerge on the DBX were the annual objective of selling 5-6000 units was a “prior management” goal. The current expectation for DBX wholesales in 2021 is around 3,000 units. To get there, Aston Martin will need to increase the Q4 2020 sales run rate by 25% in 2021. It’s not impossible but Q4 would have also included quite a number of the “must have the new new thing first” crowd. The only comment offered on the DBX order book was it was “in-line with expectations” and I think it’s safe to assume that these set of expectations have nothing to do with those communicated by prior management. I did have to laugh at Moers response to the question on DBX order lead times, he offered to take the analysts name and see if he could get their cars production moved up. While it was a complete non-answer to the question, it was clever.
Moers and his new leadership team are still a long way from being out of the woods. While the Mercedes Benz technical partnership gives Aston Martin access to the technology it needs to be able to relaunch the current line up and deliver the next generation of cars, it’s now clear that not much will happen until Aston can get that technology incorporated into the range. How Aston Martins retains its brand identity when its future cars will be based on Mercedes powertrains and infotainment systems will be a major challenge. The lack of transparency on the DBX order book remains concerning, as is the dealer loading. Financially Aston have bought themselves a few extra years at a steep price and this will limit what they can invest in other areas. I do give Stroll, Moers and his new management team high marks for getting the business to a point where it at least appears to have stabilized and having used this turd of a year to clean up the balance sheet. The confidence and vision are refreshing, but it’s going to take flawless execution for the next several years to get Aston Martin out of what is still an odious mess and back to profitability.
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Note: Pictures are from the Aston Martin Media Gallery and 2020 Report.