Aston Martin’s Q4 & Full Year 2020 Results

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:

 

  • Current range & Dealer Destocking: Moers indicated in the prior earnings call that dealer destocking was on track and would be finished by Feb 2021, this time around Aston is indicating that it will be “mostly” completed by the end of Q1 2021. Again, the timing has slipped, and the comment is a bit misleading. Destocking of the Sports & GT ranges is still ongoing (Aston sold about 100 more Sports & GTs in Q4 than they shipped), but dealers are getting loaded with DBXs right now. In Q4 Aston shipped a total of 441 more cars to dealers than dealers sold.  There is no universe I know of in which that is destocking.  All the talk about rebalancing supply to meet demand rings a bit hollow here.  While I do understand this includes a bit of pipeline fill, the numbers seem high.  When challenged on this, Moers explanation was there were a lot of cars “in transit” which doesn’t actually change any of the facts.  Aston also stated that they would no longer be reporting retail sales in 2021.  None of this is particularly confidence building.  It’s on par with someone fresh out of rehab stating they will let you know if they relapse and then asking for the keys to the wine cellar.  

 

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.

 

  • Project Horizon: Is Aston Martin’s new transformation plan. The Plan’s goals are to drive growth, agility, and efficiency.  Honestly it reads like something a group of McKinsey consultants probably put together in a couple of days.  On the plus side, they are good at PowerPoint but there is nothing in the plan that’s particularly new, unexpected, or insightful.  One thing that did come through in the comments on Project Horizon were Moers’ views on the prior management team. He made multiple references to multiple low hanging efficiency and cost savings opportunities.  It was hard to misunderstand his comments on bringing in a lot of new leaders and now having a very strong leadership team in place. My guess is Moers wouldn’t even hire Andy Palmer to house sit.
  • DBX SUV: The comments on the DBX in both the earning call and in the presentation continue to be brilliantly opaque. The one consistent is calling the launch “successful”.  This feels a bit on par with President George W Bush in 2003 declaring “Mission Accomplished” in Iraq right before everything went very pear shaped.  Details on the actual size of the order book are better kept than most state secrets.  What details that did emerge were total DBX shipments in 2020 were 1,516 cars with 345 having been shipped in Q3 and 1,171 in Q4.  DBX Q4 retail sales were 593 cars.  Assuming generously that all Q3 DBXs found homes in Q3, this still leaves 578 DBXs sitting either on dealer lots or “in transit” (Aston recognizes revenue when control of the vehicle is passed to the dealer).  A similar run rate for the 1st two months of 2021 would give you another 800 DBXs shipped.  I did a quick check of a dozen Aston Martin dealers in the US and they have an average of 5-6 new DBX’s listed for sale on their websites.  In my experience if they have 5-6 listed, they probably have at least several more sitting in a back lot.  Given there are 160 Aston dealers globally, being very conservative and assuming each only has 5 DBX’s in inventory, this is 800 units looking for buyers right now.  That’s already the equivalent of 4 ½ months inventory based on the Q4 2020 retail sales run rate. 

 

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.

 

  • Valkyrie: The Valkyrie’s has to be the most delayed supercar in history by now. To put it in a bit of perspective, since the Valkyrie was announced, Prince Harry has gotten married, been dropped down another notch on the royal succession ladder, had a son with another child on the way, requested a voluntary redundancy package from the Queen, and moved to the US.  In the Q3 earnings call, Stroll stated that deliveries are now expected to start in June 2021, and Moers just kicked that down the road a bit more stating that deliveries would start in the second half of 2021.  Given Aston’s track record to date, I would recommend any Valkyrie owners to be who were hoping to use their new car for a summer road trip to find alternative transportation.   Just to add to the excitement of one last minor delay, the long suffering Valkyrie depositors had to be thrilled to hear that Aston is now considering expanding the Valkyrie portfolio as of Q4 for what was supposed to be a strictly limited 150 car production run.  With all the changes in leadership and split with Red Bull, I will be very interested to see what Aston finally delivers on the Valkyrie vs. what was originally promised. 
  • Valhalla, and other “Specials”: The Valhalla seems to be very much back in Aston Martins plans again with a new targeted launch date of 2023. The only details offered were that the design is being reworked and it will now be powered by a Mercedes-Benz sourced powertrain.  Rumors are that this could even be a hybrid 4-cylinder twin turbo engine.  Needless to say, I am very glad I pulled my deposit on the Valhalla long ago.  I was clearly not the only one who did this as Aston recorded a decrease in advance deposits of £52.8 million in 2020.  A large chunk of this could be related to the Valhalla as it went from having nearly all 500 units with deposits down against them in 2019 to lot of build slots very available again in 2020.  If the Valhalla does actually ever see the light of day, it will certainly be a very different car to what was pitched back in early 2019.  Moers also mentioned in his comments that Aston was planning more “Specials” going forward, which would include the “to be announced” Valkyrie derivatives.  Aston sold 43 “Specials” in 2020 which included 19 DB5 Continuations and 20 DBS GT Zagatos.  This strategy carries significant risk and I would suggest he take a look at what happened down the road in Woking before going overboard on limited editions.

 

  • Capacity: In Aston Martin’s most successful year in history, they sold 6,441 cars. In 2021 they are aiming to sell 6,000.  In the Q3 2020 earnings call it was mentioned that Aston Martin currently has production capacity for 14,000 cars per year.  There is no long term plan currently on the table that gets anywhere near fully utilizing this capacity.  At best, Aston hopes to get to 10,000 cars by 2025.  All this extra capacity has to be a huge on-going drag on the P&L.  Despite this there don’t seem to be any plans for a major restructuring in 2021.  While I applaud all of Moers efforts to make Aston Martin run more efficiently, they really need to find the funds to properly restructure the business.

 

  • Works Formula 1 Team: In the past Stroll has made quite a big deal about his Racing Point F1 Team becoming the Aston Martin Works F1 Team in 2021 and Moers has recently jumped on this bandwagon as well. The use of the word “Works” is certainly a creative one as there is currently no shareholding relationship between the two companies despite the fact that they have a common controlling shareholder.  It is just a marketing relationship with Aston Martin paying Racing Point a sponsorship fee estimated to be around £20 million a year.  This is actually acknowledged in the press release of the 2020 results.  In the press release, it is specially referred to as a “sponsorship agreement with commercial terms in line prior F1 expenditures”.  Clearly Aston Martin has a good in-house consul who reviews all materials before they are released and clearly Stroll and Moers don’t always follow the guidance they have been given.  From a pure marketing perspective, it is in their interest to blur the line here and push a few “alternative facts” (Kellyanne Conway would be proud).  For a struggling car manufacturer, I do question if this really is a good use of funds and doubt the sponsorship agreement would have taken place without Lawrence Stroll’s presence on both sides of the table.  On the plus side, Stroll at least doesn’t have to see his son wearing that awful pink race suit again this coming season.

 

Summary

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.

Thoughts and comments? Please see the comments section below.

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February 2021

Note: Pictures are from the Aston Martin Media Gallery and 2020 Report.

Recent Posts

5 Thoughts on Aston Martin’s Q4 & Full Year 2020 Results
    Simon B.
    28 Feb 2021
    8:02pm

    I really do enjoy reading these, especially if they are particularly long and detailed like this time!

    It’s also rather amusing – in a grim sort of way – that among all the professional outlets that reported on the Aston Martin financial results, your blog was the only one to make the distinction between units delivered to dealers and units actually sold. Keep up the good work, I guess – because nobody else will!

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    John
    28 Feb 2021
    8:52pm

    You certainly didn’t miss and hit the wall. So much of what you report here should worry any Aston enthusiast and owner.

    Valhalla – Now to use a Mercedes engine rather than an Aston unit. Aston owners are already not happy that Mercedes is in the Vantage and DBX. Whilst I had the pragmatic view that since engines are very expensive to develop, I do fear they really do sound far too much like a Mercedes engine. There’s no Aston uniqueness. This is the XJ-220 V12 4WD becoming a V6 2WD all over again. Aston under delivering.

    Engines – If Aston are going to use Mercedes engines, and Stroll wants Aston to be Britain’s Ferrari, will Ferrari start using Fiat engines?

    DBX- Aston stopped releasing sales figures when they had about 1,800 sales. Problem was that 600 of those were for dealer stock and only 1,200 were customer specified models. Some suggestions that they’d broken the 2k mark, but after that nothing. I feel that if they’d hit 3,000 pre-sales they’d have been shouting at the top of their lungs they’d covered another milestone. I fear that the thousand odd DBXs they’ve now produced is covering half their order book. 2021 could be tough on the DBX as it’s just not good enough inside and out, mainly because it’s a Reichman design.

    Reichman – Moers had one job to do: Sack Marek Reichman. Aston will simply not be able to turn their fortunes around by relying upon his contributions when they simply don’t sell. Einstein stated that repeating the same over and over again expecting different results was a sign of insanity, and quite frankly that is Aston letting Reichman design more products for them. They don’t sell.

    Moers – I’m increasingly convinced he’s the wrong person to lead Aston. He hasn’t sacked Reichman and found a new designer, which arguably would make a huge difference to Aston’s future, but is determined to dump Aston’s engineering in favour of Mercedes. Sure the older Aston’s use parts from Volvos, and the Ferrari California’s SatNav is from a Jeep, as all marques share parts, but not the heart and soul of the car. He might not get premium.

    Stroll – Fantasist. Rebrander. Marketer. Fantasist that he’s now trying to pretend that Aston has this huge history in F1 and how the team is returning. Well, it was only five (count them) races back in 1959 with the DBR4. Beautiful car. But the successor, DBR5, was so bad they scrapped it. Rebrander as it seems to be what he does in business as from what I can tell he took products from his business partner in China and put a different brand on them. Marketer as he then successfully sold those inexpensive products for a higher price just with the addition of an upmarket but failing brand. (For legal reasons I will simply say that this is the impression I get after reading stories on how his business empire has worked. You may wish to make your own opinion after reading up yourself.)

    Palmer – Yes, he’s gone. But for a quick retrospective what did he do wrong? Simple: Repeatedly relied upon Reichman’s designs. He got the engineering improved. He had plans to return Aston to Aston engines after using the V8 Merc for a while. He got the DBX and a new factory to increase capacity. There’s a lot he did right, but for one thing: Not sacking Reichman. However you look at the mess that Aston are in there is one common denominator – Reichman’s designs don’t sell.

    Until Aston get short of Reichman they will continue to under deliver.

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    Tim
    28 Feb 2021
    9:18pm

    Great article, thanks!

    The interest on the bonds were mis-priced to start with, so had to be repriced: First lien of £840m at 10.5% interest maturing in 2025; Second lien of £259m at 15.0% split interest (8.9% cash; 6.1% PIK).
    So the 13.5% became 15% pretty quickly. I don’t know of any companies with a higher rate.

    Interesting dichotomy: De-stocking core models, and loading up dealers with DBXs. That smacks of desperation to me, what happened to “Built to order”. There are/were a good few DBXs for sale in classifieds too.
    I can’t work out if Stroll has it in him to turn this around or not, it’s all hyperbole and very little substance. Interesting he was not on the call, Moers has probably told him to keep quiet and let hime get on with it.
    What happened to Stroll’s “gangbusters” quote for China sales? APAC sales are down 40% from last year. Ferrari’s overall sales were only down around 10% in 2020 from 2019.

    So AML won’t be selling many cars in H1 2021, and are relying on the Valkyrie being delivered on target in H2. I reckon it will be Q4 at least.
    Can anyone see the AML’s sales numbers being healthy for the first 9 months of 2021?
    Looks lie shareholders might have a longer wait than they first envisioned.

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    Richard
    8 Mar 2021
    11:10am

    A very informative, well researched article.

    Very good to see the ‘other side of the coin’ aside of all the polish that Stroll places upon the company.

    Stroll does have a lot of ‘muscle’ and will pull others along with him, but even he is likely to be puffing a lot, if he does manage to gradually navigate the steep incline in front of him.

    Clever trick to be able to gain funding for his hobby of F1, and also keep his son out of mischief.

    I do wish him well, since i do have ‘skin in the game’, but value articles such as this to level up the playing field, aka track.

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