Aston Martin’s FY 2023 Results: Turtle Flambé

In his opening remarks on the Aston Martin Lagonda (AML) earnings call this week, AML’s Executive Chairman, Lawrence Stroll proudly stated: Just last weekend, the latest season of Drive to Survive was released globally. Featuring Aston Martin in episode one, the most watched show on Netflix in more than 40 countries, the series prominently brings our brand and products to millions of viewers.”

 

Also today, initial data released by Netflix reveals that the audience numbers for the first three days of Season 6 have been less than stellar. With an average viewership of just 2.9 million in its opening days, there is a notable 30% drop compared to last year’s figures. 

 

These two statements, in many ways, is a great summary of Aston Martin’s 2023 performance and the content of the earnings call.  Lots of puff and bluster paralleled by a few uncomfortable facts.

 

The earnings call this time was a fairly free flowing affair.  The highly discipled and scripted Lawrence Stroll we saw this time last year is long gone and he is back to the more bombastic but highly entertaining figure we are used to.   A year ago all Stroll’s references to the Aston Martin Aramco Cognizant Formula One Team referred to it as a “partnership” with AML and no longer as AML’s “Works” F1 Team, that’s long gone again at its back to being Aston Martin’s F1 Team.  Stroll, lead the call with both CEO Amedeo Felisa & CFO Doug Lafferty providing opening statements and helping to respond to questions.  As usual though it really was the Stroll Show and what was not said was as interesting as what was stated. 

 

In an interview with CNBC in June 2023, Lawrence Stroll stated that “Aston Martin is on fire right now”.  Stroll then followed up on the “On Fire” declaration in the July 1st half earnings by proclaiming the Aston Martin’s “Turnaround Was Complete”.  He opened the FY 2023 earnings call by proclaiming “We have made tremendous progress within that time. We have transformed our iconic global brand. Reinvigorated our product portfolio. And improved our balance sheet supported by our long term strategic partners. In 2023, Aston Martin delivered significant financial and strategic progress.” Which all sounds hugely impressive……..if the numbers backed it up.

Looking at the FY 2023 highlights:

AML’s 2023 Highlights

The 2023 highlights according to the Aston Martin press release are:

  • Revenue growth of 18%; driven by robust volumes and record ASPs
  • Gross margin improved 650bps to 39.1%; driven by ongoing portfolio transformation.
  • Adjusted EBITDA increased 61%; margin improved 490 basis points to 18.7%
  • Strong Q4 performance delivered record gross margin and adjusted EBITDA in the quarter.
  • Disciplined strategic delivery supported ongoing deleveraging; net leverage ratio at 2.7x
  • Near and medium-term guidance maintained.

 

This all sounds wonderful.  What they failed to mention but is buried in the numbers:

  • Vehicle wholesales down 6% in Q4 2023 vs. Q4 2022
  • Free Cash Flow of -£360 mil. in 2023 and deterioration of -£61 mil. vs 2022.
  • Cash end 2023 down by £191 mil. (vs. end 2022) to £392.4 mil. which includes £311 mil. in proceeds from 2023 share sales (ex the share sales cash would be £81.4 mil.).
  • Net Debt of £814 mil. up £48 mil. vs. year end 2022
  • DBX wholesales were down 50% in Q4 2023

This tells a bit of a different story.  To begin to understand the situation, here is the original 2023 Guidance that AML provided in early 2023 and the results:

 

2023 Guidance

2023 Results

Comment

Wholesales

7,000

6,620

Miss

Adj EBITDA

Up to 20%

18.7%

Miss

D&A

£350-370 mil.

£386 mil.

Close to target

Interest

£120 mil.

£109 mil.

Close to target

Capex & R&D

£370 mil.

£397 mil.

Miss

And also included in AML’s 2023 Guidance:

  • Expect strong YoY growth in H2’23, driven by new Core & high margin Specials products
  • Positive FCF expected in H2’23

What’s even more embarrassing, is that AML issued revised guidance in Nov. 2023 which took the “Wholesale” target down to 6,700……and they even missed that.

The miss on “Wholesales” is particularly concerning.  

 

Q1 2023

Q2 2023

Q3 2023

Q4 2023

FY 2023

Cars Wholesale

1,269

1,685

1,444

2,222

6,620

Net net, to get even close to delivering against even the reduced 2023 Guidance issued in Nov, AML had to massively load dealerships in Q4.  In fact, they shipped 50% over what would have been the expected Q4 demand based on the prior 3 quarters of 2023 (as a reference, Ferrari noted in its last earnings report that Q4 is normally its weakest quarter in terms of wholesales).  Stroll’s multiple past statements that AML now only produces to demand, are about as convincing as certain other comments about another Stroll eventually being an F1 Champion.  However, just like last year, buried in the Financial Results is the following statement:

Wholesales were temporarily ahead of retails at the end of the year.

 

This also puts a rather large fork in the statement Lafferty made on the July Earnings Call Christmas wish was: “I really like to see us starting to flatten the profile and certainly start to see an end of you know Q4 being you know the sort of end of the hockey stick.”  

Digging into the Q4 shipment data a bit, a few interesting trends emerge:

Wholesales by Region

Q1-Q3 2023 Average

Q4 2023

Q4 vs Q1-Q3 Average

Q4 2022

Q4 2023 vs Q4 2022

UK

258

367

+42%

416

-12%

Americas

466

620

+33%

828

-25%

EMEA

415

727

+75%

628

+16%

APAC

320

508

+59%

480

+6%

 

And

 

Wholesales by Model

Q1-Q3 2023 Average

Q4 2023

Q4 vs Q1-Q3 Average

Q4 2022

Q4 2023 vs Q4 2022

Sport/GT

697

1,440

+107%

920

+57%

SUV

746

699

-6%

1,393

-50%

Specials

27

83

+207%

39

+113%

When Aston “suspended” its declared demand led model in 2023 across all regions, it was EMEA that got the lion’s share of the extra stock.  This does make sense given both its size and proximity to the UK.  It also appears that all the “wholesales that were temporarily ahead of retails” were Sport/GTs and within that category, it was DB12’s as the current Vantage is being phased out.  The Specials would mostly have gone straight to customers.  The huge increase in Specials deliveries would have significantly helped both top line revenue and ASP.  From what I’ve heard from a few sources, while these DB12s have shown up on at dealerships, they are on “quarantine” waiting on software updates.  While this is all interesting, the numbers that really jump out are the DBX.  It looks like Aston was not able to push any additional DBXs into dealerships (which explains why they missed even the lowered guidance number) beyond what now appears to be the quarterly wholesale average.  In this case my guess would be that wholesales and retails are now fairly close but that dealerships are sitting on plenty of DBX inventory that was built up starting in 2022 and now are only willing to bring in replacement stock. 

It would appear that the AML quarterly cadence now is, load as much as you can in Q4 and then work it through the dealerships over the next couple of quarters.  One of the largest US Aston Martin dealers has the following statement on their website “We have a much larger inventory on site and in transit” which would seem to put a rather large final nail in the demand led model myth.

Going back to Stroll’s opening comments in the Earnings Call “In 2023, Aston Martin delivered significant financial and strategic progress.”  I guess “progress” includes quarter on quarter wholesale declines in 2 out of your four regions, a 50% quarter on quarter decline in DBX wholesales, and missing even your lowered 2023 wholesale guidance number.

I would summarize this as a company that is continuing to lurch from crisis to crisis.  Last year it was the DBX 707 start up, this year it’s the DB12.  Squaring the management’s statements with the results is an exercise in doctorate level creativity.   It’s crystal clear at this point that the big bet on the DBX hasn’t worked. It wasn’t too long ago that AML was targeting to sell 10,000 cars in 2024/25 of which around 6,000 were expected to be DBX’s.  Based on the last two years results, AML will be lucky to do even half that number this year.  The DB12 isn’t really looking any better than the DBX 707, despite all the management hype.  In the earning call Stroll made the following comment on the DB12 order book: “We are currently sold out on DB12 to the end of third quarter of this year.” Which in terms of length, is about on par with where the order book was during the Q3 Earnings Call.  As a reference, Ferrari’s order book is full across all models until the end of 2025.

The following covers highlights from the FY 2023 Results, the Debt, & a few other areas of interest. 

Turnaround Complete?

Starting with the FY2023 results, which according to Lawrence Stroll’s quote in the Earnings Call:

“We have made tremendous progress within that time. We have transformed our iconic global brand. Reinvigorated our product portfolio. And improved our balance sheet supported by our long term strategic partners.

 

FY 2022

Q1 2023

Q2 2023

Q3 2023

Q4 2023

FY 2023

Cars Wholesale

6,412

1,269

1,685

1,444

2,222

6,620

Revenue

£1,382 mil.

£296 mil.

£382 mil.

£362 mil.

£593 mil.

£1,633 mil.

EBITDA

£190 mil.

£30 mil.

£50 mil.

£51 mil.

£175 mil.

£306 mil.

Operating Profit

-£142 mil.

-£51 mil.

-£42 mil.

-£52 mil.

£34 mil.

-£111 mil.

Free Cash Flow

-£299 mil.

-£118 mil.

-£100 mil.

-£79 mil.

-£63 mil.

-£360 mil.

Net Debt

£766 mil.

£868 mil.

£846 mil.

£750 mil.

£814 mil.

£814 mil.

The fantastic year that Stroll references involves racking up -£240 mil. in pre tax losses for an average of -£36k per car wholesaled.  While the £250 mil. in revenue growth looks impressive, it’s likely that £150-£170 mil. of it came from the increase in “Specials”.  While total ASP was up 15% in 2023, core ASP was only up 6% (as a reference ASP on Kellogg’s Corn Flakes was up 12% in 2023).  If you strip out the extra 44 Specials AML shipped in Q4 2023 vs. Q4 2022, revenue would have been down on a quarterly basis for the 2nd quarter in a row.  Without the Valkyrie, which was conceived a good four years before Stroll arrived on the scene, the numbers would look considerable worse.  I do hope Lawrence sent Andy Palmer & the Nebula Team a big box of chocolates for Valentines’ Days as a thank you for the Valkyrie.

Flambé

In AML’s initial 2023 guidance they called for:

 Positive FCF expected in H2’23

which was later revised to Positive FCF in Q4 2023.  What AML delivered in Q4 2023 was -£63 mil. of Free Cash Flow.  As misses go, this one is quite impressive, especially considering that the revised outlook to have positive FCF in Q4 2023 was issued in November.  Just to make matters worse, FCF was actually worse in 2023 at a -£360 mil. than it was in 2022 (-£299 mil.).  Positive Free Cash Flow is basically table stakes to be considered a heathy business and despite the latest promises that AML will now get there in the 2nd half of 2024, that still seems a long way off.

Earlier in 2023, Lafferty stated: “This year for us is all about execution. So, we have got to execute the plan. We have got to get to where we need to get to in the second half of the year. Given where they are, AML clearly has its executional challenges.  Given AML’s overall financial situation, you would expect “Administrative & Other Operating Expenses” to be tightly managed and headed south but in 2023, they were up by a shocking £127 mil.  In my past life, in a profitable healthy business we used to target growing Administrative Expenses at 60% the rate of Revenue growth.  AML is growing them at nearly 150% the rate of revenue growth.

Net debt at the end of 2022 stood at £766 mil. By the end of December 2023, it had risen to £814 mil.  Cash at the end of 2023 was down by £191 mil. (vs. end 2022) to £392.4 mil. which includes £311 mil. in proceeds from 2023 share sales (ex the share sales cash would be £81.4 mil.). The bulk of the cash raised in 2023 has already been burned through (which confirms Stroll’s comment in June on CNBC that Aston Martin is on fire).  Just to make the cash situation even a bit more concerning, customer deposits are down by £66 mil. in Q4 2023 to around £270 mil. (equalivant to 69% of AML’s cash) as AML hasn’t been able to bring in new deposit funds for the Valour & Valhalla fast enough to offset the unwinds as Valkyries get delivered.

Throw in another £963 mil. of “Trade & Other Payables and all in, AML’s total debt pile (Net Debt + Trade & Other Payables) is around £1.7 billion.   There is also £1.6 billion (and growing) of Intangible Assets sitting on the balance sheet which will need to be amortized over the coming years.  Given AML’s overall debt situation, it’s not the least bit surprising that back in Q3 2023, Lafferty stated that a:

“fulsome refinancing exercise during the first half of 2024”

 

And in the latest Earnings release the following statement was included:

 

As previously announced, we expect to refinance our outstanding debt in the first half of 2024. We are in the advanced stages of preparation and look forward to launching this

process in due course.

And then on the earnings call, Lafferty stated: we’re not currently considering equity as part of the refinancing.

What is quite surprising about the last statement is that AML is not considering raising additional equity as part of this exercise.  Given the high interest rate environment we are currently living in, equity is currently the preferred option for companies currently raising cash.  Then again, Lafferty does use the word “currently” in his statement.  That does leave it subject to change at any moment.  In fact, equity would seem to be the far more logical route to go given AML had a loss before tax of £240 mil. in 2023.  £129 mil. of that loss came its net financing costs.  If AML had retired the majority of its financing cost and had held its, “Administrative & Other Operating Expenses” flat (vs. a head scratching £127 mil. increase) it would have been borderline profitable.

 

And a few other Misc items

In the earnings call, Stroll confirmed that AML is pushing its EV launch back to 2026 from 2025 given the current market place for EVs.  This comes after AML made an initial £27 mil. payment to Lucid in Q4 2023 relating to the new strategic supply agreement for EV technology.  Stroll also indicated that while production of the long delayed Valhalla will start in 2024, deliveries are not expected until 2025.  In the 2022 Annual Report AML indicated that they had only taken deposits for half the expected Valhalla production run, given that total customer deposits are down significantly in 2023, it would appear that they are continuing to have challenges finding buyers for this long delayed mid-engine supercar.

2024 Guidance

There are a few points of interest in the 2024 Guidance:

  • After 2023’s big miss, AML is no longer giving a specific Wholesale target
  • The £110 million of net cash interest would indicate they are not planning to retire the majority of the massive debt pile
  • Positive Free Cash Flow in the 2nd half, feels very much like the NY Jets playoff hopes at the beginning of every season
  • And again, AML is indicating that Wholesale Volumes will be weighted to the 2nd So much for getting out of the “Wholesales were temporarily ahead of retails at the end of the year” cycle

Summary

As expected, it looks like AML is well on its way to running out of cash again while its “Administrative & Operating Expenses” are growing at a significantly higher rate than AML’s revenue.  It will be very interesting to see how the 2024 refinancing will be handled and if equity will turn out to be a big part of it.  AML whiffed big time on its original 2023 goal of being Free Cash Flow positive in the 2nd half, and in fact 2023 was worse in this area than both 2021 & 2022.  DBX volumes look like they have hit a wall, and that wall is only about half the way to where AML thought they would be not too long ago.  The Q4 wholesales were well short of the target and the DB12 start up has been a bit of a mess.  The DB12 orderbook still looks light, certainly lighter than expected given all the PR around it.  The 2024 Guidance looks a lot like the 2023 Guidance and that didn’t go so well.  The big bet last year was the DB12 and that start up went about as smoothly as the DBX 707 did.  This year it’s the new Vantage, it will be interesting to see if AML has learned from its past challenges.

Note: I do not and have never owned any AML shares.

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March 2024

 

Recent Posts

15 Thoughts on Aston Martin’s FY 2023 Results: Turtle Flambé
    Simon Herbert
    4 Mar 2024
     6:36am

    Thanks SSO, I wonder if Stroll is a conjurer in his spare time.

    A very good analysis as usual, expect more of the same in 24.

    2
    0
    Henri
    4 Mar 2024
     11:46am

    Why won’t the DBX’s move? They are now only slightly higer priced than the Audi RSQ8. If of course it would have been priced exactly the same, I would have probably even bought one.

    Most of the super coupe SUV’s aren’t particularily good looking (maybe Urus and Audi are only passable, while BMW X6 is super ugly).

    2
    0
    John Coventry
    4 Mar 2024
     3:24pm

    I see AML shares hit a 52 week low of 158.50 today.

    0
    0
    John.
    4 Mar 2024
     3:24pm

    It would appear that the free cash benefitted from the injection of funds by Geely during the year, but was also quickly burnt through too.

    DBX is supposed to get an interior update similar to the DB11 for for the ’12. ’12 has problems with software integration, apparently, so that may also be impacting upon the DBX. It’s hard to see why they’d pre-load dealers with that many cars, overloading them even, if they’ve got updates to soon follow. The only answer would be to heavily discount the out of date models. Might explain the drop in DBX “sales” in Q4.

    Their sales figures seem to lack consistency, or believability when there’s so many being sold in Q4. Typically, I believe, sales are slow during the winter months and only increase in the spring and summer. But then this seems to be the time that Aston bloat their dealers with product. I don’t think with so many updates to their cars they’ve got the right products to ship either, hence why sales to the US are down – they missed the boat!

    The updates to the interiors are certainly an improvement, but we’re looking at nearly 20 years that Reichman has failed at Aston and only for his work to be “ok” now. Not great, not wow, not even breathtaking. Just “ok”. And the cars are the same otherwise, sure with a bit more power that you probably can’t use, but same awful designs just with a bit more lipstick. And a lot more concealer. I doubt that any boost the new models will have will be fleeting at best.

    0
    1
    Steve Hewett
    4 Mar 2024
     4:47pm

    The DBX looks ok for a SUV and as such should be priced below the Audi as Audi always have superior fitment and finish.

    The DB12 looks a better car than the DB11 nit difficult todo that though was it.
    The lack of DB12s available to test drive and evaluate is frustrating.

    They need to shift all the old stock pronto and get the DBX707 and DB12s software sorted. Then and only then might they be in a better position.

    0
    0
    Andreas
    5 Mar 2024
     1:40pm

    Thanl you for your good research. Could you check with your connections, what the situation of the DB12 “quarantine” is? The information from my german AML dealer is, that it ist is still valid. No DB12 has beein delivered to customers till end of january. Only a few dealer units.

    1
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    GoFastPro
    6 Mar 2024
     3:06pm

    Aston, like most of the ultralux/supercar segment, doesn’t actually understand the nuances that drive demand for their product. The demand curve for this segment is a cubic function and if supply is past what I’ll call a “Golden Threshold” the demand falls off exponentially. From there, only deep discounting will move the supply sitting on the ground and, in process, destroy brand value. A lot of these companies got a lucky reset with COVID. Most are blowing that opportunity, or they are complete obtuse to the fact that their business did not fundamentally change. They are all chasing short-term results because Wall Street demands. None have the discipline to look 5 to 10 years down the pipe and most of the business staff aren’t actually car enthusiasts. They don’t understand the emotions behind purchase decisions; they just see beans in beautifully-sculpted metal bags.

    Take a page from Ferrari’s playbook and build 1 less than the number of willing buyers. Ferrari’s value as a company is from years of saying “no” to people that don’t hear “no” often. Watching grown, wildly-successful, adults throw petulant tantrums in public like they have Tourette’s is a special gift I’m guessing only Ferrari sales staff get to enjoy. Sergio Marchione tried his best to destroy that at Ferrari and was successful with most of the Fiat portfolio. Case study in spectacular short-term performance – along with personal enrichment – at the cost of long-term brand/company value. Steallanis is a joke.

    Take for example the 812 Competizione. Could they sell another 300 cars (200 coupes and 100 Apertas) if they built them? I believe anyone paying attention would agree that is a certainty. If Ferrari is averaging 91k a copy I’ll bet the Comp is double or more; let’s use 200k/car. The counters of beans, their Wall Street counterparts, and anyone reading this with basic arithmetic skills will recognize quickly we are talking about $60m in gross profit. That flows almost unadulterated by additional costs to the bottom-line. Pretty enticing siren-song for anyone compensated by profit or share price.

    Not all costs can be reflected in financial statements, especially irrational human emotions. As soon as the buying public views the Comp, and by extension the “exclusive” Ferrari, as “common place” the value plumets. Someone had to make the decision to forgo the additional $60m in profit to preserve the brand. I won’t say Ferrari had some grand plan from the beginning; Enzo just didn’t operate in a manner that focused on profit. His successors just recognized that it worked out pretty well to keep supply tight and they’ve stayed true.

    Aston Martin has been in administration (UK Bankruptcy) seven times. I’m prodding DraftKings to make a prop bet on #8 and betting my 401k there…

    4
    0

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