Continuing Saga of Aston Martin: CFO Jumps Ship

I wasn’t originally planning on writing another article on Aston Martin until they released their full year 2021 results in Feb 2022 but two things this week changed that plan.  First off, the CFO Kenneth Gregor, resigned, secondly, Business F1 published an article in their December edition stating that it is now unlikely that Aston Martin will deliver any Valkyries before the end of the year.  Neither of these bode well for Aston Martin and I have to believe that they are at least partially linked.  There are two executives in any company that have a complete picture of the health of the business.  They are the CEO & CFO.  Hence why these two tend to be on every quarterly earnings call.   In Aston Martin’s case, one of these two just decided to jump ship.  Since Aston Martin Lagonda (AML) reported their Q3 earnings on November 4th, AML stock has dropped 24% and is 40% off its 52 week high. (for the record: I do not currently own, have never owned, and have no intention of ever owning shares in AML).

Starting with the announcement on Kenneth Gregor’s departure, the usually boisterous Aston Martin PR department buried it on the Regulatory News tab of the AML Investors web page which is quite telling (as a reference, in November Aston Martin issued a Press Release to announce the hiring of a new President for the Americas):

 

Chief Financial Officer to step down for personal reasons

02 DEC 2021, 07:00           Directorate Change

 

The Board of Aston Martin Lagonda Global Holdings plc announces that for personal reasons Kenneth Gregor will step down as Chief Financial Officer and as an Executive Director of the company no later than 30 June 2022. As a result, the Board has initiated a process to appoint a new Chief Financial Officer and will provide an update once that has concluded.

 

Lawrence Stroll, Executive Chairman of Aston Martin Lagonda, said: “Over the last 18 months Ken has played a significant role in rebuilding Aston Martin Lagonda’s financial position and setting the business on a strong pathway for the future. Whilst sad to see him leave the business, I understand Ken’s reasons and wish him the very best for the future.”

 

Tobias Moers, Chief Executive Officer of Aston Martin Lagonda, said: “Ken will leave Aston Martin as a friend and we wish him all the best moving forward. Our sincerest thanks for his tireless efforts as Chief Financial Officer and the contribution he has made to our leadership team. I look forward to working closely with him over the coming months until a successor is appointed.”

 

Ken Gregor, Chief Financial Officer of Aston Martin Lagonda, said: “I am proud of what I have achieved in my time at Aston Martin Lagonda. It has been an honour to play my part in shaping the company’s future direction, helping to establish a clear roadmap to profitability and financial sustainability.”

 

In accordance with its statutory obligations, the company will disclose details of Mr. Gregor’s exit arrangements on its website and in the directors’ remuneration report in due course.

 

The following is from the Aston Martin Press Release issued in June 2020 to announce Ken Gregor’s hiring:

 

Ken, 53, will be appointed to the Board as an Executive Director today, 22 June. Ken will report to the Executive Chairman, Lawrence Stroll, and to the Chief Executive Officer, Tobias Moers, once Mr. Moers joins the Company on 1 August.

 

Ken has over 20 years of automotive experience, most recently as Chief Financial Officer of Jaguar Land Rover (JLR) for 11 years from 2008. Under his leadership, the finance group developed as a strong business partner to support the delivery of shareholder value and the company’s growth ambitions. Prior to his appointment as CFO, Ken held a number of roles within JLR from 1997 including Group Financial Controller and financial control roles within Marketing, Sales and Service and Product Development.

 

In summary, Ken Gregor is a highly experienced automotive CFO.  He successfully navigated major corporate transformations at Jaguar Land Rover in his 11 years as JLR CFO before joining AML in June 2020.  Given Gregor’s resume, core competency and ability to do the job are a given.  Gregor was most likely hired on an initial 2 year contract which is why his exit date in the AML regulatory filing is listed as no later than June 30, 2022.  Gregor is most likely no longer involved in AML and the statement that he is leaving for “personal reasons” could be read as “massive disagreement and I do not want to be associated with what is going on”.  For a CFO to leave in the middle of a corporate transformation, shortly after the company announced poor quarterly results and with it a stretch to hit their current 2021 guidance, is anything but a positive sign. 

In my experience, in these types of situations where a highly experienced CFO suddenly leaves a struggling business that is supposed to be in the middle of a multiyear turnaround, its likely due to one of the following reasons:

 

  • – The CFO is being pressured to report numbers that he/she is not comfortable with (Aston reported that it has £495 mil. of cash on the Balance Sheet as of end Q3 2021, unlike Ferrari though, Aston does not report total liquidity which is the number I would really be interested in seeing)
  •  
  • – The “turnaround” is not on track and the CFO does not want to be around when the financial “turd” hits the “fan” which in this case would be reporting the full year 2021 results
  •  
  • – Personality conflict, which given who the AML CEO and Executive Chairman are, certainly could be an option.

 

Which could well have been a “final straw” after a year of potential growing unease around:

 

 

  • – Nebula & Supernatural Lawsuits
  •  
  • – AML & AMR relationship
  •  
  • – Aston’s treatment and use of Customer Deposits

 

More details on the Nebula Lawsuit and the AML AMR relationship are covered in:  Aston Martin’s 1st Half .  AML is now caught up in the Supernatural – Multimatic dispute and there is a very strong chance more unflattering information comes out in court as Supernatural has been involved with both the Valkyrie & DB5 Bond cars.  On the Customer Deposits, I have had feedback from several potential Valkyrie customers that when they requested that their deposits be held in escrow, Aston Martin flat out refused.

Working through the potential reasons for Gregor’s untimely departure, while it might have been prompted by hearing the theme song from the Titanic on the radio while driving to work and personality conflicts could be a contributing factor, its highly unlikely either is a key driver for Gregor to announce his exit now.  If it was just personalities, its far more likely Gregor would simply complete his contract and depart quietly in June 2022 with a successor already lined up.  A sudden and untimely departure announcement in early December points towards it being much more likely the outcome of a major disagreement.  Of the two other potential reasons listed above, my guess is the reason sits somewhere in between them both which would be a final straw.  Going back to the Q3 earnings call, in answer to the following question:

 

Henning Cosman (HSBC): Hi, good morning. Thank you for taking my question. Sorry, the first one I wanted to come back to is the implied guidance for Q4. If I take your investor relations consensus of full-year adjusted EBITDA of £150, that implies £78 for Q4, adjusted for the legal cost. So, I was just wondering if you could help us, again, to sort of, reconcile that. I understand that you said you want to sell double-digit units, Valkyrie, but for the Valkyrie, for this to be attributable to Valkyrie alone it would have to be almost £2 million EBITDA per unit, so that seems a bit steep. So, I hope you could, you know, help us a little bit understand the other moving parts and, again, why your confidence in achieving the guidance is so high.

 

Gregor replied:

 

Kenneth Gregor: And on the full year, there’s a number of pieces that come together to support the Q4 delivery. Yes, you’ve got Valkyrie and, yes, that’s really important, as we’ve pointed out in our guidance, and there’s a range of how we see the number of units of Valkyrie and the track Pro car that Tobias talked about earlier, in terms of what we can see in Q4. And, yes, those do have a very high unit contribution, ranging towards the figure you saw. There’s a range of different contributions, depending on the model and how they’ve been specified, and the options contribution coming. So, they are very high contribution per unit and the full-year result is very sensitive to the number of units that get produced.

 

To summarize the above exchange, for AML to meet the Q4 and full year EBITDA targets, they need to deliver a double digit number of Valkyries in Q4.

Which brings us to the Dec 2021 Business F1 article (Business F1 Magazine) stating that it is now unlikely that Aston Martin will deliver any Valkyries before the end of the year.  Per Gregor’s comments on the earning call, if the “double digit” number of Valkyrie coupe road cars and “single digit” number of the track only AMRs that Moers’ promised on the Q3 call would be delivered in Q4 don’t happen, Aston Martin will very likely miss the full year adjusted EBITDA goal of £150 mil. quite badly.  In the Business F1 article it states that Aston Martin is blaming Multimatic (which is doing most of the Valkyrie’s assembly) for delays and quality problems with the Valkyries.  Business F1 has been spot on with its Aston Martin reporting in the past so I have no reason to believe this isn’t the case.  In addition, it is all very consistent with all the past information that’s been leaking out about issues with the Valkyrie all year.  If you project the current Valkyrie issues into 2022 and link it to what’s known about Valkyrie tooling and production capacity (for more details: Analysis of Aston Martin’s Q3), they will be lucky to produce even 1/3rd of the 3 Valkyries per week in 2022 that Moers was calling for in the Q3 call.  This will leave another massive hole in the P&L.

 

Just to top it all off, from a personal financial perspective, the decline in Aston Martin’s stock price in the last month has also very likely made sticking around a lot less lucrative for Gregor than it would have been earlier this year.  The AML stock price is now at the same level it was at when Gregor would have signed on.  As a very significant part of his compensation would have been tied to increases in the stock price, that financial incentive has now gone the way of the Aston Martin Submarine.  Much better to get out now with at least your reputation intact, then stick around for a payday that’s now highly unlikely to happen.

 

Summary

The CFO suddenly resigning is almost never good news for a company.  A CFO suddenly leaving a business that’s highly challenged, just reported weak results, and had a magazine article come out that raises significant question on if the company will make its full year EBITDA goal is just plain ugly.  How this plays out for Aston Martin we will see in the next couple of months but it just another indication that the business is continuing to struggle mightily.  Gregor is also just the latest and most high profile individual to leave Aston Martin after a short tenure.  His departure is likely do to a combination of unease, disagreement on direction, and where the numbers are heading. In addition, given where the share price is today, he likely has little incentive to stay.   It seems that a lot of talent Aston Martin was able to recruit in the last several years has left in 2021.

 

Thoughts and comments? Please see the comments section below.

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December 2021

 

Recent Posts

7 Thoughts on Continuing Saga of Aston Martin: CFO Jumps Ship
    Tim
    6 Dec 2021
     2:38pm

    This could actually turn out worse than even I thought.
    AML need to pay the bond debt interest in Q4, and with no/very little cash left, the Valkyrie was supposed to be the revenue stream to help pay for said debt.
    I bet there are a good few customers asking for their Valkyrie/Valhalla deposits back now too.

    I highly doubt the new DBX for China only, or the DBX707 will bring in much more revenue, and if the Valkyrie finally does get delivered, it’s almost nailed on for a recall/problems.
    No other new facelifts until 2023.

    AML could be in real trouble if they lose this court case. Paying royalties on Valkyrie/Valhalla & Vanquish could potentially finish them.
    Gregor probably timed his departure perfectly.

    Thanks for all your homework on this site, so many good people appreciate what you do.

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    Billy
    8 Jan 2022
     2:22am

    Great piece. I was short the Palmer disaster. Glimpsed the H1 nos and perhaps thought supply discipline and new SUV might give them a shot at dealing with huge debt load. But DBX sounds like it is stillborn, while capacity util is a disaster. F1 situation also fails CG sniff test. And a. appalled to read about commingling customer deposit cash. After all, the whole IPO was goosed-up on the vast amount of Specials.

    Elsewhere, any thoughts on Lamborghini’s economics? ASP and vols are both pretty good. Could have quite a bearing on VOW NAV. Check your twitter. Thx

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    John
    7 Dec 2021
     11:49pm

    As I said in a previous comment, Aston Martin share price is circling the drain again.

    Sadly, the one “talent” that needs to leave Aston Martin to save Aston Martin keeps sticking around. Marek Reichman has to go.

    Tobias Moers (second worst automotive CEO after a surprise late entry by Thierry Bollore), I suspect has promised the Valkyrie and now can’t deliver it, much like the AMG Project One he was previously responsible for too. Putting everything you say in this article, and what we’ve seen of the Valkyrie already, if you could jump ship and save your reputation wouldn’t you? Strange how he’s stepping down now, but the press release says he’s staying on for another six months?

    It’s been said many times here and elsewhere yet the management at Aston are deaf to this. To save Aston you have to find a new designer who can bring life back to their cars. They’re simply not good enough looking, and no matter how good the underpinnings are this won’t change until they sack Reichman. The quickest fix right now is a mid-life refresh of DB11 / DBS and Vantage. And the Vantage needed it from the day it was launched! Fitting the V12 in to the Vantage and then telling customers that’s the end of it was a marketing disaster, especially when it’s a year away and probably more in Tobias’s time zone. Who came up with that idea?

    Aston need to fix their core business models. Even the DBX will need fixing as it’s just not good enough looking – if you bet the farm on a new model best not to make it look like the ones which have already failed your business!

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    Ghini
    16 Dec 2021
     2:09pm

    Thanks again SSO, another great article on this saga.
    Earlier this year AM stated they would launch a DBX derivative this year. Not happend yet or would that be the China only version?
    Like I said in one of your older posts: Now the DBX shows disappointing sales, I think its time for the Lagonda version. Bigger, more luxurious. DBX is to sporty. Its a good product with bad design for my taste but it drives good, if you want a sporty suv. I think they misjudged their clientele and they should have competed with other brands and models. Now it competes with an Urus. I can understand they wanted to do their own thing but in my opinion AM never was a brand with the sportiest cars. In earlier plans after Stroll took over I thought they would make a clear split in their collection between sportscars and GTs. Ofcourse they currently still try to sell old stuff but at that time I never thought their SUV would be on the sporty side. I think they started the wrong way around. Sure their are clients for a more sporty version but RR does not sell more SVRs than all the other models.

    Other questions I would like more insight on:
    – F1 investments: thanks to you SSO I finally understand the F1 – AML construction. Now, the F1 team gets a new factory and windtunnel. Expensive stuff, they really go for it eh. Who pays for that? Is that all from within the F1 team? So Stroll and partners? Nothing from AML?
    – What is the latest news on new models for AML? They introduced the mid engine Valhalla, sort of. But I guess that should be built by the same guys that built the Valkyrie so I do not see that happen anytime soon. What is to be expected on the front engine side of the collection? In their earlier plans they said new Vanquish but that also became a mid engine car lower positioned than the Valhalla. Maybe that is a car they could built themselves? On the GT side all I could find was old quotes from Moers saying heavy facelifts in 2023! I think by now they understand they can not continue on this road.

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    John
    16 Dec 2021
     7:05pm

    I’ve held back on reporting this hoping that they’d be some good news on a Valkyrie delivery, but I haven’t seen any. And in reality there’s a week of productivity left in the year.

    https://europe.autonews.com/automakers/aston-martin-valkyrie-deliveries-delayed-electronics-issues-report-says

    Valkyrie deliveries hit by electrical issues.

    I’d said before, maybe not here, that I would guess that the Valkyrie would be delivered in “Garage Queen” condition but without the firmware that would make the car and systems operate correctly. I said that I believe they’re still not able to get them in sync, and as such still undrivable. But it does seem crazy to me that they’ve gone in to production of a car which is fundamentally unfinished.

    Getting all the control systems to work together is the job of the firmware. With a car with active suspension and other parts in the hybrid motor working together it’s a complex task. Even F1 couldn’t quite figure out the control systems required for their current engine format for years. If you want to start learning about control systems then I highly recommend “Feedback” by Tom Moir. One of the best control systems lecturers in the world (and I got a signed copy of his book!).

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    Aston Martin: Earnings Warning & Potential CEO Exit | karenable
    13 Jan 2022
     2:29am

    […] I did on Aston Martin was back in December after Kenneth Gregor, the CFO, suddenly resigned (CFO Jumps Ship), an event that rarely signals that a company is in great shape.  The article before that was a […]

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