Stroll vs. Palmer: The 1st Three Years

As a follow up to article on AMLs 2022 results (see: A Stuffed Turtle), I read through AMLs recently released 2022 Annual Report to see what additional insights it would provide. While reading through it, I realize that Stroll had now been Executive Chairman for 3 years which happens to be the length of term I use to measure an executive’s performance and potential.  The basic philosophy behind it is the 1st year is spent learning the business, the 2nd making decisions, and the 3rd is the outcome of those decisions. The following are the insights from that Annual Report and the end of term  report card for AML’s performance under Stroll.  As a comparison I thought it might be interesting to see how Stroll’s 1st three years compare to the much maligned Andy Palmer’s given that amount of blame Stroll has pushed Palmer’s way.  What happened post 2017 is a subject for another day.  For this exercise I am using 2014 as the base year for Palmer with 2015-2017 being the performance measurement period.  For Stroll its 2019 and 2020-2022.  All the numbers come from AML’s Annual and Quarterly Reports.

AML’s 2022 Annual Report

Corporate Annual Reports are both some of the driest and some of the most creative documents I have ever had the pleasure of wading through.  Aston Martin’s normally fall into the latter category.  When an email dropped into my inbox last week letting me know that Aston Martin Lagonda (AML) had just released their 2022 Annual Report (AML 2022 Annual Report), I was quite interested to see what nuggets would be buried deep in this year’s edition.  While companies have wide latitude on the turgid prose they can include in an annual report, they do have to include the detailed financial results, even if they are just buried in the fine print in the back.  After scanning through the flowery 1st hundred or so pages I finally found the bucket of insight on page 127 that revealed what year AML really had in 2022. 

 

That bucket contains the Group KPI (Key Performance Indicators) bonus targets for the CEO & CFO.  The maximum bonus payout in 2022 was 200% of base salary for the CEO and 150% for the CFO.  Having spent the majority of my career working for large public companies with similar compensation structures, I am sure the Group KPI targets were the subject of much discussion between both the Board of Directors and Senior Executive Team.   For both the CEO & CFO, the bonus payout would be a very significant (30-50%) part of their annual compensation package and would have been set at levels that the group believed were quite achievable at the beginning of 2022. 

 

However, for both the CEO & CFO, 2022 was a bonus disaster.  Of the five KPIs, the only ones where the minimum threshold was achieved were Wholesale volumes and External Warrantee claims.  The minimum payment threshold was not achieved for EBITDA, Free Cash Flow (FCF), Internal Quality, and Retail volumes.  In fact, when you look at the “Target” and “Maximum” goals, it’s not even close which is quite shocking as its in-between these two numbers that the Sr. Executive Team would have initially been expecting to land.  Of the KPIs, the most telling on how the year went for AML are the Wholesale and Retail volumes.  Since Lawrence Stroll took over AML in 2020, he has pontificated multiple times that AML only manufacturing vehicles to order.  However, those two targets tell a very different story.  At the start of 2022, AML was hoping to reduce the stock held by its dealerships by 450 vehicles.  Instead, by the end of 2022, they had increased it by a further 442 vehicles.  That’s a swing of 892 vehicles which is 15% of AML’s total global retail sales in 2022.  So, if AML is this far off its EBITDA, FCF, Wholesale, Retail, and Quality Targets, it raises the question of what has Stroll achieved in the last three years? 

The Stroll Era To Date

For Stroll, who took over as Executive Chairman of AML in early 2020, the numbers across the same key indicators at the end of his first 3 years are:

 

£

2019

2022

% Change

Change in £

Revenue

£997 mil.

£1.38 bil.

38.4%

£383 mil.

Unit Sales

5,862

6,412

9%

550 units

ASP

£152k

£201k

34%

£49k

EBITDA

£134 mil.

£190 mil.

42%

£56 mil.

Payables

£702 mil.

£876 mil.

25%

£174 mil.

Cash Generation

-£37 mil.

-£299 mil.

-708%

-£262 mil.

Operating Profit

-£37 mil.

-£118 mil.

-219%

£167 mil.

Cash on Hand

£108 mil.

£583 mil.

440%

£475 mil.

Gross Margin

35.6%

32.6%

 

-2.6 points

Total Debt

£954 mil.

£1.35 bil.

41.5%

£396 mil.

 

All in it appears that, revenue is up, vehicles sold shows very moderate grow, but AML the cash burn is way up and not surprising operating profit is down significantly.  Despite the huge increase in ASP, Gross Margin is down and total debt growth is outpacing revenue growth.  Cash on hand is up significantly to £583 mil. but Stroll has raised £1.43 bil. in new equity since he took over in 2020.  The negative Cash Generation points to where the delta is between the cash raised and the cash remaining.

The Early Palmer Years 2015-2017

Andy Palmer officially joined AML in October 2014 but would have had little impact on AMLs 2014 results.  Therefore, we are using 2015 as the start of the Palmer era at AML.  At the time AML was still a private company so the level of financial data publicly available is not as rich as it is post the 2018 IPO. In terms of key numbers, in the first three years, Palmer delivered:

 

£

2014

2017

% Change

Change in £

Revenue

£468 mil.

£876 mil.

87.2%

£408 mil.

Unit Sales

3,662

4,828

31.8%

1,166 units

ASP

£114k

£150k

31.6%

£36k

EBITDA

£62 mil.

£207 mil.

234%

£145mil.

Payables

£160 mil.

£480 mil.

200%

£320 mil.

Cash Generation

£14.8 mil.

£344 mil.

2224%

£329 mil.

Operating Profit

-£18.4 mil.

£148.8 mil.

908%

£167 mil.

Cash on Hand

£89.3 mil.

£167.9 mil.

88%

£79 mil.

Gross Margin

33.1%

40.6%

 

+7.5 points

Total Debt

£432 mil.

£841 mil.

95%

£409 mil.

 

Overall, the numbers look very good and on paper AML appears to have been a generally health business growing nicely across almost all key indicators.  The only areas of concern are the rise in both debt and payables, but they are not terribly out of line when you look at the growth in both revenue and cash generation.  There was £255 million of equity raised during this period (£200 million in 2015 & £55 million in. Dec. 2017) some of which was used to buy back Aston Martin Brands (licensing business).  The cash on hand would also include the funding provided by early customer deposits received for the Valkyrie. 

 

I would expect that the leadership team under Palmer all took home quite generous bonus payments during this period.  In the 2017 Full Year results Presentation deck, AML did declare that the “turnaround of Aston Martin was Complete” and that further growth would be driven by the “Second Century Plan”.  The Second Century Plan basically called for a 3 pillar product strategy across Sedans, Sports and Supercars, and SUVs. 

Early Palmer Era vs. Stroll Era

And to make the comparison between the early Palmer era & Stroll’s tenure to date a bit easier:

 

 

Palmer

Palmer

Stroll

Stroll

£

% Change

Change in £

% Change

Change in £

Revenue

87.2%

£408 mil.

38.4%

£383 mil.

Unit Sales

31.8%

1,166 units

9%

550 units

ASP

31.6%

£36k

34%

£49k

EBITDA

234%

£145mil.

42%

£56 mil.

Payables

200%

£320 mil.

25%

£174 mil.

Cash Generation

2224%

£329 mil.

-708%

-£262 mil.

Operating Profit

908%

£167 mil.

-219%

-£167 mil.

Cash on Hand

88%

£79 mil.

440%

£475 mil.

Gross Margin

 

+7.5 points

 

-2.6 points

Total Debt

95%

£409 mil.

41.5%

£396 mil.

 

The only KPI’s where Stoll outperformed Palmer are ASP, Cash On Hand, and Total Debt.  On ASP, Stroll probably needs to thank Palmer as it was mostly been driven in 2022 by the Valkyrie which was conceived during the early Palmer era.  When you look at the 2022 numbers for Cash and Total Debt, you can’t forget the £1.43 bil. in new equity that Stroll has raised.  Take the equity injections out and those numbers would be catastrophic.  In his first three years, Stroll has largely continued to execute the “Second Century Plan” which was conceived under Palmer including launching the DBX SUV, Valkyrie hypercar, & continued development of the Valhalla.  The only major change Stroll has made was killing the RapidE Battery Electric Vehicle program and taking a large write off.  This likely set AML’s EV program back at least 5 years.

 

 

Summary

In August 2021, Lawrence Stroll stated that AMLs “risks are behind us”.  Turns out that could not have been further from the truth given AMLs the 2022 performance.  In fact, Andy Palmer would have had far more basis to make that statement in 2017 than Stroll did in 2021.  After 3 years of Andy Palmer at the helm, AML had achieved something it has rarely accomplished in its 110 year history; turn a profit.  Today that achievement feels very much like ancient history given that AML’s 2022 losses more than doubled to £495 million.  Despite all of this Stroll declared in the 2022 Financial Results Release that:

 

“With the heavy lifting behind us, we are now poised to see the results of this transformation, starting in 2023.”

 

While it is clear from the comparison of the two eras that AML’s business can be transformed within a 3 year period, the current results indicate there is plenty of heavy lifting still to come.

 

 

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

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March 2023

 

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13 Thoughts on Stroll vs. Palmer: The 1st Three Years
    Erik
    1 Apr 2023
     5:53pm

    My first thought is that it paints the Palmer era in overly favourable terms. His new product has proven in the medium and long term to be unsalable. A lot of the trouble Stroll is in now is based on the fact that the product portfolio left to him by Palmer is one that nobody wants.

    Out of curiosity, does anyone know how dramatic the financial changes for Aston were when they stopped producing their own engines? I would expect buying from AMG would have saved a LOT of money.

    2
    0
      Sean
      14 Apr 2023
       7:36am

      AML buy engines from AMG without any form form of warranty.

      0
      0
    John (The original.)
    1 Apr 2023
     7:23pm

    The impression I got is that Stroll is now loading up the dealerships with cars to inflate the share value, something that he criticised Palmer for doing.

    One thing that put me off Palmer when he took over and launched the DB11 was himself doing the “final quality inspection”. At college I was taught you can’t add quality at the end, it has to be built in. It’s something that I believe in. A wise old man told me when I was a kid “if a job’s worth doing, it’s worth doing right”, and that probably is why it stuck with me. Every job I do, big or small, I strive to ensure it’s right. To the expected standard or better.

    Even Jackie Stewart said to try and over deliver to your customers. When doing electronic product designs, if there’s an extra feature I can program in for a little bit extra work I’ll do it. Never had a customer complain when they see it’s better. It sells their product better, and sells my services better too.

    So when Palmer is doing the final quality inspection, I ask what value did that add? The cars presented to him should all be perfect. All 1,500 I think it was he personally inspected? If not, he’s going to be spending a lot of time away from the desk! How much of a quality inspection would he give each?

    The quality has to be built in with everybody able to stop the build process if there’s a problem, as there’s no point in moving to the next car without solving that problem. Especially in a low volume build process such as this.

    What I do find incredible, unbelievable, and absolute insanity is that both are still suffering from the same problem. The reason Palmer was invited to leave was because they weren’t selling enough. That Stroll is loading up dealers is the very same problem: they weren’t selling enough. A smart person would be asking why?

    What is the common factor between the Palmer and Stroll era that could possibly be responsible for their cars not selling?

    Who designed the cars?

    Who’s designs aren’t selling?

    Marek Reichman.

    Marek Reichman.

    Marek Reichman.

    I’m hoping that printing that answer three times over someone at Aston might take the hint! As an Aston Marin fan I get friends asking me what happened to their cars and why aren’t they beautiful any more? I have one answer: Marek Reichman.

    Name another marque whose cars have had disastrous sales and have kept the same designing and trying and trying again and again to sell? (One whose owner wasn’t also the designer!). Every other marque would realise the problem and find a replacement. Not Aston Martin who keeps betting on the same failed designer.

    And now we have Stroll seemingly repeating the same trick of Palmer by loading up the dealerships with cars to try and inflate the share price, in much the same way some have said was done for the IPO.

    It seems absolutely pointless when you have 2023 refreshes being designed by the same failed designer. Maybe he’ll do something amazing, but past form makes that highly doubtful. Aston are planning on failing.

    I’ve said this for years, since way before the Stroll era, and I’m sorry to once again repeat it here: To save Aston Martin, sack Marek Reichman.

    3
    1
    Christopher Cogan
    1 Apr 2023
     11:30pm

    Here’s some food for thought. The masses don’t seem to want the product AM is producing. Yet their bespoke products seem to be in favor with automotive aficionados. So, why doesn’t AM stop trying to be Ferrari and start emulating Pagani instead. Pagani has a fraction of the overhead and risk but much more enterprise value. They could still make a low production GT and even a SUV, but drop all the other crap and reduce the scale of the business.

    1
    0
      SSO
      22 Apr 2023
       12:26pm

      Going the bespoke, limited edition very asset light only route might be the best long term solution. To get there though AML would probably need to go through a bankruptcy where they could offload most of the current infrastructure and cost base.

      0
      0
    Steve Hewett
    1 Apr 2023
     11:33pm

    SSO, your comment

    “I do not and have never owned any AML shares”

    I would add and never will, not whilst Stroll and that designer are there.

    I’ve always loved Aston Martin designs, the DB7 design is sublime (okay the mechanicals are Agricultural) , what followed was the DB9 l liked it , but a bit tubby to me. Then the V8 Vantage with the 4.3 engine ummmm , then 4.7 xxxx followed by the V12. Fantastic designs.

    And then awful designs DB11 , the Vantage , both are huge and ugly.

    I find myself looking backwards with Aston, do they have a future, well yes they will survive because someone with deep pockets will bale them out.

    3
    0
    Richard Gotch
    3 Apr 2023
     9:25am

    When the much-needed new product arrives, the dealers will be full of unsold old product. That’s going to have an interesting impact on both new car sales and residual values. I sold my AML shares a month ago when they broke through 250.

    2
    0
    Richard Keenly
    5 Apr 2023
     5:26am

    The DB-9 and Vantage V-8 designs by Henrik Fisker from the 2005s on were a fantastic capturing of “Power, Beauty, Soul”.

    2
    0
    A(n)Drew
    7 Apr 2023
     10:20am

    Hi SSO,
    I just found your blog a few weeks ago and remember you from your EVO days (your blogs were one of the best bits in what was a very good mag – haven’t had any issue in my hands for years though). So cool you still write about your car life. I read through a ton of the blogs in these past few weeks, thank you very much for the entertainment!
    This latest article of yours got me thinking about the state of car journalism – to put it mildly, I find your blogs to be more entertaining and insightful than a lot of ‘professional’ efforts around these days. Maybe the time is right for someone like you to do a stunt like Harry Metcalfe did by grounding EVO in the 90’s. Articles only from real car people with something to say. Professional journos hired mostly just for the editing jobs. I feel like everyone worth something these days (car media related) is flying solo – would be nice to see someone creating a space where the top of the crop could co-exist and create a valuable media product.
    Anyways, thanks a lot and have a nice Easter weekend (if there is such a thing in the US…)

    2
    0

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