Aston Martin: Earnings Warning & Potential CEO Exit
I wasn’t planning on writing another article on Aston Martin until they released their full 2021 results in February. Friday’s Trading Update announcement, along with the rumors of Tobias Moers imminent departure, have thrown a wrench in those plans. I’ve gotten quite a number of requests for comment on these latest developments, so I’ve tried to pull together a few thoughts.
As a bit of background, the last article 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 detailed analysis on Aston Martin’s Q3 results (Analysis of Aston Martin’s Q3 Results). This included a section on the likelihood that Aston Martin would deliver against their 2021 Guidance. At the time, hitting the 2021 EBITDA number was heavily dependent on Aston Martin delivering a double digit number of Valkyries before the end of the year. Tobias Moers, the CEO made the following statement in the Q3 Earnings Call in November:
“Valkyrie, we’re chasing to have a double-digit number delivered this year, and accompanying that, we have a parallel assembly of the track- only Valkyrie as well, where we chase for a single-digit number to deliver to customers.”
Multiple reports going into December indicated that Aston Martin has continuing to struggle with Valkyrie production, and it was viewed as unlikely that they would be able to deliver any before the end of the year. As of last week, there was no indication that any Valkyries were now in customer hands. There had also been no official announcement one way or another and nothing in the press. All that changed last Friday, Jan 7th when Aston Martin released the following:
7 January 2022
Aston Martin Lagonda Global Holdings plc FY 2021 Trading Update
Aston Martin Lagonda Global Holdings plc (“Aston Martin” or the “Company”) today updates on FY 2021 trading.
- Wholesales grew 82% to 6,182 as planned
3,001 DBX units wholesaled in first full year of production taking estimated 20% market share of the luxury SUV segment
- Retails (dealer sales to customers) greater than wholesales for both GT/Sport and DBX as aligned supply to demand and as we operate as a true luxury brand
- Following an extensive and challenging development and testing schedule which has now successfully completed, the game-changing Aston Martin Valkyrie hypercar programme is in production and deliveries to customers have commenced
- With a quality focused production ramp-up, 10 Aston Martin Valkyrie and Valkyrie AMR Pro vehicles were shipped in Q4. This was fewer than previously planned and accordingly, adjusted EBITDA is anticipated to be c.£15m lower than expected. The impact is timing only, all Aston Martin Valkyrie Coupes are sold and remain allocated to customers with significant deposits
- An associated reduction in 2021 depreciation and amortisation is expected to result in a broadly net neutral impact on adjusted operating profit
- This timing change will see deliveries and the associated EBITDA continue through 2022 as planned and now through 2023
- Year-end cash balance of c.£420m, higher than previously anticipated
- Preliminary results for the twelve months to 31 December 2021 will be announced on 24 February 2022
and simultaneously, Autocar Magazine published an article indicating that Tobias Moers, the CEO was likely on his way out Future of Aston Martin CEO Tobias Moers in doubt.
First unpacking a bit of the Aston Martin “Trading Update”, this is basically an announcement that they missed on Valkyrie deliveries and therefore have a major hole in the EBITDA number. Back in November, Moers promised a “double digit” number of Valkyrie coupes along with a single digit number of Valkyrie AMR Pros. The above Trading Update references:
10 Aston Martin Valkyrie and Valkyrie AMR Pro vehicles were shipped in Q4
which would seem to be very close to the number Moers originally referenced. What is interesting is how this statement is worded. In the statement, Aston Martin declares that the 10 Valkyries were “shipped” in Q4. “Shipped” is very different from “delivered to customers” and as the Valkyrie is a direct sale from the factory to the customer, unless the car is delivered, the revenue from the sale should not be recognized. “Shipped” simply indicates that the cars have left the manufacturing facility and are now likely sitting in a warehouse or storage facility. This would explain the £15m miss in EBITDA. In fact, nowhere has Aston Martin stated that a single Valkyrie has been delivered to a customer. For Moers to have made the original statement during the November earnings call, 7 weeks before the quarter end, on the number of Valkyries Aston expected to deliver in 2021, with making the EBITDA number heavily dependent on hitting that number, he had to have had a very high degree of confidence that Aston could achieve this goal. To miss it, and miss it badly, is highly concerning. Aston also references a “quality focused production ramp-up” which is basically shorthand for “slow and with major challenges”.
The other statement of immediate interest here is:
Year-end cash balance of c.£420m, higher than previously anticipated
which is quite disingenuous. I can’t find any guidance Aston ever issued on year end cash on hand. In fact, it is down £69m from year end 2021. Regarding the statements on total number of cars wholesaled and retailed, I will come back to these when Aston Martin releases their full 2021 Earnings Report, and more information is available.
Coming back to the Autocar article on Moers future at Aston Martin being in doubt, Moers relationship with Lawrence Stroll, the Executive Chairman and largest individual shareholder, has been on shaky ground for some time now (see: AML Q2 & Goodwood FoS). While Stroll denied he was looking to replace Moers in a statement to the Financial Times Aston Martin chair denies he is looking for a new chief executive. Stroll’s denial rang pretty hallow when shortly after the FT article came out, Bloomberg Aston Martin Approaches Ford Executive identified the individual Stroll had approached about replacing Moers and indicated several discussions had already taken place. I’ve never thought that Moers was going to last long term under Stroll, and it would appear we are now very close to the end of Moers regime. While I do feel for Moers, being made to publicly “twist in the wind” has to be incredibly uncomfortable, it is par for the course for Stroll. The last Aston Martin CEO, Andy Palmer, found out he had been fired when a reporter from the Financial Times called him up and ask for a comment (see:
Within basically a month now, Aston Martin has had a well-regarded CFO suddenly resign, and now it looks like the CEO will be following him out the door shortly. Stroll’s denials on his looking to replace Moers are borderline comical at this point. He would have been better served just to have had his PR department issue a statement that Aston Martin does not comment on rumors. In addition, Aston Martin has had to issue a special Trading Update to basically admit that are continuing to have problems with the Valkyrie program and as a result will miss the EBITDA number by £15m. Looks like Kenneth Gregor, the ex CFO, was wise to, as the Times of London put it (Aston Martin deserves the ejector seat from your portfolio), hit the ejector switch.
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