Aston Martin’s FY 2023 Results: Turtle Flambé

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

 

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Aston Martin’s Q3 2023 Results: The Turtle’s on Fire

Aston Martin’s Q3 2023 Results: The Turtle’s on Fire

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”. 

 

Aston Martin announced their Q3 2023 earnings this week.  The earnings call was a fairly subdued affair.  The number of financial analysts who now attend thee calls has dropped by nearly half in the last 2 years.  Lawrence Stroll, AML’s Executive Chairman lead the call with CFO Doug Lafferty providing the financial overview.  CEO Amedeo Felisa made a brief appearance to answer questions, but as usual it really was the Stroll Show and what was not said was as interesting as what was stated.  Looking at the Q3 highlights:

 

AML’s Q3 Highlights

The Q3 highlights according to the Aston Martin press release are:

 

  • YTD revenue up 21%, driven by ASP growth and strong demand
  • Gross profit increased by 30% YoY with a gross margin of 36% YTD ; gross margin reached 37% in Q3 2023
  • Adj. EBITDA increased 64% YoY to £131m or a margin of 13%, representing YoY margin expansion of c. 330 bps
  • Total liquidity of over £600m including cash of £544m and an additional c.£60m revolving credit facility available; net debt reduced to £750m
  • FY 2023 guidance maintained other than marginally updated volume outlook
  • New DB12 Coupe deliveries commenced in Q3 2023 with order book extending into Q2 2024, with production now running at the rates required to meet updated volume expectations
  • DBS 770 Ultimate deliveries ramped up in Q3 2023; Aston Martin Valkyrie Spider deliveries commenced in Q3 2023

 

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

 

  • Vehicle wholesales down in 3 of the 4 regions in Q3 2023 vs. Q2 2023
  • Free Cash Flow in Q3 2023 of -£78.5 mil.
  • Cash end Q3 2023 down by £228 mil. (vs. Q3 2022) to £543.8 mil. which includes £311 mil. in proceeds from 2023 share sales (ex the share sales cash would be £232.8 mil.).
  • Net Debt of £750 mil. ex a non cash FX revaluation it is flat vs. year end 2022
  • There will be another equity raise in 1st half 2024
  • DBX wholesales were down 7% in Q3 2023

Based on the above, a Lawrence Stroll defined “Turnaround” includes dropping your annual volume target which in “Aston English” is a “marginally updated volume outlook” and “On Fire” refers to the continued cash burn.  In more “Aston English” “extraordinary demand” is an order book that now stretches up to 5 months (on the DB12) and a “fulsome refinancing exercise during the first half of 2024” is another way of saying Aston Martin will need another major equity raise soon.   All of this isn’t surprising given the declining quarter on quarter wholesales in three of the four regions.  The “marginally updated volume outlook” is actually a 11.5% decrease in what had been the YTG expected volumes.

 

I would summarize this as a company lurching from crisis to crisis.  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, Q3 2023 DBX sales are down 7% vs. Q3 2022.  What Aston Martin is selling to the financial markets is some vague hope that it is just about to get better.  Coming into 2023, the outlook Aston provided was that the 1st half of the year was going to look very similar to the miserable 1st half of 2022 with the majority of the growth and improvements to the key financials coming in the 2nd half.  Overall Aston delivered on the 1st and appears well on its way to missing on the 2nd

 

The following covers highlights from the Q3 2023 Results, the Debt, & a few other areas of interest. 

 

Turnaround Complete

Starting with the Q3 results, which according to Lawrence Stroll’s quote in the press release:

 

“Our 110th anniversary year continues to be a fantastic one for the Company, and we are delighted with the strategic and financial progress we have made during the first nine months of 2023. Our volumes, pricing, gross margins and EBITDA are showing strong improvement, and we are delivering an accelerated industrial turnaround.”

 

It’s enough to make even Trump blush and doesn’t exactly square with what the number say:

 

 

 

Q3 2022

Q4 2022

Q1 2023

Q2 2023

Q3 2023

Cars Wholesale

1,384

2,352

1,269

1,685

1,444

Revenue

£316 mil.

£524 mil.

£296 mil.

£382 mil.

£362 mil.

EBITDA

£21 mil.

£110 mil.

£30 mil.

£50 mil.

£51 mil.

Operating Profit

-£59 mil.

£10 mil.

-£51 mil.

-£42 mil.

-£52 mil.

Free Cash Flow

-£336 mil.

-£84 mil.

-£118 mil.

-£100 mil.

-£79 mil.

Net Debt

£833 mil.

£765 mil.

£868 mil.

£846 mil.

£750 mil.

 

The fantastic year that Stroll references involves racking up -£260 mil. in pre tax losses for an average of -£59.5k per car wholesaled.  In terms of financial progress, Stroll must be seeing something I am missing.  Q3 2023 revenue is down vs. Q2 2023 and the growth Vs. Q3 2022 can almost all be attributed to the 12 additional Valkyries they shipped this quarter vs YAG.  In fact, if you back the Valkyries out of the numbers, it all gets quite ugly pretty quickly.  As we are entering the festive season, perhap Stroll should consider sending Christmas cards with a thank you note included to Andy Palmer & Adrian Newey for the Valkyrie.  Given the Valkyrie is what’s driving the ASP growth, perhaps a Christmas Turkey should also be included. 

 

Sometimes what isn’t said is as interesting as what is said in the earnings reports.  For the first time in as far back as I can remember, Stroll didn’t once mention the “demand-led operating model”.  The only comment that was in this area came from Lafferty who stated that “for the full year he is expecting retails across the portfolio to outstrip wholesales”.  In 2022, AML increased the stock in dealerships by 442 vehicles and has likely been trying to work this down throughout 2023.  I have heard from a few sources that at least in the Americas, AML is now offering dealers funding to help move DBXs off their rather packed forecourts (Lafferty dodged directly answering the question on the earnings call).  These same sources indicated that dealer stock levels in the Americas now exceed where they were at the height of the prior regime.    None of this is consistent with a “demand-led operating model” which is likely why Stroll has been forced to drop it.  In terms of Lafferty expecting retails to outstrip wholesales, as the Rolling Stones once said “You can’t always get what you want, but if you try sometimes, you get what you need” and right now AML needs to wholesale 2,307 cars in Q4 2023 to hit the “marginally updated volume” target of 6,700. The year to date quarterly run rate is 1,466 cars wholesaled so 2,307 cars in Q4 is likely well ahead of “expected” demand so  Aston Martin dealers will likely be very well stocked come January.   

 

In the July Earnings Call, Lafferty’s 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.”  Given the need to ship 2,307 cars in Q4, Lafferty is back out on the ice stick in hand. My guess is at this rate, Lafferty will likely spend as much time holding a hockey stick as Gordie Howe.

 

Puff the Magic Dragon

Sounding a bit like General Cornwallis before the Battle of Yorktown, back in March Lafferty & Felisa stated:

 

Lafferty: “So, you are asking about liquidity level. Look, I think from our perspective, as I said, from a guidance point of view, I think we have given you the drivers of how we expect the guidance to work out this year. We obviously successfully completed quite a significant capital to raise during the course of last year. 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. And if we do that, then I don’t have any liquidity concerns.”

 

Felisa: “I will pickup where Doug left off. But the answer is – we – as long as – Doug rightfully says, execute on the plan, we do not see any liquidity needs whatsoever.”

 

Net debt coming into 2023 stood at £765 mil. and today it’s at £750 mil. which would make it appear to be at least stable if it weren’t for the fact that AML raised £311 mil. in share sales this year.  Basically, all that cash raised has burned through (which confirms Stroll’s comment in June on CNBC that Aston Martin is on fire). Going back to Lafferty’s and Felisa’s comments, it would appear AML might not have executed on the plan as Lafferty has now stated that a:

 

“fulsome refinancing exercise during the first half of 2024”

 

The use of the word fulsome is quite interesting as the Cambridge Dictionary defines it as:

 

“expressing a lot of admiration or praise for someone, often too much, in a way that does not sound sincere”

 

Which should make for a very interesting refinancing exercise come 2024.

 

Looking at a few areas of interest in a bit more detail:

The DB12

Per Stroll’s comments in the earnings release:

“The launch of the DB12, which has seen extraordinary demand, is driving a reappraisal of Aston Martin amongst new audiences, with 55% of initial DB12 customers new to the brand”

 

Which is an awful lot of weight to put on the shoulders of what’s basically a facelifted DB11 with a new infotainment system/user interface.  So how has this all worked out?  Well so far the DB12 is being 100% blamed for the “marginally updated volume outlook” and AML is pointing the finger at “supplier readiness” and “software integration”:.

Per the Press Release:

“The DB12 production ramp up was temporarily affected as supplier readiness and integration of the new EE platform that supports the fully redeveloped infotainment system was delayed.”

 

And via Stroll’s comments on the earnings call:

The DB12, the startup around the production was mainly related to challenges that we have on the software integration or the electronic platform with the new infotainment that is brand-new and that was spoken by Aston Martin. So, we had some issues on software, but I think everything now is fixed.

Which is pretty surprising as back in May, Lafferty stated:

So far, things are coming together, and we would expect to be being able to meet our ramp-up curve for the first of the next-generation sports cars with a high degree of quality and a high degree of certainty on the product that we are delivering to the customers.

And in terms of the “extraordinary demand” Stroll references, on the July earnings call, Lafferty stated: and I’m quite confident that by the third quarter will be sold out on DB12 for next year.  Given the order book just now stretches all the way into Q2 2024, that comment has not aged well.  AML also has to be a bit concerned on the length of the orderbook given they have spent heavily in support of the launch including flying in a large number of journalist and influencers to the south of France for test drives and had a Taj Mahal size Hospitality Suite at Pebble Beach.  In addition, Stroll has a very interesting definition of “new”.  In the earnings release Stroll states that “55% of initial DB12 customers new to the brand” and then on the earning call philosophizes: “a good portion of those 55% have bought a DBX and are now, because of the acquisition of the DBX, buying the DB12.”  So……which is it?

Specials & the Valhalla

In the 2022 Financial Results, Aston Martin admitted that after 3 years, only 50% of Valhalla build slots had been sold.  In the Q3 earnings release, AML admitted customer deposit dropped by £1 mil. in YTD 2023.  This doesn’t seem like much until you pull apart the details.  With each Valkyrie delivery, roughly £1.25 million in deposits is taken off the books.  Sixty seven Valkyries were delivered in the first 3 quarters which equates to about £84 million in deposit unwinds.  On the plus side AML would have been collecting deposits for the DBR22, Valour, and Valhalla.  The fact that those three haven’t generated at least positive deposit cash inflow doesn’t bode well for the future as more of the Valkyrie deposits come off the books.  Aston has been heavily dependent on its customers cash to keep the lights on and unless they can continue coming up with a constant stream of £1+ million specials that its customers are willing to buy, (something that might not have been made easier by Felisa’s comment on the earnings call: “If you want to compare the specials with DB12, DB12 by far is the best product we have”.) this will just put further intense pressure on the balance sheet in the near future. 

On the earnings call, Stroll stated: “Valhalla will start to deliver the end of next year” and in the earnings release update on that “the first running prototype taking to the road later this year”.  Going from an initial running prototype to production in a year is quite ambitious.  Then again all of Aston’s recently production startups including the Valkyrie, DBX707, and DB12 have gone about as well as leaving Red Bull has gone for Daniel Riccardo.

DBX

In the earnings release it states: “DBX volumes increased by 23% year-on-

year, driven by the DBX707, the world’s most powerful luxury SUV. The DBX707 is now clearly established as a benchmark in the ultra-luxury SUV segment with strong volume growth in the majority of our key markets.”  This looks great except Q3 wholesales of the DBX were down 7% vs. Q3 2022.  The decline would seem to tie into the theory that AML loaded dealers with DBXs in the first half, began to have issues forcing more stock onto forecourts, and has now had to offer incentives to move them.  I would expect to see the base DBX discontinued shortly with only the DBX 707 remaining in the portfolio.  Stroll did indicate that the DBX 707 will be updated with the DB12 interior/infotainment with no timing indicated.  Full year 2023 wholesales of DBXs will now likely be in the 3,000-3,400 range.  This is still far off the 3,700 DBX’s AML was originally targeting to sell in 2022.  What’s even stranger about the call out on the DBX in the Q3 earnings release was the Sport/GT cars had a much better Q3 and were up 16% vs. Q3 2022. 

 

Marketing Platform

In the March Earning Call, Stroll finally admitted that the Aston Martin Aramco Cognizant Formula One Team (AMF1) was a “partnership” with AML and is not a AML’s “Works” F1 Team.  In the Q3 earnings call, he now referred to it as a “Marketing Platform”.  Like the French at Agincourt, while the AMF1 Team had a very strong start to the F1 season it has been going backwards since the Italian Grand Prix in September.  At the most recent race in Mexico the Aston Martin F1 team hit rock bottom with two DNFs (Did Not Finish).  Other recent Aston Martin F1 highlights include an angry Lance Stroll pushing his trainer out of the way after being eliminated in the first qualifying session at the Qatar Grand Prix and rumors emerging that Fernando Alonso might jump to Red Bull. While I doubt Red Bull would partner two uber alpha males together, the fact that the rumor is floating around it is very likely Alonso is sending a message to the Aston Martin F1 Team that he isn’t happy and something needs to change.  Just to underscore how bad things are, Alonso did refer to the car as being undrivable during a recent race.  To be honest, I am not that surprised things have turned for the worst.  A friend who is well connected in F1 circles mentioned he did not expect Aston’s strong early season performance to continue.  He indicated that AMF1 had spent the majority of its money upfront and therefore would not be able to fund the continued development of the car as the season progressed.  It’s clear other teams (McLaren being a great example) cars have improved significantly and AMF1s has not.

 

Summary

As expected, it looks like AML is well on its way to running out of cash again.  Despite Lafferty’s comments about “remaining focused on reducing our leverage and retiring debt.”  they just haven’t.  At this point, I have to assume that the “focused” means he is just staring at it hard.  The Q3 wholesales were soft and the DB12 start up looks like it’s been a bit of a mess.  The DB12 orderbook looks light, certainly lighter than expected.  The £311 million cash raised so far in 2023 hasn’t been used to solve the debt issue and appears to basically be gone.  To get even close to the “marginally updated volume outlook”, its likely there will need to be another rather large “temporary suspension of the demand-led operating model.  The big bet this year was on the next generation GT, the DB12 and now that’s being used as the excuse for lowering the guidance. 

 

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

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November 2023

 

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Update – Aston Martin: Turnaround or Turtlearound??

Update – Aston Martin: Turnaround or Turtlearound??

Aston Martin Lagonda announced its latest £210 mil. cash raise (i.e another “Share Placing”) on Monday, July 31st.  This will bring the total amount of cash injected into AML since Executive Chairman Lawrence Stroll came on board to £1.77 bil.  The timing is quite interesting given Stroll declared just 5 days before that the business “has been turned around” yet made no mention of an urgent need to further reduce debt and deleverage the balance sheet as the current cash flow is insufficient to do so.  Details on the raise are:

c.£210m share placing to accelerate net leverage reduction and support longer term growth

  • c.£210m placing to facilitate the early redemption of the Group’s existing second lien split coupon notes, due 2026, as well as supporting capital investments related to the Company’s electrification strategy
  • Building on the Company’s improved financial position, including c.£460 million of liquidity at the end of H1 2023, the proceeds from the proposed placing will further deleverage the balance sheet, while providing further momentum to Aston Martin in delivering its 2024/25 financial targets
  • Proposed transaction provides the Company with an accelerated pathway to achieving a net leverage ratio towards c.1.0x in 2024/25 and becoming free cash flow positive from 2024, supported by a significant interest cost reduction, as well as achieving a net leverage ratio of below 1.0x in 2027/28
  • Existing strategic shareholders, who are represented on the Aston Martin board, have committed to subscribe for up to £184m

The Company has received irrevocable undertakings to subscribe for approximately £115 million of the Placing, comprising:

  • Yew Tree Overseas Limited (“Yew Tree”) to irrevocably subscribe for £44 million on behalf of itself and other members of the Yew Tree Consortium (comprising Saint James Invest SA, J.C.B. Research, RRRR Investments LLC, FrancInvest Holding Corporation, John Idol, Omega Funds I Limited, ErsteAM Ltd and now also BDI Invest L.P.)
  • Public Investment Fund to irrevocably subscribe for £37 million
  • Geely International (Hong Kong) Ltd to irrevocably subscribe for £15 million
  • Mercedes-Benz AG to irrevocably subscribe for £19 million

The remaining approximately £95m of the Placing will be made available to institutional investors via an accelerated bookbuild (the “Bookbuilding Process”).

In addition to irrevocably subscribing for £44 million (being its pro rata share of the Placing), Yew Tree has also agreed to subscribe for up to a further £69 million in the Placing, on behalf of itself and certain other members of the Yew Tree Consortium, to the extent that such Ordinary Shares are not placed as part of the Placing.

A few quick observations, thoughts, and comments:

  • The timing on this is quite interesting.My estimate earlier this year was they would not need to do another raise until late this year or early next, but the current rate of cash burn has clearly accelerated that timing.
  •  
  • Given that AML announced their 1st half 2023 results just 5 days before, I find it highly unusual that the “share placing” was not mentioned as part of that announcement although they way it’s being positioned doesn’t fit with Stroll’s “Turnaround Complete” theme. It does feel like AML is trying to keep this as far under the radar as possible.
  •  
  • It’s surprising that AML did not package this share placement with the 1st half 2023 results and spin it as “Turnaround Complete” and now “raising additional funds to accelerate new model development.”
  •  
  • When last year’s £653 million Capital Raise was announced in July 2022, AML stated that “up to half to repay existing debt, strengthening financial resilience and improving the company’s cash flow generation by reducing its interest costs”. However Gross Debt was only reduced by £75 mil. in the back half of the year.  It will be very interesting to see how much of this £210 mil. raise actually goes to reducing debt vs. being consumed in the cash furnace that is AML’s on-going operations.
  •  
  • It was only 2 ½ months ago that Stroll/Yew Tree was finally able to pull some cash out of the AML investment by selling shares to Geely for about £120 mil. (there is an very interesting article in the June issue of Business F1 on the AML-Geely deal: The Party’s Over at Aston Martin Lagonda). To have to turnaround now and plow £44 mil. back in and underwrite a further £69 mil. has to have led to some rather interesting discussions at both Yew Tree & with AML’s management.
  •  

And finally, this year’s version of Stroll’s famous quote from Feb. 2022, “Let me be crystal-clear, black-and-white: we do not need money” goes to both CFO Doug Lafferty & CEO Amedeo Felisa.

From: Aston Martin Lagonda Earnings Call Transcript, Mar. 1, 2023

Doug Lafferty: “So, you are asking about liquidity level. Look, I think from our perspective, as I said, from a guidance point of view, I think we have given you the drivers of how we expect the guidance to work out this year. We obviously successfully completed quite a significant capital to raise during the course of last year. 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. And if we do that, then I don’t have any liquidity concerns.”

Amedeo Felisa “I will pickup where Doug left off. But the answer is – we – as long as – Doug rightfully says, execute on the plan, we do not see any liquidity needs whatsoever.”

Based on the two comments above, either AML isn’t executing to plan, or AML’s Senior Management would seem to lack understanding of their on-going financial situation.

More to follow when AML releases their Q3 2023 results.

Below is the article on AML’s 1st Half 2023 results.

Aston Martin announced their 1st Half 2023 earnings this week.  The earnings call was a fairly subdued affair despite Lawrence Stroll, AML’s Executive Chairman leading the call.  Both CEO Amedeo Felisa and CFO Doug Lafferty made brief appearances to answer questions, but it really was the Stroll Show.   Stroll did do a fairly reasonable job of staying on what I would term a fairly creative script. As usual, Stroll was laser focused on the positive highlights, declaring that “we are focused on fixing the core fundamentals of this company and rebuilding the necessary foundations to deliver on our vision. What was required was a major industrial and commercial turnaround, which typically takes five to seven years. I’m very pleased to say that we have completed this turnaround in a little over 3”.  Stroll did not offer any numbers to support the statement which made me immediately question if the “turn around” really is complete.  Looking at the 1st half highlights:

  • AML’s 1st Half

The 1st Half highlights according to the Aston Martin press release are:

  • Q2 performance ahead of expectations; FY 2023 guidance maintained
  • H1 revenue growth of 25%, driven by strong DBX volume & ASP growth
  • H1 Total ASP increased by 14% to £212k; Core ASP increased by 12% to £184k
  • New DB12 Coupe sold out for 2023 following launch at the end of MayGT/Sports sold out for 2023 ahead of new launches
  • DBX order book into Q4
  • On track to substantially achieve 2024/25 financial targets in 2024

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

  • Vehicle wholesales down 21% vs. 2nd half 2022
  • Free Cash Flow in 1st Half 2023 of -£218 mil.
  • Net Debt Up £81 mil. to £846 mil. vs. year end 2022
  • Cash end 1st Half 2023 down by £183 mil. (vs. year end 2022) to £400 mil. which including £95 mil. proceeds from share sale to Geely (ex Geely cash would be £305 mil. down from £583 mil. at the end of 2022).

Hence why when Lawrence Stroll’s declared in his opening statement on the Earnings Call that the “Turnaround is Complete” it really caught my attention. It immediately reminded me of another situation when a certain former President stood on the deck of a US Aircraft Carrier and declared “Mission Accomplished”.  Question is, has Aston Martin’s business been turned around or is this another “Let me be crystal-clear, black-and-white: we do not need money” type Stroll statement?  In my past life, we normally did not consider a business “turned around” until we had 2 years of sustained improvement across a majority of key metrics.  To understand if AML’s business has really turned the corner, I thought it would be interesting to take a look at several key areas, the financial performance, the product line, and the debt across 1st half 2019 (pre Stroll), 1stHalf 2021 (Stroll, Year 1), and 1st half 2023 (“Turnaround Complete”) benchmark where AML is today vs. 2 years ago.  Starting with the Financial performance:

Financial Performance

Here are the key numbers for the 3 measurement periods:

 

1st Half 2019

1st Half 2021

1st Half 2023

Cars Wholesale

2,442

2,901

2,954

Revenue

£407 mil.

£499 mil.

£677 mil.

EBITDA

£22 mil

£49 mil.

£81 mil.

Operating Profit

-£35 mil

-£38 mil.

-£93 mil.

Free Cash Flow

-£138 mil.

-£44 mil.

-£218 mil.

At first glance, the 1st three rows look positive with the bottom two, less so.  Revenue in 1st half 2023 was certainly helped by the 38 Valkyries shipped which would have brought in a bit over £100 mil.  Just looking at 1st half 2019 vs. 1st half 2023 it looks like AML sold more cars at a much higher price and yet managed to burn more cash and lose more money by doing so.  It is even starker when you look at the comparison between where AML was in the 1st half of 2021 vs. 1st half 2023 and then compare 1st half 2021 to 1st half 2019.  With the exception of a slight decrease in Operating Profit in 1st half 2021 vs. 1st half 2019, all the other financial indicators were heading in the right “turnaround” direction at that point in time.  However, when you breakdown the 2021 vs. 2023 numbers, AML sold 53 more cars in 1st half 2023 but managed to lose £55 mil. more while burning through an additional -£174 mil. of cash.  In summary, while AML has made good progress generating additional revenue by driving average selling price (ASP), they are still a long way from having figured out how to make money doing so.  Positive Free Cash Flow is basically table stakes to be considered a heathy business and that still seems a long way off.

Since Lawrence Stroll took over AML in 2020, he has pontificated multiple times that AML only manufacturers vehicles to order.  However, AML hasn’t reported retail sales for several years now so there is no way of validating that statement.  What we do know from the 2022 AML Annual Report is that 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.  Having visited several Aston Martin dealerships in the US recently, this dealership inventory stock build does appear to be very real as all had plenty of stock on their forecourts.  Net net, while that 1st half  2023 wholesale number does look to be headed in the right direction, it is impossible to tie it back to demand.  To have a bit more than a “Rudy Giuliani” level of credibility on their “demand-led operating model”, AML needs to start reporting retail sales again.

The Product Line

 

Over the past several years, AML’s portfolio has shifted:

Units Wholesaled

1st Half 2019

1st Half 2021

1st Half 2023

Sports/GT

2,406

1,280

1,369

SUV

0

1,595

1,547

Valkyrie

0

0

38

Total Specials

36

20

38

Looking at the numbers, it would appear that under Stroll’s leadership, Aston Martin has transitioned from being solely a Sports/GT car manufacturer to more a supplier of luxury SUVs.  As a strategy, it certainly has worked for other Sports & Supercar manufacturers (Porsche, Lamborghini) as the SUV volumes were incremental to the base Sports/GT and Supercar business.  In the case of AML, the numbers would suggest that the vast majority of the SUV sales have been cannibalistic of the Sports/GT business.  Just to make matters a bit more concerning, SUV sales actually declined in 1st half 2023 vs. 1st half 2021.  While the Sports/GT sales did increase in 1st half 2023 vs. 1st half 2021 that is mainly due to deliveries of the run out limited edition V12 Vantage.  However, Sports/GT wholesales are still down 43% vs. 1st half 2019. 

On a positive note, AML is finally taking action to update, in the words of AML Management, the “7 year old sports and GT cars”.  These updates were originally promised by Stroll for 2021 but now have finally started to arrive.  The first in the series of updates is the DB12 (as it is built off the same basic chassis as the DB11, I consider it an update/facelift vs. being a completely new model) with deliveries to start in the 2nd half of 2023. AML has promised similar updates for both the DBS and Vantage to follow in the next 18 months.  Based on the pictures I have seen (shockingly, I was not invited to the Global Media launch in the French Rivera so I have not seen the DB12 in person), AML has done a nice job updating the DB12s lines while significantly improving the interior.  Whether or not these updates and improvements will be enough to turn around the trajectory of the Sports/GT sales will only be clear come 2025 once the initial excitement pipeline has worked its way through the system.

One interesting note is that AML sold almost as many “specials” in 1st half 2019 as it did in 1st half 2023.  One major difference was the 2023 “specials” were all Valkyries at a price point likely to have been 2x the earlier sales.  In addition, the number of “specials” is about to dramatically accelerate in the coming quarters.  Per AML’s recent announcements, more “specials” are in the pipeline including the DBR22, Valour, and Valhalla.  These are on top of a slew of other “limited edition” models like the DBS Final Edition.  Potentially even more so than the Sports/GT updates, the success of all these “specials” is critical to any AML turnaround as they are considerable higher margin than the base Sport/GT business.  In addition, AML has become addicted to the hefty deposits these “specials” generate when customers place orders.   It is interesting to see that with the exception of Valhalla, which dates back to 2019, all the recent “specials” are front engine.  I do suspect that this has to do with the current litigation between AML and Nebula over all the mid engine cars and AML wanting to limit their exposure to damages based on projected mid engine volumes should they lose the case.  In addition, an over reliance on “specials”, especially ones that are basically just rebodies of other cars in your line at 2x-4x the price, normally does not end well.  Just ask the current Chairman of BAC.

The Debt

 

 

1st Half 2019

1st Half 2021

1st Half 2023

Gross Debt

£859 mil.

£1,299 mil.

£1,246 mil.

Cash

£127 mil.

£506 mil.

£400 mil.

Net Debt

£732 mil.

£792 mil.

£846 mil.

Current Liabilities Including Payables

£861 mil.

£830 mil.

£979 mil.

 

Since Lawrence Stroll took over as Executive Chairman in 2020, AML has raised £1,561 mil. in new equity.  Objectively, just looking at the numbers above, despite this very significant cash infusion (which is more than AML’s current annual revenue), the company is in worse financial shape today than it was back in 2019 as both Net Debt and Current Liabilities are well above where they were back in both 1st half 2021 & 1st half 2019.   Given that the raging inferno that is their cash burn continues, it’s unlikely that this will change dramatically anytime soon based on the current pace of the business.  The picture actually looks even bleaker when you toss in an estimated £315 mil. in customer deposits (equalivant to 79% of AML’s cash).  The cash provided by customer deposits is critical to funding AMLs operations which explains the increasing number of “specials” being rolled out.  The moment AML starts finding it more difficult to extract long term unsecured interest free loans from its customers, it will potentially trigger another financial crisis.  All in, AML’s total debt pile (Gross Debt + Current Liabilities/Payables + Customer Deposits – Cash) is £2.14 billion.   There is also £1.4 billion (and growing) of Intangible Assets sitting on the balance sheet which will need to be amortized over the coming years.

Summary

If being on solid financial footing is key to a business turnaround, then the AML story feels very incomplete right now.  Solid progress has been made in terms of generating additional revenue and increasing margins.  The DB12 does look to be a solid step forward.  If the updates for the Vantage and DBS are similar in scope and quality, that does provide for a more promising future.  How well these will all do in the marketplace is still very much an unknown. 

 

AML has yet to figure out how to make money selling cars.  Loses continue to mount, cash continues to be burned at impressive rates, and debt continues to pile up to the extent that it has basically obliterated the £1,561 mil. raised in the last several years.  In Stroll’s opening remarks on the Earnings Call, right before he declared the “Turnaround Complete”, he stated that “a major industrial and commercial turnaround, typically takes five to seven years”.  I do believe he was right.

 

 

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

 

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July 2023

 

Recent Posts

Aston Martin’s 1st Half 2023: Is the Turnaround Complete???

Aston Martin’s 1st Half 2023: Is the Turnaround Complete???

Aston Martin announced their 1st Half 2023 earnings this week.  The earnings call was a fairly subdued affair despite Lawrence Stroll, AML’s Executive Chairman leading the call.  Both CEO Amedeo Felisa and CFO Doug Lafferty made brief appearances to answer questions, but it really was the Stroll Show.   Stroll did do a fairly reasonable job of staying on what I would term a fairly creative script. As usual, Stroll was laser focused on the positive highlights, declaring that “we are focused on fixing the core fundamentals of this company and rebuilding the necessary foundations to deliver on our vision. What was required was a major industrial and commercial turnaround, which typically takes five to seven years. I’m very pleased to say that we have completed this turnaround in a little over 3”.  Stroll did not offer any numbers to support the statement which made me immediately question if the “turn around” really is complete.  Looking at the 1st half highlights:

  • AML’s 1st Half

The 1st Half highlights according to the Aston Martin press release are:

  • Q2 performance ahead of expectations; FY 2023 guidance maintained
  • H1 revenue growth of 25%, driven by strong DBX volume & ASP growth
  • H1 Total ASP increased by 14% to £212k; Core ASP increased by 12% to £184k
  • New DB12 Coupe sold out for 2023 following launch at the end of MayGT/Sports sold out for 2023 ahead of new launches
  • DBX order book into Q4
  • On track to substantially achieve 2024/25 financial targets in 2024

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

  • Vehicle wholesales down 21% vs. 2nd half 2022
  • Free Cash Flow in 1st Half 2023 of -£218 mil.
  • Net Debt Up £81 mil. to £846 mil. vs. year end 2022
  • Cash end 1st Half 2023 down by £183 mil. (vs. year end 2022) to £400 mil. which including £95 mil. proceeds from share sale to Geely (ex Geely cash would be £305 mil. down from £583 mil. at the end of 2022).

Hence why when Lawrence Stroll’s declared in his opening statement on the Earnings Call that the “Turnaround is Complete” it really caught my attention. It immediately reminded me of another situation when a certain former President stood on the deck of a US Aircraft Carrier and declared “Mission Accomplished”.  Question is, has Aston Martin’s business been turned around or is this another “Let me be crystal-clear, black-and-white: we do not need money” type Stroll statement?  In my past life, we normally did not consider a business “turned around” until we had 2 years of sustained improvement across a majority of key metrics.  To understand if AML’s business has really turned the corner, I thought it would be interesting to take a look at several key areas, the financial performance, the product line, and the debt across 1st half 2019 (pre Stroll), 1stHalf 2021 (Stroll, Year 1), and 1st half 2023 (“Turnaround Complete”) benchmark where AML is today vs. 2 years ago.  Starting with the Financial performance:

Financial Performance

Here are the key numbers for the 3 measurement periods:

 

1st Half 2019

1st Half 2021

1st Half 2023

Cars Wholesale

2,442

2,901

2,954

Revenue

£407 mil.

£499 mil.

£677 mil.

EBITDA

£22 mil

£49 mil.

£81 mil.

Operating Profit

-£35 mil

-£38 mil.

-£93 mil.

Free Cash Flow

-£138 mil.

-£44 mil.

-£218 mil.

At first glance, the 1st three rows look positive with the bottom two, less so.  Revenue in 1st half 2023 was certainly helped by the 38 Valkyries shipped which would have brought in a bit over £100 mil.  Just looking at 1st half 2019 vs. 1st half 2023 it looks like AML sold more cars at a much higher price and yet managed to burn more cash and lose more money by doing so.  It is even starker when you look at the comparison between where AML was in the 1st half of 2021 vs. 1st half 2023 and then compare 1st half 2021 to 1st half 2019.  With the exception of a slight decrease in Operating Profit in 1st half 2021 vs. 1st half 2019, all the other financial indicators were heading in the right “turnaround” direction at that point in time.  However, when you breakdown the 2021 vs. 2023 numbers, AML sold 53 more cars in 1st half 2023 but managed to lose £55 mil. more while burning through an additional -£174 mil. of cash.  In summary, while AML has made good progress generating additional revenue by driving average selling price (ASP), they are still a long way from having figured out how to make money doing so.  Positive Free Cash Flow is basically table stakes to be considered a heathy business and that still seems a long way off.

Since Lawrence Stroll took over AML in 2020, he has pontificated multiple times that AML only manufacturers vehicles to order.  However, AML hasn’t reported retail sales for several years now so there is no way of validating that statement.  What we do know from the 2022 AML Annual Report is that 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.  Having visited several Aston Martin dealerships in the US recently, this dealership inventory stock build does appear to be very real as all had plenty of stock on their forecourts.  Net net, while that 1st half  2023 wholesale number does look to be headed in the right direction, it is impossible to tie it back to demand.  To have a bit more than a “Rudy Giuliani” level of credibility on their “demand-led operating model”, AML needs to start reporting retail sales again.

The Product Line

 

Over the past several years, AML’s portfolio has shifted:

Units Wholesaled

1st Half 2019

1st Half 2021

1st Half 2023

Sports/GT

2,406

1,280

1,369

SUV

0

1,595

1,547

Valkyrie

0

0

38

Total Specials

36

20

38

Looking at the numbers, it would appear that under Stroll’s leadership, Aston Martin has transitioned from being solely a Sports/GT car manufacturer to more a supplier of luxury SUVs.  As a strategy, it certainly has worked for other Sports & Supercar manufacturers (Porsche, Lamborghini) as the SUV volumes were incremental to the base Sports/GT and Supercar business.  In the case of AML, the numbers would suggest that the vast majority of the SUV sales have been cannibalistic of the Sports/GT business.  Just to make matters a bit more concerning, SUV sales actually declined in 1st half 2023 vs. 1st half 2021.  While the Sports/GT sales did increase in 1st half 2023 vs. 1st half 2021 that is mainly due to deliveries of the run out limited edition V12 Vantage.  However, Sports/GT wholesales are still down 43% vs. 1st half 2019. 

On a positive note, AML is finally taking action to update, in the words of AML Management, the “7 year old sports and GT cars”.  These updates were originally promised by Stroll for 2021 but now have finally started to arrive.  The first in the series of updates is the DB12 (as it is built off the same basic chassis as the DB11, I consider it an update/facelift vs. being a completely new model) with deliveries to start in the 2nd half of 2023. AML has promised similar updates for both the DBS and Vantage to follow in the next 18 months.  Based on the pictures I have seen (shockingly, I was not invited to the Global Media launch in the French Rivera so I have not seen the DB12 in person), AML has done a nice job updating the DB12s lines while significantly improving the interior.  Whether or not these updates and improvements will be enough to turn around the trajectory of the Sports/GT sales will only be clear come 2025 once the initial excitement pipeline has worked its way through the system.

One interesting note is that AML sold almost as many “specials” in 1st half 2019 as it did in 1st half 2023.  One major difference was the 2023 “specials” were all Valkyries at a price point likely to have been 2x the earlier sales.  In addition, the number of “specials” is about to dramatically accelerate in the coming quarters.  Per AML’s recent announcements, more “specials” are in the pipeline including the DBR22, Valour, and Valhalla.  These are on top of a slew of other “limited edition” models like the DBS Final Edition.  Potentially even more so than the Sports/GT updates, the success of all these “specials” is critical to any AML turnaround as they are considerable higher margin than the base Sport/GT business.  In addition, AML has become addicted to the hefty deposits these “specials” generate when customers place orders.   It is interesting to see that with the exception of Valhalla, which dates back to 2019, all the recent “specials” are front engine.  I do suspect that this has to do with the current litigation between AML and Nebula over all the mid engine cars and AML wanting to limit their exposure to damages based on projected mid engine volumes should they lose the case.  In addition, an over reliance on “specials”, especially ones that are basically just rebodies of other cars in your line at 2x-4x the price, normally does not end well.  Just ask the current Chairman of BAC.

The Debt

 

 

1st Half 2019

1st Half 2021

1st Half 2023

Gross Debt

£859 mil.

£1,299 mil.

£1,246 mil.

Cash

£127 mil.

£506 mil.

£400 mil.

Net Debt

£732 mil.

£792 mil.

£846 mil.

Current Liabilities Including Payables

£861 mil.

£830 mil.

£979 mil.

 

Since Lawrence Stroll took over as Executive Chairman in 2020, AML has raised £1,561 mil. in new equity.  Objectively, just looking at the numbers above, despite this very significant cash infusion (which is more than AML’s current annual revenue), the company is in worse financial shape today than it was back in 2019 as both Net Debt and Current Liabilities are well above where they were back in both 1st half 2021 & 1st half 2019.   Given that the raging inferno that is their cash burn continues, it’s unlikely that this will change dramatically anytime soon based on the current pace of the business.  The picture actually looks even bleaker when you toss in an estimated £315 mil. in customer deposits (equalivant to 79% of AML’s cash).  The cash provided by customer deposits is critical to funding AMLs operations which explains the increasing number of “specials” being rolled out.  The moment AML starts finding it more difficult to extract long term unsecured interest free loans from its customers, it will potentially trigger another financial crisis.  All in, AML’s total debt pile (Gross Debt + Current Liabilities/Payables + Customer Deposits – Cash) is £2.14 billion.   There is also £1.4 billion (and growing) of Intangible Assets sitting on the balance sheet which will need to be amortized over the coming years.

Summary

If being on solid financial footing is key to a business turnaround, then the AML story feels very incomplete right now.  Solid progress has been made in terms of generating additional revenue and increasing margins.  The DB12 does look to be a solid step forward.  If the updates for the Vantage and DBS are similar in scope and quality, that does provide for a more promising future.  How well these will all do in the marketplace is still very much an unknown. 

 

AML has yet to figure out how to make money selling cars.  Loses continue to mount, cash continues to be burned at impressive rates, and debt continues to pile up to the extent that it has basically obliterated the £1,561 mil. raised in the last several years.  In Stroll’s opening remarks on the Earnings Call, right before he declared the “Turnaround Complete”, he stated that “a major industrial and commercial turnaround, typically takes five to seven years”.  I do believe he was right.

 

 

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

 

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July 2023

 

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