Aston Martin Lagonda Global Holdings plc (AML) Earnings Call Transcript & Summary

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Because what we've been trying to consciously do at the end of 2019 is make sure we deal face on with the issues we have, particularly around Vantage, hence why, in the statement, we say that the Vantage was higher than expectations. One of the issues of Vantage being higher than expectations is that it's lower margin, and that's obviously weighed on us. It also means there's additional support in there both for retail support and for fixed marketing. We're not going to, again, stick a pin in those numbers, but they are itemized on the statement in order of their size and scale. And they were, both of those things, significantly ahead of where we expected them to be. But again, in doing that, we're trying to take the sting out of the Vantage that we felt and we've talked to all year. So they were ahead. They were significantly ahead, but we can't stick numbers in them.

Okay. And if I can just try one final one. You didn't disclose it, so maybe you'd prefer to wait for the full year. But could you just tell us roughly where CapEx finished for the full year and whether you think CapEx will be flat or down in 2020?

No. No, we haven't updated on CapEx today. If we had anything material to say about that, we'd, of course, be saying it.

Your next question comes from the line of Henning Cosman.

Henning from HSBC on behalf of Giulio. Obviously, good to see the DBX orders so strongly. Maybe we can talk a little bit related to the questions of my colleagues before me, should China get a bit of a better feeling how structural or temporary some of these detrimental elements of Q4 going forward. So specifically, the tightness of the market that you have discussed, is that something that you see away -- see going away going into 2020? And maybe specifically also with respect to the discounting, could you imagine this to be a bit more structural? Is that something that you see quite isolated to yourself? Or have you observed that in the wider segment? If you could please elaborate a little bit.

Yes. I mean, look, we do see why the segmental pressure is similar to ours. And look, there are many things in this statement today, things like FX and some of the other cost misses, that would be specific to this period, and we would be expecting them not necessarily to be particularly structural. We said we're going to be -- and you saw it in November, so we are planning prudently for 2020. And you've seen us today also talk about wanting to restore dealer stock levels and we're giving you some clues about how we're thinking about next year. Clearly, next year, you rightly identify, is exciting in many ways because the DBX arrives in quarter 2, and those are signs of revitalization for the business. And in the meantime, you can expect us to be cautious and thoughtful about how we manage sports cars, having taken the brunt of the pain, we think, probably in 2019.

Yes. So on that, with the mix then shifting towards the DBX as an additional model, do you anticipate, for example, on that financing side that additional measures could be required or extended efforts on that on your point? Is that something to watch out for specifically?

I think the strength of the DBX orders we see to date gives us a lot of confidence that, that car seems to be hitting the spot in terms of the offering to the customer. 1,800 orders. I think we are pleasantly surprised with how fast we've accrued those orders. When I look at a graph that you can't see on the end of the phone today, what I see is the gradient of that order rate is pretty similar since we launched. So we're saying that it's doing very well in that respect. That would point you towards a car which is well priced. It's a good offering. And we would hope that, that car starts not only the regrowth of the business again, but the revitalization, obviously, as we go through the income statement as well.

But you don't really see the -- an incremental threat of cannibalization there, seeing that the core models have been a little bit softer than you may have anticipated?

I don't think significantly. Obviously, the only other 4-door car that we have in our range was the Rapide, and that's now gone out of production. So if there was going to be cannibalization, it would be a car that we've already taken out of production.

Next question comes from the line of Phil Bagguley.

It's Phil Bagguley from Bank of America. Just on the Vantage point, I mean, how much of those increased volumes, do you think, is people trading down within your range?

I mean we don't necessarily see that. And one of the things we were always conscious to do with the new range was to differentiate it. One of the criticisms of the previous range was that it was very much Russian dolls. Difficult to tell a DB11 -- a DB9 rather from an old Vantage, difficult to tell the 2 of them from a Vanquish. The visual differentiation, the dynamic differentiation is quite different. I think, if anything, we see people going the other way, from a Vantage into DB11s, which is exactly the trend you would want, and certainly from DB11s up into DBS. So we don't see an awful lot of trading down. I mean those cars do very different things. The DB11 is a 2+2 GT. The Vanquish is an out-and-out 2-seater-only sports car. So you are targeting quite different markets there. So I don't think we see a lot of people trading down.

And source of sales for Vantage is mainly German manufacturers.

Is -- sorry?

Is mainly German manufacturers.

Okay. And then on the additional notes that you expect to draw in the next 4 weeks. I think previously, we've talked about the vast majority of that being senior secured compared to the existing notes. Is that still the -- still your expectation?

I mean, look, on those delayed draw notes, there are 2 conditions. One is if the leverage test allows it, they would be senior. If not, they would be on senior unsecured.

Yes. So I think previously, it's been -- your expectation has been that most of them would be senior secured?

I don't think we've commented on that. I think all we've said is that there are 2 options.

Any other questions?

Yes. We have 4 questions, and it comes from the line of Charles Coldicott.

The first one, I just wondered if you could comment on the cash demands of the business in Q1 and Q2 of 2020 and whether following the GBP 100 million debt option that you're going to use in the next 4 weeks, whether that provides you enough liquidity for -- to get through to the DBX or whether or not you'll need perhaps more liquidity in your view in the near future. And then my second question was just on Valkyrie orders. And could you just remind us if you've had any -- or how many orders have been canceled and whether or not that's changed at all in the last 6 months?

Just -- yes. Thanks, Charles. Look, in terms of our cash situation, obviously we're saying we expect to draw on those notes. That's in support of getting it into DBX and into later part of the year, of course. You'll also note that we've said we keep all financing options under review. And you'll note that we've said we are talking to strategic investors. So as you would expect for where we are in the cycle, all of those things are appropriate. Look, in terms of our preorders, the car is sold out. I think that's the clear message. We don't comment otherwise on the car, but it is sold out. It remains sold out.

Next question comes from the line of Philippe.

I think it's probably me, Philippe Houchois, Jefferies. Can you hear me?

Good morning, Philippe.

Yes, we can hear you.

Just trying to understand the mechanics of -- when you disclose the financing in September. You were talking about orders in production that would generate GBP 66 million of EBITDA. That's pretty much the number you're producing in the fourth quarter. I'm just trying to understand, you've delivered the Specials you expected. Can you indicate whether those Specials contributed the level of profit that you also anticipated?

Look, we haven't -- again, Philippe, today we're giving an update to the extent that we're able. So we haven't commented necessarily on those. What we have said is we did deliver all those as we planned to. And we've talked about the line items that were pressures that have pushed us into this level of EBITDA. And you're right to draw out the orders in production. It's just, I think, broadly in line. We were a little short of where perhaps we thought we would end up. But of course, it's come at a higher selling cost pressure. And also, we've continued to flow through some of the fixed marketing costs, which is what is contributing to today's statement and today's update.

Yes. Because -- if I continue on that line. Let's assume that you've delivered the profit you wanted on the Specials. It's a massive shortfall in gross margin for your core business. And I'm just trying to understand, when we look at DBX next year, if -- Aston Martin seems to be a 30%, 35% gross margin business before depreciation in your definition. Is DBX going to be a step-up to the gross margin? Or is it going to be about the same thing?

I mean, look, the things you know about DBX are where its price point sits, which is a little bit above DB11 as an average. And -- but you could also expect that given it's got a transfer box, 4 doors, a rear bench seat, it -- the bill of materials is also a little bit higher. We haven't specifically commented on gross margins for DBX, but those are some data points that might be useful in thinking about where that comes to.

Your next question comes from the line of [ Guy Müller ].

And sorry, I missed the start of the remarks. Maybe just to jump in straight away on your sales, obviously the 5,800 in units. Is that the new starting point we need to think about also when you extrapolate into 2020 and also 2021 and beyond? And that sort of comes a little bit along Henning's question. Obviously, you mentioned the Vantage was somewhat better than you thought. At the same time, we are getting to a later model cycle on the Vantage. We're getting to later part of the cycle on the DB11. And there's this offsetting item, obviously, of the DBX against it. But what should really be a big volume driver in next year in terms of wholesale volumes that you think? That's the first one. And then I think on the question also that Philippe just asked on the Specials. I'm just trying to a little bit understand how did this materialize between September and now. Was it really a matter that came together in November and December? Because I'm just struggling a little bit to understand how suddenly some of these extra marketing expenditures, et cetera, only materialized in the very last month of the quarter.

No. No, I understand. And we will talk through -- we can talk through that and give that -- give some explanation to that. In terms of the initial -- or in terms of doing the second piece rather, look, December was a massive, massive month. We had an unexpectedly high level of retails in the month, which led to additional costs in terms of dealer volume bonuses, other incentives we didn't expect. We continue to spend on -- given where DBX was heading into December, we took a view that continuing to expend on programmatic and visual and related marketing activities was the right thing to do. It had a cost associated with it. We continue to believe that driving, again, similar core campaigns into the U.S., particularly for Vantage, was the right thing to do. It had a cost associated. We pushed through the holiday season into late December to do that. And these were all things that sort of compounded up. They had decent outcomes, but they also came -- they came at a cost. So look, it was -- these were things that were developing right into the late weeks of December. We were taking decisions in real time, hence why we're updating now. Look, it's working day 3 of the new year, hence why we're giving you an update. So look, these are things that developed into the period. There were some cost misses that we saw as we came into December as well, particularly on things like some leasing of facilities that we were looking to negotiate to get out of didn't materialize. Obviously, you're pushing right to the end of the period to try and get out of those. They didn't come through. We had a few minor headcount misses on cost, but the bulk of that cost miss was into fixed marketing. Just on Vantage in next year, you're right. Of course, the product is a little older as it comes into next year. It is the right starting point to think about decay from, of course. But of course, don't forget that next year we have the Roadster as well, the Vantage Roadster, which launches in the spring, and that will give a fillip and a lift to volumes. And over the life cycle, we generally expect about 40% of volumes to come from that variant. So that supports us next year. We're not on the call today talking about other product actions for the core range. We will update you accordingly on those as we go through our 2020 planning and on into the end of February and on our annual report and accounts timetable.

Perfect. And maybe just a follow-up just for us to understand. You said, obviously, a big push in terms of product in December meant that you had bigger dealer incentives. When you do your financial planning, you -- obviously, the revenue line is really much dependent upon your wholesale volumes. But then the profitability really depends on how much the retail sales progress in terms of the profit contribution you're paying to dealer. I'm just trying to square it up versus if you plan to ship x units on wholesale, actually it sounds to me more that retail was actually better than you had planned, and that led to the cost miss.

Well, it depends what incentives you want put in place at a point in time to try and drive through a pull scenario. And bear in mind we haven't been in a pull scenario for a lot of the year. A lot of the year, we've been trying to manage a bit of destocking but not -- but we've been doing that by reducing wholesales rather than necessarily driving retails ahead of our expectation. There's a subtle dynamic in that. So look, coming into December, we took a view which we wouldn't normally necessarily take, which was to drive additional retail incentive programs into the dealer network, and that's what drove the cost. I don't think that's a normal thing to do. I think that's where you're managing through a particularly difficult period. You're trying to drive that pull scenario as hard as you can. You're still trying to drive a bit of destocking but without necessarily taking a big cut to wholesales. And I think we managed that reasonably well, but it's come at a cost. And the comments I made earlier about trying to make sure that we deal with as much of 2019's issues in 2019 have played into where we are today with these numbers.

And then maybe to follow up, basically does that mean because you also want to clear dealer inventory for the launch of the DBX, that you really want to incentivize dealers to shift their product right now to be able to take orders for the DBX? And can you just clarify on those DBX numbers you gave in the press release? How many of those are customer-initiated orders versus how many of these are orders for your dealers in terms of dealer stock and dealer inventory for showcasing the car?

So just to reiterate, there are 1,800 total orders, of which 1,200 are customer named, customer specified. The gap between 1,200 and 1,800 consists of 2 different types: one, where the customer has ordered but not yet spec-ed the car; and the second is dealers moving in line with dealer standards where they take a show car and a test drive car.

Okay. Would you say [indiscernible] alone, right?

So the answer to your question is, if you want to know absolute signed contracts with customer name, fully specified, the number is 1,200, but there are 1,800 cars ordered by the dealer.

Okay. And then maybe just to clarify, what is your capacity to ship in 2020?

Just in terms of -- we haven't -- as I said earlier, we've talked about where the factory is capable of producing at full run rate. We haven't talked necessarily about 2020. We'll update you accordingly. You asked another question about are we trying to clear the dealers out in order to make way for DBX. Well, I mean, that's not a -- the 2 are linked, but they're not linked. What we're trying to do with sports cars is make sure that we restore a situation where we have pull-through from retail, which drives a sensible level of wholesales and allows us to restore our luxury price positioning as quickly as we can. And so taking some of that pain in 2019 is the right thing to do, and we will be thoughtful about how we deal with the first part of 2020. And we said previously that we're planning prudently back in November for 2020. And that means we're trying to do the right things by the sports cars. We're certainly not trying to push sports cars out at all costs to make way for DBX. That's absolutely not what we're trying to do. Balancing demand and supply is the right thing, restoring pricing to where we rightfully should be is the right thing, and that's our focus.

Your next question comes from the line of Sanjay.

I think most of my questions have been answered. I just wanted to get my head around the numbers you've given. If I assume you spent GBP 50 million on CapEx in quarter 4, would that be fair to say that cash from operations was about GBP 15 million?

Sanjay, we haven't given details on CapEx. The only cash number we've given, as we've said, was GBP 107 million in the bank at the end of the year. And -- but all of those are the metrics we'll update on if we've got something which is -- we're required to talk about. And therefore, if we will have something on that, we'd be talking about today. But otherwise, in the normal course of the results process.

Okay. But of the GBP 150 million note you got, the money you got from that in October, you -- now like you paid off GBP 90 million of RCF? Will that be right?

It wasn't quite that number, but we paid down short-term borrowings, yes.

Okay. So what's the facility now? What's -- how much you can get from -- what's your sort of -- well, how much more cash you can raise from your banks?

So look, what we've said today is that the remaining GBP 100 million of delayed draw notes, we expect to draw...

In the next 4 weeks?

In the next 4 weeks, yes.

But you're not saying anything about your bank facilities. Is that what you're saying to me, that you can't tell us today what your bank facility is?

No, we're just not talking about it today. We -- look, we said at the start that obviously we're in a closed period, and we're updating on our obligations. We're trying to be fulsome in that. But we're not getting into a general discussion around the more sort of detailed parts. We would expect to talk about it during the annual reports and accounts period. And we [indiscernible]...

But surely, this is public knowledge. I mean your bank -- you must have a facility with your bank. Not -- you can't say this is -- I mean, it's either there or it's not there. I don't see how that you can't tell us about it. I just don't understand that. Anyway, I'm not going to press on that.

There are no further questions at this time. Please continue, sir.

Okay. If there are no further questions. I'd like to thank you for the questions that we have had, and we will update you on full results when we report on the 27th of February. Thank you very much. Operator, if you could close the meeting. Thank you.

That does conclude our conference today. Thank you all for participating. You may all disconnect. And speaker, please stand by.