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

Good day, and thank you for standing by. Welcome to the Aston Martin Lagonda results call with CEO, Tobias Moers; and CFO, Ken Gregor. I would now like to hand the conference over to your first speaker today, Tobias Moers. Please go ahead.

Thanks very much. And hello, everyone, and welcome to Aston Martin's First Half 2021 Results Q&A. I'm Tobias Moers, CEO, and I'm joined by Ken Gregor, CFO. I hope you have had the chance to see our H1 2021 results accompanied by our video. And in summary, I'm really pleased with the good progress we have made and that we have delivered results in line with our plans. Both revenues and wholesales trebled in the half compared to last year, and we reached a double-digit EBITDA margin at 10%. In the statement, you can see some notable milestones we've achieved. I'm particularly pleased with the healthy demand we are seeing for our products and the strong pricing dynamics we are achieving. This is for sure a result of operating as a luxury company with the right supply to demand balance, which we achieved in quarter 1, and that's earlier than we had originally expected. As well, we have made excellent progress on Project Horizon. All of these actions are aimed at transforming Aston Martin into a world-class as well performance-oriented, ultra-luxury automaker, and we are right on track with that. With that, we're happy to take your questions, and thanks very much for joining us.

[Operator Instructions] And your first question today comes from the line of Charles Coldicott of Redburn.

I have 2, please. So the first, as you mentioned there, the average selling price for your core models has gone up a lot. It's pretty much the highest it's ever been. And obviously, there's a few moving parts in there, including the regional mix, the higher option take rates, I guess, the DBX and clearly lower dealer incentives as well. So can you sort of give us an idea of what's really driving the higher ASP for your core models? And how much of it is sustainable? And then my second question was going to be on electrification. So Mercedes revealed that it is developing a new dedicated electric platform for its sports cars last week called AMG.EA. Can you just confirm whether your agreement with them, which I think extends to 2027, includes access to that platform? And if so, when we should expect the first product on it?

Maybe I'll take the ASP question first. Charles, you're right that the strong ASP and the ASP for the core vehicles does reflect the factors that you mentioned. We've got DBX. We have -- but the biggest driver of the year-on-year improvement is the significantly lower customer and retail financing support that we have been pursuing as a strategy for Aston Martin with some success this year. And although it's always -- the core ASP is always going to ebb and flow by quarter because of regional and seasonal mix, we do expect it to continue strongly through the second half of the year.

That's it? Okay. The thing is with the ASP, and I think it pays off that we cleared the stock for the sports cars. This is one -- I think that was the most important topic to achieve these or that level of fees. Coming to your second question with the electrification. I saw what Mercedes announced, AMG.EA. Yes. I always told everybody they have more than one platform in place for the future because I know that. It's a bit too early to talk in detail about that, but expect something. So we're going to team up with Mercedes because it was always part of our technology transfer agreement. And for sure, we're in discussion and what we can achieve. And so now everybody has an understanding what is possible, but I don't want to talk too much into detail at the moment.

Your next question today comes from the line of Henning Cosman of HSBC.

My first question is on the Nebula effect. My understanding is that you said in -- for 2022, you said in the press release, you can manage that within current expectations. And my understanding was that, that was in reference to the about GBP 250 million EBITDA consensus at the time. So I'm wondering if you can share a little bit more color on that. So what would it have been without the Nebula effect? And ultimately, what I'm getting at is that you're suggesting it's a net positive over time. So I'm wondering when the GBP 15 million from this year and also the additional effect in 2022, where is the inflection point? And how much comes on top of your original expectation then reversing the negative effects that you're seeing over the next couple of years? That's my first question, please. Then the second question is on the mix between GT Sports and DBX. It's good to see that DBX is now more than half of the volume. If I recall correctly, the wait list for DBX were a little bit shorter at the Q1 stage than they were for GT and sports. So I was wondering if you could just update us on that. Is that still the case? And I understand with your suggestion that DBX will remain more than 50% of the mix, can I just ask if you're deliberately producing more DBXs and deliberately managing so that the wait lists for DBX are shorter? And can you just discuss the rationale of that again a little bit?

Well, maybe I'll take the Nebula project point. At this point in time, there is no update on that, that we can give you. The financial effect I expect for 2021 remains as we disclosed and including that we did take the GBP 5 million provision for doubtful debts in the first half of the year in these results. And for 2022, it remains the case that the negative financial effect is containable within the guidance. And I don't have anything to add to that. That just remains the case. The Nebula contract that we had was a multiyear contract. So it's beyond that point for several years, that the balance of it being net positive over time takes place. But right now, because the matter is subject to action in the courts on a number of different fronts, we really can't say any more about that at this time.

Regarding DBX and sports cars. Order intake for both car lines is in line with our expectations and order book all reach out into quarter 4. Both car lines very important for us. And first time, probably, I don't know, I don't know anything about the history, but retail was stronger than wholesale for us in the first half. That's very good and that's part of that ASP situation, and this is the strategy for the future. I mean we keep going with that. Expect DBX and sports cars is kind of a 50-50 mix this year. Then we will bring it out of our ring. We increased the portfolio of DBX for next year. Too early to talk about next year numbers, but yes, DBX is going to see some expansion in the portfolio for 2022.

Okay. And just 2 clarifications, if I may. So you -- on Charles' question from earlier, you expect the core ASP to remain relatively stable in H2. Did I understand that correctly?

Yes.

Yes. Look, it always, as I was hinting at, if you like, it ebbs and flows by quarter because of regional mix, seasonal mix. But broadly, it's in a zone where it's in a strong zone, and we expect it to continue in that region into the second half, driven by similar factors, driven by the fact that we continue to maintain the strategy of balancing supply with demand in order that -- including in order that we can keep the level of customer and retail financing incentives low.

Yes. Understood. And sorry, just to also clarify on Charles' second question, I just don't want to go away and feel less certain about your Mercedes agreement. My understanding was that the agreement is such that it would include state-of-the-art technology from Mercedes, whatever it is over the length of the contract. So now I understand that there's additional conversations to be had, whether it does include AMG.EA or not. Or is that a wrong interpretation? Is it fair to go away and say, well, whatever is state-of-the-art for Mercedes, you're going to have access to that?

You probably know my roots, okay? So I think I always put a bit in the direction, there are more than one variant and one platform to come. And yes, we own our part, but I cannot disclose too much at the moment. It's not possible. But we're going to have access to the right technology for [ demand ]. Take it that way.

We take our next question, which comes from the line of George Galliers of Goldman Sachs.

So the first question I had was just on the volume guidance. Obviously, you're seeing a very nice sequential development in terms of your volumes. And as you mentioned, the retail is outpacing the wholesale. With that in mind, would you be prepared to go materially above the 6,000 wholesales that you're targeting through this year if the retail demand is there? Or are you planning to keep that as a cap and happy to see the waitlist build as the retail demand comes in? And the second question I had was just on the Valhalla deposits. Obviously, you unveiled the Valhalla. It looks extremely exciting prospect. Could you just give us some insight into what deposits were taken historically on the Valhalla and when do you plan to start taking deposits on the product now that you've unveiled there? Then finally, a question just on the EU proposals around CO2. Obviously, they're proposing an end to the small vehicle manufacturer exemption from 2030 as well as 0 emissions from the tail pipe in 2035. Do you see that as having a major impact on your strategic planning over the next decade? Or is that something that won't have a big impact over the next 5 to 7 years, but it's something you'll have to take into consideration with, I guess, the next generation of planning?

Let me take the first question. Yes. Is the 6,000 a dogma? No, it's not. If retail demand picks up, we have some expectation for retail demand for the future, and you saw our projection of the 10,000 cars. We are always able to improve or increase our performance on the manufacturing side. So we are really flexible now. That was part of Project Horizon bring us on a very flexible and agile situation in the manufacturing, and we are now there. So that's the -- we really like to have a certain order book. We like that because if -- in luxuries business, it's always -- retail should be minimum the same level now with the stock clearance of sports cars. It was clear that retail is going to be overachieving the wholesale. But yes, we are flexible with our numbers. Valhalla is -- we have a certain level of down payments, what the company did from 2019 ongoing. With unveiling the new Valhalla, we see really an overwhelming response of everybody who placed the deposit. We are starting to sell the car now, the new Valhalla. And we just had yesterday a few customers here in Gaydon. And yes, it's a good journey. And everybody was positive -- more than positive, surprised about what we unveiled as the new Valhalla, regarding the performance level of the car, that it's going to be a hybrid, a plug-in hybrid. We're going to take it to Pebble Beach in 2 weeks, 3 weeks. And it is so kind of really good as a response that we decided to build a second show car. I think that speaks for itself. And the third question was, if you do a strategy for a company, and this is what we did, and you don't consider that turn into the electric drive future, you did the wrong strategy. So our strategy is not infected by that or compromised by that. There is no need for adjustment of our strategy.

And your next question today comes from the line of Akshat Kacker of JPMorgan.

Akshat from JPMorgan. Two from my side, please. The first one on DBX and China. Are you generally happy with the sales momentum that you're seeing in the region for the SUV? And how are you doing versus competitors like Lamborghini, Bentley and Rolls-Royce in China specifically, please? And also how the customer feedback and response to the new derivative going into production in Q3, how has that been so far? And that's the first one. The second one is kind of a follow-up on the deposits balance. Deposits were up GBP 7 million in the first half of '21. How do you expect this to trend by year-end and into 2022 as you deliver the Valkyrie and the AMR Pro, please?

Maybe I'll take the second question first. On the overall deposit balance, our intent, our target, our plan is to more or less maintain that deposit balance through time. Yes, we'll see some unwind relating to Valkyrie deliveries in fourth quarter of this year and in relation to Valkyrie deliveries next year. But at the same time, as Tobias was just saying, we've just launched the new Valhalla, and we have other plans not yet announced yet that will give us a pipeline of plans for our specials going into the future. So our target is more or less to maintain that deposit balance over the next year or 2, although it will always ebb and flow. But we're clear about what our intent is.

China, DBX in line with expectation. So we're doing good. So you see different patterns in the different regions, but DBX is for us at the moment in line with the expectation. And honestly, we didn't unveiled the derivative, what we're going to bring into quarter 4, finally to customers. So that's too early to talk about.

Your next question today comes from the line of Ross Schneider (sic) [ Horst Schneider ] of Bank of America.

I just have got a few follow-up questions. I want to get back again on this pricing issue because also in your presentation, we just see the year-on-year impact. So I mean, obviously, it has been quarter-on-quarter also not been bad. But in terms of just earnings contribution and the price impact, it seems to me that the price impact on earnings sequentially was rather limited. Would you agree to that so that we have kind of a stable price in Q1 versus Q2? Or you would disagree to that? The second question that I had that related again to your comment in your release that you have got a good visibility on GT Sport and DBX. So maybe you can provide more details again on the waiting times for the various models. It seems to me that the GT line is selling a little bit worse in sports. So I just want to know if that impression is right. And the last one that is, again, coming back to EU Fit for 55 because it says basically there will be an ICE car ban as of 2035. Does that imply also for you that you plan not to sell any ICE car anymore in Europe in 2035? Or are there any extensions that I'm not aware of?

Maybe I'll start with going back to the ASP point. Sequentially, quarters, yes, Q2 was similar to Q1. It varies a little bit because of mix and seasonal factors. And going into Q3, Q4, I would expect it to continue to vary a little bit in the range it's in because of mix and seasonal factors. And therefore, yes, when you look year-on-year, the biggest improvement is in -- is kind of Q1 of last year to Q1 of this year and then sequentially over time, the improvement year-on-year looks different. But overall, we're happy with the development of the ASP and the strong position it's in. Sorry, what was the next question? I think we see it flow through to profitability for sure. I mean the EBITDA performance of the business in the first half of the year being substantially GBP 130 million higher than the EBITDA of the first half of last year, and there's a number of contributing factors to that. GBP 25 million of that improvement was driven by the lower variable marketing or incentive support. So that's very clear that -- and you see the benefit in our numbers.

Coming to the question about the ICE ban in Europe. Probably I'd follow what other [ leaders told ] kind of we have to face the reality. And I think it's on the final decision done regarding small manufacturers. But anyway, we established kind of -- we established a strategy for the company, and we're clear that we have to move to electric-driven future, and that is part of our strategy. So is that worldwide the case that we don't have any ICE anymore? I don't know at the moment, like everybody else. So whether it's reasonable, doable or whether it's doable regarding the region, and the region has a clear understanding about ICE, no ICE, for sure, we're going to be electric. And if there are some regions that it's a challenge for everybody to get a grid up and running for fully electric drive everywhere. So yes, it's a journey, and we are on the journey as well, but it's part of our strategy. And come back to my initial point, what we put -- when we pushed out the strategy in 2030, we have a portfolio for electric drive and the next-generation sports car. And I'm talking about the current generation and the success -- the next generation after the current generation that's going to be fully electric. That's given, and that's part of our journey.

And the 50% penetration target that you have got for 2030, that is a global target, right? What would that imply in terms of penetration target for Europe specifically? Is it something in the range of 75% or...

I don't know. I don't know. I don't know. If it's worldwide more than 50%, we are able to do that. But that's kind of rough numbers. I saw what Mercedes pushed out, that they're going to be fully electric by 2030. Depends on the region was to add to that sentence, if you have a closer look on it. I don't know. The next-generation sports car is supposed to be fully electric. And we're going to -- and this means that 100% of the sports cars then is fully electric. Do we still sell some hybrid DBX? Probably yes. All right? But the good side of the story in the luxurious business, you don't see in the business and the segment where we are in, you don't see -- and this is what I see in our strategy, you don't see the impact on the margin like on small cars. This is what you -- in the forecast. You don't see that.

All right. Just a follow-up on the first question that I had regarding waiting times. I think you have not commented on that yet.

Sorry, I just forgot that. We ended Q4 with both car lines and honestly, sports cars are doing better than everybody from what sold last year. So we're really pleased about order intake for sports cars, having new derivatives in the sports cars like Vantage Formula One edition. That's really -- that's selling really well. And the good thing of that variant is we see new customers coming to the brand, younger customers. So that -- so it happened at the moment something with the brand, having Formula One in place, bringing a very sporty variant out of -- or derivative out of the Vantage. I just had visits on 2 dealerships last week, and everybody told me it's unbelievable. We see new customers coming into dealership. Traffic is increasing in the dealerships. That's -- it pays off that we change our portfolio.

Your next question today comes from the line of Stephanie Vincent of JPMorgan.

Just a few, if I may, just on liquidity and cash flow. Can you talk about, in terms of deposits, how much of your current liabilities or trade payables are related to those as of the 30th of June? Also, given the DBX and the rising amount of sales in China, can you verify that the cash, I guess, that's available to you? You talked about quite a small amount that's unavailable, but is there any cash outside of HQ that we need to be aware of? And then finally, I think in prior bond documentation, you did speak about potentially trimming some of your real estate outside of your core manufacturing facilities. Is there any intent to do this over 2021 or 2022, especially given COVID and some of the trimming of real estate that we've seen for other businesses? That would be helpful.

Thanks, Stephanie. On the deposits, at the end of the half, they were circa GBP 270 million, similar level to at the end of the 2020. And as I said earlier, our intent is to continue to raise new deposits relating to Valhalla and other specials we have in the pipeline in order to sustain that balance. That's our target, and we're very clear on that. In terms of cash. Yes, the vast majority of our cash is in the U.K. and available to us from that point of view. There's some cash that's in China, some which is kind of in the region of -- I want to say, in the region of GBP 30 million, GBP 40 million in China, which is available to us in China. And we take steps over time in the normal way to repatriate that cash back to the U.K. via dividends as and when we can. So that's normal. And your last question was...

Site strategy.

Site strategy. I mean we're kind of mostly done on the site strategy and exiting these buildings that we had in various places in the U.K. So probably the bigger parts of that are done for now.

Yes, it's almost done. Site consolidation has been done, so all the sports cars are now in Gaydon in the main factory. The Specials are here in the main factory, so there is no shadow organization anymore in place. [ Sanderson ] is on a journey, and that's going to start after the summer break. We align consolidation to fit everything in a different -- much more efficient way how we're going to assemble the DBX. Yes, there's still a few opportunities, but the majority is done. So within almost 9 months, and that's what the company can really be proud about. So yes. But efficiencies is not -- never going to stop. For sure not.

Your next question today comes from the line of Christoph Laskawi of Deutsche Bank.

It's really follow-ups only on the DBX. You commented on the regional performance, and it's pretty strong in Asia and China and the U.S. The question will be how actively are you steering those sales currently? Are you actively moving the units into those regions and -- at the detriment of the European demand? Or is it essentially reflecting the order intake? And then the second question would be a bit on the order intake of the DBX. Are you currently limiting orders for the base model in order to keep the excitement up for the new variant that is coming up? Or are you accepting all orders that are coming in the store for base even though you're launching the new one soon?

Orders of the DBX, we take every order we can get, honestly. So we take every order from retail side, which means the customer is behind. If you bring a new variant, you're always careful and you monitor your stock properly and you phase it a bit down and -- or you move it a bit down and increase your dealer stock on the new variant. Depends on the region, depends on the variant. But that's a normal business in automotive. And the alignment of our production, it's on a total difference. So we are on a much more agile and flexible way how we align our production capabilities to the regional demand. So -- and this is -- everything is retail-driven and stock-driven. So that's -- the company is doing a total different job how to align production line loading to the demand in the region. But this is just another result of our move to being a luxurious automaker and align production and stock and retail. So retail is -- we retailed more cars in the first half than we wholesale. I think that stands for itself.

And just a follow-up to Stephanie's question. Stephanie, Page 21 of the stat accounts that we released here, Note 2 gives a little bit of detail to the cash that's in China and also the arrangement we have in China that enables us to deposit cash in China and utilize that cash in the U.K. to maintain the liquidity available to us. Happy to talk through technicalities of that one-on-one if needs be.

Your next question today comes from Charles Coldicott of Redburn.

I just had a couple of follow-ups. On the Valhalla, I think you've been quoted as saying that instead of the previously discussed price tag of GBP 1 million, it's going to be significantly less than that, but that you're potentially going to do around 1,000 units over 2 years instead of the 500 limit that was previously discussed. Can you just confirm that those numbers are how we should be thinking about the Valhalla and maybe just discuss what's led you to increase production like that? And then my other question, I just wanted to ask on the raised guidance for the D&A. Can you just explain that a little bit more, what's the program timing related to?

Yes. Let me take the depreciation and amortization point first. We've been working, as you know, internally on plans for our refresh -- refreshes of our sports car models. And as we develop those plans, we're obviously working very hard to launch them as soon as possible and also to address as many of the -- make them a very substantial refresh and technological updates, infotainment update, electrical architecture update and really address all of the customer features and attributes that we want to deliver that supports the promise of the Aston Martin brand. And in doing so, there are some elements of technology which maybe previously might have been assumed to run a bit longer that we're taking a conscious decision to change in order to make the refresh as substantial as possible. And that's resulted in some depreciation and amortization needing to run a bit faster than it was previously assumed.

Should I take the Valhalla question? Since I joined the business, I had a complete review about Valhalla, what we're going to do with Valhalla, where are we going to move Valhalla, what is our understanding about the definition of a supercar? And basically a target for us, what we try to achieve when it comes to EBITDA, EBIT contribution margin with product and every lineup. And everything is now to follow that KPI set. And Valhalla went to realignment. And I can confirm the -- you got the point. We talk about -- openly, we talked about EUR 675,000 for the car without tax. It is a limited production run for 2 years, '24 and '25. So we're going to have the first deliveries by end of fourth quarter of '23. It's a very simple answer. It's a very, very robust business case for us. And this was the reason to move the car in that ballpark. And it is hypercar performance for super sports car pricing and that what we get as a demand and a review and feedback from our potential customers as well new customers coming to the brand regarding the technical KPIs and details of their car is really amazing. And that was the reason for bringing the car there. And as I mentioned in my previous discussions, I think we have to find our own path and our own pattern, own footprint when it comes to the new Aston Martin with the Specials. And Valhalla is one new interpretation of a sweet spot for a Special.

And your next question today comes from the line of Thomas Besson of Kepler Cheuvreux.

It's Thomas Besson, Kepler Cheuvreux. I have 3 questions, please. Firstly, I'd like you to discuss a little bit, if you don't mind, about the ability to differentiate electrified or electric cars for ultra-luxury brands versus new brands. Do you believe that it's going to be as easy to differentiate your vehicles when it comes to EV when it was ICE vehicles? That's the first question. The second, you mentioned in your prepared speech the video we were able to watch this morning before this call, several management changes. Can you just give us an update on where you stand in terms of reshuffling your management team? Is it done? Or should we expect more? I think that since the IPO, there has been multiple changes, notably on the sales front. People responsible for your -- the distribution of your products. Can you say a few words about that as well? And finally, I'd like to come back to the comments you've made about orders. I'm not sure I understood. Did you say that for both sports cars and SUV orders run into Q4? Or did I understand incorrectly?

Last question first. Order intake, order bank is into Q4, not just at Q4. It's into Q4 for both. Leadership team dev, yes, we made many changes, honestly. And I still believe in strong leaderships. And I think we form at the moment one of the most strongest leadership teams in the automotive business in U.K. That's what I think what we do. And we are not through that journey. There's still more to come. But I cannot talk in detail about that, honestly. But yes, we changed direction and on manufacturing side. There, we appointed a new head of quality. We appointed a new head of technical aftersales. The orchestration of the sales is in a new hand now. [ Markham ], we hired somebody new. We get always good, good persons, people with a great reputation in the industry, with other brands as well. Very diverse leadership and that's really good, but very strong. Then coming to the question regarding ICE and EV. I'm not concerned about a journey into EV because it's -- when it comes to an EV, I think it's more about the brand than it is even currently. So the brand is the major differentiator when it comes to the EVs because 0 to 100, 0 to 60, that's really very democratic in the future for everybody. So everybody can achieve a 3.5-second acceleration from 0 to 100. So the brands plays the major role. And therefore, we started to prepare ourselves to do so. When it come -- and brand is linked with customer experience. And this is one of our most important topics regarding how Aston Martin provides an excellent, outstanding, luxury-oriented, ultra luxury-oriented brand experience and customer experience. There was one point, for example, to decide that we're not going to use Mercedes nav system and Mercedes connected car systems for the future anymore. So we built our own ecosystem when it comes to the connected car, and they're going to -- it's about to start with the facelift of the sports cars. So that's very, very important. And we can always talk about the emotion when you don't have any ICE anymore in a car, but we have a lot of ideas to overcome that.

That does conclude the Q&A session for today. Back to Tobias for closing remarks now.

Thanks from our side for joining us this morning or the afternoon, whatever time you are. Happy to take your questions, and I'm looking forward and please stay tuned on our journey. Thanks very much. It was a great experience with you. Thanks.

That does conclude our results call for today. Thank you all for participating.