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

Hello, and welcome to the Aston Martin Lagonda H1 2023 Results Q&A Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lawrence Stroll, Executive Chairman, Aston Martin Lagonda. Please go ahead.

Good morning, and thank you for joining us for this Q&A of our first half results for 2023. I hope you have had the chance to read the release and also listen to the presentation of the results from Amedeo and Doug that are on our -- the IR section of our corporate website. Before we take your questions, I'd like to share my perspective on the progress we have continued to make in our vision to become the world's most desirable ultra-luxury British performance brand and why I am so confident in our future. Since I became Executive Chairman, we have 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 5 to 7 years. I'm very pleased to say that we have completed this turnaround in a little over 3. With the heavy lifting largely behind us, we can now look forward to the future with confidence to deliver on our vision and to the potential of Aston Martin that I have always believed in. As we demonstrated at our recent Capital Markets Day, the pace of strategic delivery is accelerating across the company as we are now positioned to grow and share a brand and shareholder value. Not only are we on track to deliver on the midterm financial targets I set back in 2020, but we also set new and ambitious midterm targets that will see us quadruple our EBITDA from the levels we achieved just last year. 2023 had seen us begin to see the fruits of all the hard work that has been done by the team. In May, we launched the first of our next generation of sports cars, the DB12 Super Tourer, which marked the beginning of a completely new lineup of front-engine sports cars that will reposition us as a ultra-luxury, high-performance brand and very importantly, with higher levels of profitability. We have seen a fantastic initial response from customers and the media, highlighting the significant improvement in performance and vehicle dynamics as well as the transformation of the interior and our new bespoke infotainment system. This has translated into incredible early demand, and we are now sold out for the rest of the year with orders already building into 2024. We will also launch new sports car models over the next several quarters, which will all deliver similar step changes in performance and luxury as well as improved profitability. High-margin specials are an important part of our strategy. And to celebrate our 110th year anniversary, we recently unveiled a spectacular ultra-exclusive V12 engine manual transmission special edition model, which is named the Valour. The Valour is celebrating our passion for driving and rich heritage of incredible front-engine sports cars. Inspired by the iconic muscle cars of the past, the Valour combines the very latest technology, methods and materials with a timeless analog experience. We have seen unprecedented demand. And within 2 weeks, all 110 models have been sold with a growing waiting list. It is a great source of pride for me to see how the Aston Martin Aramco Cognizant Formula One team has become a front contender this season, consistently challenging for podium finishes at the pinnacle of motorsport. As I have said in the past, our relationship with Formula One is truly transformational. In addition to having a halo effect on the whole brand, it provides us with tremendous access to entirely new generation of Aston Martin customers all over the world. More than 70% of Vantage F1 edition owners have never previously bought an Aston Martin, while more than 20% of our customers that we hosted in our private club purchased a new car just last year. This demonstrates the enormous sales potential of this rapidly growing global platform. We are also continuing to invest in our brand and go-to-market strategy. We recently opened Q New York, our first ultra-luxury flagship in the heart of New York City, which will provide the most sophisticated luxury specification experience available anywhere in the world. We will also see bringing flagship stores like this to selected locations around the world, including London and key cities in Asia, Europe and North America. At the end of June, we updated our EV strategy to support the creation of the industry's leading ultra-luxury, high-performance electric vehicles, and our target is to be launching our first BEV in 2025. This included a new strategic supply agreement with Lucid along with an amendment to our strategic cooperation agreement with Mercedes-Benz, all underpinned by our modular BEV platform that will be utilized across our future electrified product portfolio, all the way from hypercars to sports cars to SUVs. The agreements will normally allow us to leverage the significant investments Lucid and Mercedes-Benz have made, but through the work of our teams are already developing, we will further differentiate what it means to drive an Aston Martin, providing unique and thrilling performance levels, combined with our intense driving experience we know that our customers love and expect. Ahead of this, we will start our electrification journey with our first BEV model, the Valhalla, followed by an extended BEV rates in our core vehicles. We will bridge the customer's journey from ICE to full BEV through our plug-in hybrid BEVs. Briefly turning to our H1 performance, which was ahead of expectations. We continue to see strong demand across the portfolios with retails outpacing wholesales in the first half of the year, aligned with our strategy. Our current range of sports cars are sold out ahead of new launches, and we saw heightened retail demand for DBX707. And finally, we have reaffirmed our outlook for the year and are substantially on track to achieve our '24/'25 financial targets in '24, and with continued good momentum are likely to exceed them in 2025. Over the last 3 years, we have demonstrated that this business is no longer only about volume growth. It's about increasing value per vehicle, aligned with the characteristics of a true luxury company. This will drive revenues, margins and cash flow and ultimately, shareholder value. And with that, we are now happy to take your questions.

[Operator Instructions] Your first question comes from Jose Asumendi of JPMorgan.

Jose from JPMorgan. 2 questions, please. Can you comment a little bit more around the gross margin trajectory you're looking forward to deliver on a quarterly basis and into 2024. And what are the key levers to improve the gross margin from the current levels? And then second, when I look at your -- the pipeline of specials is running at a very healthy and elevated level. Do you think that as we think of -- as we go into 2024, you can also increase the overall level of special vehicles on a 12-month basis? And how can this contribute also to your profitability targets in the medium term?

Hi, Jose. It's Doug. So on the gross margin, look, I think we also talked about this at the Capital Markets Day. So I think we expect to continue to see gross margin improving, particularly at the end of this year, as we bring the ramp-up of the DB12. And obviously, we expect the gross margin from that vehicle to be particularly accretive. And then as we launch the various range of the next-generation sports cars, they all target that 40% plus margins. So as they come to market and as they bed in and as the order bank grows, then we expect the margin to sequentially improve. So I think we said a few weeks ago that we expect to hit 40% in 2024 and then positively move forward from there. So that's the expectation. I think so far this year, we know we're in transition with the sports car range. But as the new cars come to the market, that gross margin should certainly continue to move forward. And linked to your second question, obviously, specials will be of great assistance to the gross margin profile as well. So we've got a various range of specials coming to the market. At the end of this year, we'll launch the DBR22 and the Valour, all with very high margins, which will continue to be accretive. And I think going forward, and I think Lawrence talked about the pipeline a little bit on specials in the plans. But obviously, that underpins the margin improvement as we move forward into the midterm.

I think just to carry on from what Doug just mentioned, we have a long-standing history of these specials. And since taking over the business, I have accelerated that history. And as you see this year, with Valour, with DBR22, we will continue on a similar trajectory to have those levels of specials each year.

Your next question comes from Daniel Roeska at Bernstein Research.

Two maybe longer-term strategic questions. One, could you talk about the seasonality in the second half, which is kind of in Q4 very strong. But then also longer term, if you're thinking about flattening out the seasonality throughout the year, kind of how are you going to do that? What's the time scale? What measures are you putting in place kind of if you think about the next 2, 3 years and a more evenly spread volume throughout the year? And then secondly, maybe competitors are using tactical production sequencing quite successfully to manage quarterly results by moving specials between quarters and kind of deciding what to do when as the order book builds. Now as you are building your order book to a longer lead time, how are you thinking about that opportunity? And again, what's the time frame for you to get into that? So it's around kind of the strategic thinking behind the sequencing of volumes throughout the year and kind of how you think about that going forward as you achieve your mid-decade ambitions?

Daniel, it's Doug. So yes, on the first question with regard to seasonality, I think if I look at this year and last year. So we talked about this previously, and I know you and I had a conversation about getting some getting some flattening of the profile. But last year, it was very Q4 heavy sort of by accident because of the challenges that we experienced in the supply chain that were well documented as we moved through last year. This year, given the transition, is kind of more of a shape that we knew was coming from the plan and that we've tried to be helpful with our guidance of that for you in terms of what to expect for the first year and now a little bit on the shape of what we expect to see in the second half of the year. Over the course of the next, let's say, 9 months, we're still going to be in transition. But I will -- I would really like to see us start to flatten the profile and certainly start to see an end of Q4 being the sort of end of the hockey stick. So this year is all about executing the plan. So far, we've done that. We need to repeat that in the second half of the year. And then we know what we need to do, and that's been the case. Next year, hopefully, we can start to flatten the profile to a certain extent. But then as we get into what we expect to see from an order book profile point of view as the new cars are launched into the markets, as we continue to attract demand, I'd like to think that we can get a little bit more steady profile into our quarters as we move forward into the midterm. Lawrence, do you want to take the second one?

Yes. The second question, our life kind of restarted with the launch of DB12 as far as the sports car side of the business goes. It was always intended that we would have the high ramp-up in the fourth quarter as we knew when we were launching DB12 in May, we knew when we were starting production. So it comes planned. There's no surprise, let me put it that way. With the following 2 cars that are going to follow with total of 6 models between Coupe and Vantage, we are launching basically a whole new portfolio over the next 18 months. As far as the order book goes based on the amount of production we're capable of and based on our strategy to only align demand with supply, realistically, as I mentioned, we're already sold out on DB12 today for this year. And I'm quite confident that getting closer to the end of the year, even third quarter we'll be sold out on DB12 for next year. So long-winded way of answering your question. I think as we launch each new model, for the first few years of their lives, you could expect the 1-year wait-list.

Your next question comes from George Galliers at Goldman Sachs.

3 questions from me, if I may. The first one is just on the DB12 order book and the mix. Could you just comment on how the mix compares to your expectations? And as we think about options as a percentage of base retail price, where is the DB12 trending versus what you historically saw in the DB11? The second question was on the Valour. I understand this car is now sold out. Can you give us some indication of what percentage of the customers are existing Aston Martin customers versus what percentage are new customers to Aston Martin that meets your eligibility criteria for this car? And finally, retail outpaced wholesale in 1H. How do you feel about inventory? And would you consider running longer wait-lists in the future? Are there any major disadvantages to this?

George, it's Lawrence. As far as options on DB12, they are significantly, significantly would mean at least more than 50% higher than we ever experienced certainly with DB11, and it's probably even a much higher number now, I believe I'm being conservative. So -- but since really I came in and since we're aligning sales to demand and manufacturing cars to order, we're seeing options being much higher historically than they've ever been by a significant, significant amount. Options even go significantly higher than that when we get to things like specials, we're seeing people put huge numbers on each car. So again, with the opening of the New York showroom for personalization, with the Capital Markets Day you saw here where we've devoted now 2 special rooms for personalization, it's clearly a key component of us growing our AR profitability and be our true standing as a true luxury brand. So it's something the company is very, very focused on. As far as the Valour customer profile, we've had both a lot of existing Aston Martin customers, which you know we have a legacy and a great history and loyalty from Aston Martin customers. We also saw a lot of customers from Ferrari and Bugatti, particularly at Goodwood last week and the weekend before. So a nice equal balance of new and loyal customers. And the third question, which was retails are ahead of wholesale. As I mentioned earlier, we will, as we launch each new car, continue in that process. We're only able to build so many and with the -- which we demonstrated to be sold out with 7-year-old product until the launch of DB12, you can imagine what we expect the wait-list to be with the launch of D12, which as I mentioned sold out for this year. I think in the third quarter, we'll be able to mention sold out for all of '24. So with each launch, new replacement for Vantage, replacement for DBX, DBS, we expect to see order books of at least 12 months.

Your next question comes from Anthony Dick at ODDO BHF.