Thank you for standing by, and welcome to the Aston Martin Half-Year 2020 results. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, you will need to press star one on your telephone. I must advise you that this conference is being recorded today. I would now like to hand the conference over to your speaker today, Lawrence Stroll, Executive Chair. Please go ahead.
To our Aston Martin half-year results, you have myself, you have Ken Gregor, and you have Marek Reichman, and we're all here. Questions you may have.
Thank you. As a reminder, if you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. If you wish to cancel that request, please press the hash key. Your first question comes from the line of George Galliot of Goldman Sachs. Please go ahead.
Good morning, and thank you for taking my question. The first question, Mr. Stroll, is just around strategy. It looks like you're aiming to achieve a very healthy balance between supply and demand. You're looking to build a global marketing and franchise effort through Formula One. As a result, this strategy does sound very similar to that of Ferrari. Is it too simplistic to say that you are using Ferrari as a template for the business model for Aston Martin going forward? Are there other areas where you see Aston Martin operating outside of the auto business where potentially Ferrari does not compete today?
Brand, and I believe that they have done the correct model for a luxury automotive firm. We're modeling ourself after Ferrari. We're modeling ourself on our own business model. We're auto critical, and it's, you know, if you look at the history of Aston Martin in 2018, 2017, there were roughly 4,000 front-engine sports cars through consumer demand. Spending a lot of emphasis on our SUV program, which, which, do intend to have a very strong mid-engine program and market it off Formula One. That is a formula that works to build a true automotive luxury firm. Have our own goals and our own targets.
Okay. Thank you. As a second question, if I may. You mentioned the critical acclaim for the DBX. Obviously, the Vantage launch was before your involvement in the company, but it too did receive critical acclaim with four out of five stars, four and a half stars out of five in most motoring magazines and being described as a spectacular achievement. Do you have a view on why that model did not achieve its targeted volumes that the DBX will? Was it simply the targets were too high from the beginning, or do you think there were other issues around the brand and product awareness that held the Vantage back?
Reichman was involved in the Vantage and obviously still involved in the DBX. I'll ask Marek to answer that question for you.
Thank you.
Yeah. If we look at how we are preparing the marketplace for DBX, it's very different in terms of how we've gone about and strategized where the product is going to go in terms of our customer, the outreach, the new markets that we're looking at that are either developing or developed markets. We are planning a marketing campaign, an advertising campaign around DBX. We're currently going through the press, launch of the car as well in obviously very different to difficult times around COVID. So far, we've had a very positive reaction to DBX. We're preparing the marketplace much better than we had done for Vantage. We are also being more conservative with the projected volumes.
Thank you. Ken, if I may, just one quick question for you. Price mix was obviously a positive in the first half and appears very strong in the second quarter. Can you explain what drives this? We can see from your wholesale that GT cars perform better and also the U.K. market on a relative basis. Is it just a function of the outperformance of these two segments, or are there other considerations we should factor in?
Yeah. I do not think there is really any other considerations, George. I think you captured the effects we would be thinking about fairly well.
Great. Thank you very much.
Your next question.
Thanks, George.
Your next question comes from the line of Charles Coldicott from Redburn. Please go ahead.
Good morning, and thank you for taking my questions. I have two, please. The first, to Mr. Stroll. You mentioned in your opening remarks that historically there's been demand for about 4,000 front-engine sports cars per year. It would seem that this year it's gonna be closer to half that, and that's partly because of the dealer de-stock, of course. When do you think that you can return to demand of about 4,000 units, or production of 4,000 units of sports cars per year? My second question is actually on working capital. I think at the start of the year, the guidance was for working capital to be a GBP 100 million outflow this year. Now, obviously, a lot's changed since then.
Given that the outflow was only GBP 86 million in H1, and we would expect, you know, some of that to come back in H2 as production begins to ramp up. I just wondered if you could give a latest guidance on working capital for this year. Thanks.
Question, and I'll ask Ken to answer the second question. On your first question, the reason the volumes are so significantly less this year, you mentioned de-stocking. That was only a small, of course, was COVID was closed for a very long period of time. That's.
Do you want me to?
Was closed as well. We anticipate returning to that level of volume in the next two years. I think that is realistic.
On the second point on working capital.
Okay. Yes, we saw working capital in the first half at the level that you say with the payables unwinding, for two reasons. One, because we were catching up with supplier payments from year-end, and two, because the level of production at the end of June was obviously much smaller than the level of production at the end of December. You had that payables unwind. We also had in the first half a smaller inventory build-up than we were expecting, largely due to COVID and the fact that we were stopped production.
In the second half of the year, the factors, although I'm not gonna provide any specific numerical guidance, the factors that we'd expect to see would be you'd expect to see the payables wind back up as we ramp up production, both of DBX and sports cars, where we're starting at the end of August. We would also expect to see inventory build somewhat, company inventory build somewhat as we fill the pipeline of the factory in DBX and sports cars.
Thanks.
Your next question comes from the line of Angus Tweedie of Citigroup. Please go ahead.
Hi, and thank you for taking my questions. The first one is probably a little bit along the lines of George's at the start. Could you perhaps discuss, given the sort of focus on more constrained supply of the products and better pricing, how you think about the midterm capacity needs for the business and whether to reach the profitability that we were expecting back at IPO, you really need to hit those volumes that we were thinking back in 2018? Secondly, could you just discuss on leverage how you're thinking about that structurally? With GBP 700 million of debt still outstanding, how comfortable are you with that much leverage, and what are your thoughts about that into the refinancing next year? Thank you.
Probably best positioned to answer the first question and Ken the latter.
Yes.
And Marek.
Yeah. In terms of the positioning of DBX now into the marketplace, obviously, we've done a lot more research into the various markets, whether they are existing or developing markets. Also, much more work has gone into planning the marketing campaign and advertising campaign of DBX as it comes into the marketplace. We're currently going through the press ride and drives, although constrained a little bit by the COVID issue, obviously. We're getting very, very favorable results back so far prior to the embargo going out. We have a planned advertising and marketing campaign that, quite frankly, we hadn't done previously. As we get towards the variants around the DBX platform, we would be closer to 10,000 units in four to five years, with capacity in both Gaydon and St Athan plants.
Charles, on the second point on the debt, I mean, look, obviously, as you rightly say, with the debt maturing in April 2022, that is something we're very aware of. Equally, at the same time, of course, I'm six weeks in, so that is clearly a focus area for me going forward. At this point of time, I do not have anything to say other than we're, you know, we're very well aware of the need to refinance the debt. As and when we've got more to say.
We will.
Thank you. Very clear.
Your next question comes from the line of Thomas Besson from Kepler Cheuvreux. Please go ahead.
Thank you very much. I'd like to come back to the accounting restatements to be sure I fully understand what happened and how that impacts both 2019 and 2020 accounts. First, can you precisely describe what effectively happened in your U.S. operations, and explain what we see as substantial adjustments to your Q1, and I assume Q2, revenues, ASP, and adjusted EBIT, please? That would be my first question.
Yeah. Fair question. I think in terms of the impact, what we're talking about here is the timing at which some variable marketing expenses in the U.S. ought to have been recognized against revenue. Basically, what we've assessed is those costs should have been deducted from revenue earlier. Having assessed that, we saw that adjustment and the need to make it, and we've done so. In terms of the effect for last year, that would serve to have reduced the full-year revenue and EBIT by about GBP 15 million. For the first, we have said in the first quarter of this year, the impact versus what we previously seen was a GBP 8 million improvement, GBP 9 million improvement in EBIT in the first quarter of this year. It's a timing adjustment.
It's not cash, and it doesn't impact either historic cash flows or expected future cash flows.
Okay. It feels okay. It's fair to say that it lowers 2019, and it helps a bit the H1 numbers-wise.
Yes. Correct.
Okay. Thank you very much for giving us more details on the quarterly retail and wholesale figure. May I ask if I can get something more, which would be an absolute dealer inventory figure, either for the end of June or for the previous quarter as well, so we can have a way to assess how long it takes effectively to take down the excess dealer inventory that you had in place? Because if I read the release correctly, you said it would go well into the year, so I assume it's not completely finished yet.
No. Hi, it's Marek here. I'll answer that question for you. Obviously, as you can see, we're around 870 units of de-stocking thus far. If you track that throughout the rest of the year with a similar number, around 900 units, we will de-stock by around 1,250 units into Q1, Q2 of next year, which will bring us down to what we believe is the right level of stock. We are into next year in terms of de-stocking, following and tracking as we have been throughout H1 this year.
Great. May I ask a question about the dealers' financial health, please? We've seen, obviously, a very, very unique situation due to the pandemic. There has also been for you a complete change ongoing on your business model as you've been describing it. Are you confident that the dealers you have today, first, are firm financially and able to go through this route with you? And second, whether they are the right ones in terms of right partners for a true luxury business?
Yeah. Good, good questions. I think in terms of the financial health of the dealers, I mean, obviously, they will have faced significant financial pressures. I mean, we've not seen substantial problems in the dealer network, it's fair to say, over the first half of the year. I think in terms of the representation, I'd perhaps ask Marek to just add a bit of texture on how you see that. Yeah. Absolutely. I think over the past years as well, we've been starting to move our business model to larger dealer groups where they have, obviously, multiple franchises and have therefore more of the stability needed. We're starting to see some recovery through China in particular, dealers getting back to full strength in that respect. We're starting to see some confidence in the dealer groups around the world, already.
Obviously, some areas still affected by COVID, but these tend to be the areas where our dealerships are selling single-digit number cars.
Great. Thank you, Olaf. Last question, if I may. You've raised cash in different forms, more than initially anticipated because of the environment, in H1. Should we expect eventually more of that, should the end of the year prove more complex than expected due to either Brexit or a second wave? Or do you believe the balance sheet in its current form is going to be sufficient, or that the share count is sufficient at what point? Saying it differently.
Hi, it's Mr. Stroll. I'll answer that question. We have no anticipation to raise any further equity. We feel we are covered in order to meet our business plan requirements.
Great. Yeah. Thank you, Mr. Stroll.
Your next question comes from the line of Kai Mueller from Bank of America. Please go ahead.
Hi. Thank you very much for taking my question and doing the call today. First one for you, Mr. Stroll. Maybe, we obviously listened to your recording earlier, sort of what your plan is and your vision. What were the biggest challenges, maybe aside from COVID, that you sort of found as you're now taking over the chairmanship or having taken over the chairmanship of the business, and what you've really learned over the last 90 days, what you want to change? Maybe as a first question.
Yeah. First of all, what I found when I took over the business was a lot of great people in Aston Martin, great engineers, great designers making fantastic product. As I've stated very clearly, the first intention is to align demand with supply for this, for this great product. That was step one. As I've mentioned earlier in the call and on the presentation, you know, historically, there's been 4,000, a real true demand for 4,000 front-engine sports cars historically. We want to manufacture to that demand. We don't want to oversupply. Secondly, the great opportunity of the SUV. Obviously, the hottest category today in the automotive sector is the SUV. I think we have a game changer. I think it will be best in class. Hopefully, you'll get to drive it very soon and experience it for yourself.
And then lastly, the excitement of the mid-engine program, starting with the era-defining Valkyrie, the best hypercar that'll be made, followed up by a great supercar in the Valhalla, and then an opening price point, mid-engine in the Vanquish. When you put all three of those programs together, from the historic front-engine sales to the, you know, you can look at what our competitors sell in the SUV market, and then you put a mid-engine program on top of that, you get a full complement and a full range, which also will help dealers. As for the previous question, the more product we give to the dealers, we're going to go out there and get a lot of more standalone dealers. You know, when you have front-engine product only is one thing.
When you give a full complement front-engine SUVs, many variants, mid-engines, we are going to be looking to open a lot more of standalone Aston Martin dealers. It is tremendously exciting.
Perfect. When I think of that, in your presentation, you mentioned also EV. We obviously know the Lagonda lines are sort of scrapped for the moment. Is there a plan in the longer term to revisit that? I mean, it is also in particular light of, if you just look at the valuation, some of the electrified plays that do not produce anything are getting. Is that something that you keep an eye on as well?
Yes. We haven't scrapped our EV at all. It's very much part of our plans. It will follow on, right after and during the, the launch of our mid-engine. We are just simply taking our time and prioritizing realistically what we can deliver and when. Right after the mid-engine programs will be released, we will be launching our EV platforms.
Okay. Excellent. A question on the volumes. We understand now, obviously, that de-stocking is taking for longer. What is the optimal stock level at dealers that you expect?
Yeah. [crosstalk ]
Yeah. Hi, it's Marek here. We would anticipate around 800-850 units as the ideal stock in sports cars.
Okay. Okay. Is it fair then to assume that until you reach that point, you will continue to give dealer incentives and therefore have a depressed ASP? Is it fair to assume that the ASP will be under pressure also throughout H2 this year in order to de-stock?
Obviously, as we've gone through the first half of the year in de-stocking in quite significant numbers, that variable marketing or discounting starts to reduce. As the stock reduced, obviously, we need less of that to remove the stock from the business. You will start to see that come down as the stock reduces.
Okay. And then maybe as a last one, if I just think about your volumes throughout the rest of the year, you obviously say a balanced approach between DBX volumes and sports cars. Can you give us any color in terms of how your order flow has been for the DBX since the start of the year? And also quantify a little bit where what sort of numbers we should be expecting.
Yeah. I mean, we're very, very confident in the order book as we go forward. As I mentioned earlier, we are just currently going through the press launch and the embargo launch. We are confident with the numbers. We're seeing that once the customers start to get the cars through the dealerships, then we start to see the positivity for the product. The verbatims that so far have come back from the journalists are, I think as Mr. Stroll mentioned earlier, game changer, remarkable product, etc., etc. It's, you know, we're very, very confident as the cars get into the dealerships and they're starting to trickle in now, that we'll start to see the confidence in our numbers grow.
Then the last one, if you think about your typical DBX customer, is it the one that would have bought the Lamborghini Urus or the one that would have bought the Cullinan?
We're actually looking at several customers, in terms of the competitors. It could be in some instances the Cullinan. It could be in some instances Urus. It could also come from Bentayga, but also upwards from the Porsche as well. You know, we've looked at the marketplace and we have the advantage of coming into the marketplace as one of the newcomers and have seen where the competition's been. As I said, we've engineered and designed something that thus far the journalists are incredibly impressed by. We've done a lot of focus in terms of new customers, female customers, and the bigger markets, America and obviously China in terms of the product proposition.
Okay. Perfect. Thank you very much.
Your next question comes from the line of Aksheth Jacquard from JP Morgan. Please go ahead.
Thank you. Good morning, Aksheth from JP Morgan. Two from my side. First, for Mr. Stroll, maybe if you can share your views on the agreement with the Racing Point F1 team, the structure of the deal and the relationship that you envisage between Racing Point, Mercedes, and Aston Martin. Can you remind us the economic interest that Aston Martin has in that agreement? The second one, maybe for Ken, Ken, just following up on Kai's question, is there an updated number on the DBX order book? What are the deliveries that are we looking at in the second half of 2020, please? Thank you.
As far as the relationship between Aston Martin and Racing Point, we have an, Racing Point has an agreement from Aston Martin that Racing Point will convert into an Aston Martin Formula One works team to be on the grid next year. There is currently no shareholding relationship between the two.
And,
I think.
Aksheth. Yeah. On the DBX order book, as Marek just explained, we're not providing an update on the number of orders. As he said, you know, we're really pleased with how that's developing. We're super excited about the media ride and drive that's taking place right now and the verbatims we're getting back to media that we'll be releasing 10th of August. We're really looking forward to that.
Thank you.
Your next question comes from the line of Christoph [Lafferty] Cowie from Deutsche Bank. Please go ahead.
Good morning. Christoph from Deutsche. The first would be also on the DBX. Previous management has commented that, obviously, orders are reaching well into 2021, and the order book is so good currently that there even would be potential upside for pricing if the momentum keeps on coming in that way for orders. Is that a statement that you would overall still support? Could you give us an indication how long roughly a customer would have to wait to when he orders the DBX today? Is it like 12 to 18 months or even above that as a first one?
I mean, we, we again, it's Marek here. We are very, very confident with the order book. We are seeing that the anticipation of customers through the dealer groups, obviously, they are waiting to get the cars into the dealerships. We are very confident with that response. In terms of if you were to order a car and we were not at the maximum production, in terms of answering your question there, it's 12 weeks as an order intake before you would get your car. Obviously, there's a stacked up inventory of customers waiting to get theirs prior to that.
Thank you. The second question will be on the inventories that you still need to wind down. Could you comment on the mix of that inventory? Is it largely Vantage? If that's the case, should we expect mix to be fairly good in the coming quarters of wholesale simply because you would probably reduce the Vantage production and go more for the DB11 and DBS? Or is it a broad mix between the current models that you have?
Yeah. Hi, it's Mareck again. It is a broad mix. Yes. Obviously, Vantage, because Vantage is more of the volume product, has a slightly higher percentage of that mix, but it's broadly mixed across the sports car range. Obviously, as the stock comes down, then we reduce the discount or the help that the dealers have to remove that stock.
The last one from me. When you ramp up, Gaydon again, do you ramp it up for the whole lineup or do you start with single models first?
Yeah. I mean, again, the factory is balanced and very flexible. We've got Roadster, which is due to hit production as we come back and get Gaydon back on track. The majority to begin with would be Vantage Roadster as that's one of the new model year models that will come out as a 2021 model year, and then the balancing of other product.
Thank you.
Once again, if you do wish to ask a question, please press star and one on your telephone and wait for your name to be announced. If you wish to cancel that request, please press the hash key. We have a follow-up question from Kai Mueller of Bank of America. Please go ahead.
Hi. Thank you very much. I just had a follow-up actually from Aksheth's question, regarding the Racing Point AML deal. I always understood that it was part of the investment that Aston Martin received some sort of stake within the business. Has that been redone as part of the agreement maybe when the second agreement was struck as a first question? The second one, can you remind us what are the actual sort of economics for Aston Martin right now with Racing Point? I understand the spending that has been, you know, the marketing spending that had been committed to the Red Bull team is now basically moving over to Aston Martin. Can you give us a bit of color sort of what quantity that is?
Yeah. Aston Martin has an option, in the future if they choose to exercise, to purchase shares in Racing Point at a very favorable price. The second part of your question is correct. Aston Martin is paying to Racing Point, actually a lower amount, a bit reduced to what it was paying to sponsor Red Bull.
Okay. Perfect. Thank you.
You're welcome.
There are no further questions at this time. Please continue.
Is there any? Thank you. Thank everybody very much. I hope you enjoyed our presentation and watched it on screen. We look forward to coming back to you in the future and delivering on these very, very, very, very, very exciting opportunities. Thanks again. Bye-bye.
That does conclude our conference for today. Thank you all for participating, and you may now all disconnect.