Good day, and thank you for standing by. Welcome to the Aston Martin Lagonda first quarter results 2021 conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star and one on your telephone keypad. I must advise you that this conference is being recorded today on Thursday, the 6th of May 2021. I would now like to hand the conference over to your first speaker today, Tobias Moers. Please go ahead.
Thanks very much. Good morning. Welcome everyone, and thanks for joining us this morning for Aston Martin Lagonda Q1 results call. I'm Tobias Moers, CEO, and I'm joined this morning by Kenneth Gregor, our CFO. I hope you have had the chance to read our results release that went out this morning. The release, along with accompanying slides, are on the Investor Relations section of our website as usual. Before we open up the line for Q&A, Ken and I will make a few introductory comments. First, Ken, I would like to hand over to you for the numbers.
Thanks, Tobias. Ken. Good morning, everyone. Q1 was a significant improvement year-on-year, which was good to see. Largely, of course, driven by the volume with the launch of the DBX, which wasn't there last year, with wholesales of 1,353 units in the quarter. Volume wasn't the only improvement. We also saw improvement in cost, and we also saw improvement in the level of incentive spending, and therefore, the net revenue. Revenues were GBP 224 million. That did have the benefit of stronger pricing dynamics or lower incentives, primarily, with the core average selling price being circa GBP 149,000 per unit, little bit of strong mix, geographic mix in there with China coming in. Actually, one of the big factors was the year-on-year was the lower retail financing support as we completed now the de-stocking process.
Adjusted EBITDA was GBP 21 million with a 9% margin, reflecting the improved trading, some initial cost saving benefits through the headcount reductions, very much in line with our expectations. There's an operating loss of GBP 15 million, reflecting the depreciation amortization increase as guided due to the expanded range with obviously the DBX coming in. One thing I was very pleased to see was positive free cash flow of GBP 24 million. That included a working capital inflow of almost GBP 50 million, which was driven largely by improvements in receivables, little bit on payables, continued work to control inventory through the quarter. All of that was good to see. Obviously, we have capital expenditures, about GBP 50 million in the quarter, a little bit below the quarterly run rate, we do expect to catch up through the year.
Our interest expense is paid in Q2 and Q4. Q1 does benefit by not having had that interest expense. Still pleased to see the positive cash flow. We finished the quarter with GBP 575 million of cash on the balance sheet. That obviously includes the almost GBP 80 million of proceeds from the bonds placing that we did in February. Good to end the quarter with significant liquidity that continues to give us the runway to execute our business plan over the next couple of years. In terms of outlook for the full year, we have guided that our expectations remain unchanged.
We have updated the net interest guidance to reflect foreign exchange rates. Other than that, we are still talking about 6,000 units plus of wholesale volume and mid-teens EBITDA margin for the full year and CapEx in the range GBP 250 million-GBP 275 million. I'm sorry. At that point, back to Tobias.
Thanks, Ken. Yeah, we're very pleased with our performance. I tell you what, in line with expectations and mark a substantial improvement with regards to last year. We have also continued to make progress in the execution of our business transformation through Project Horizon. Very important. Demand and supply, de-inventory stock for sports cars and GTs is cleared out slightly earlier than we planned. We're done with that journey. The de-stock journey is over now, and Toby not going to talk any more about that. We're encouraged with the continuing growth of the order bank and the visibility which has given for us the sports, GT, and DBX is really encouraging. Largely with a lot of it started with the Formula One season, which really it was a boost for the brand awareness.
As well, we have the Vantage as a safety car and DBX as a medical car. We launched the first of our new vehicles we plan for the next couple of years, the Vantage F1 Edition. Obviously improved horsepower and performance with unique badging and styling. We're very pleased because the initial order bank, what we bill for that car is more than we expected at the moment. It's really good, and we have very perfect reviews from some customers and interest from customers. Regarding the operational excellence of our plant, we have taken action to improve the performance of our manufacturing in both sites, Gaydon and St. Athan.
For example, just Gaydon moved to the single-line operation by moving down the stations from 70 to 22 stations, from 400 cars almost by August last year, down to almost 100 cars in the process, to optimize the assembly of Gaydon. The single-line approach now and St. Athan, where we're going to move, or St. Athan going to serve with a new paint job there and our paint job for all cars, sports cars, GT, and DBX. Actions such as these are driving efficiency and improving plant performance, that's for sure. This is all underscored by our commitment to quality, which is now embedded as well in our company reward bonus sheet. Under the go-to-market segment of our strategy, we have made changes to our team, including bringing a really experienced luxury auto expert to lead dealer operations here in Gaydon.
A new head of Europe as well, as president of Europe. we expand and strengthen our dealer network as well on that note. For example, recently we appoint a new dealership in Germany, more to follow, so another two, three dealerships in Europe to follow, because we have certainly opportunities there. Finally, within portfolio strategy and site planning, we have relocated the whole assembly, which is part of Project Horizon as well, for all derivatives, like an Aston Martin battery or the V12 Speedster to Gaydon. we consolidated all wholesale manufacturing sites. We have more than one, was almost three, in one location now here in Gaydon in the main plant. With these special programs on track for delivery of this year as well as planned.
As we said in the statement this morning, today's results underpin our confidence in delivering our exciting growth plans to transform Aston Martin and create a world-class, self-sustaining luxury automaker. With that, we will be happy to take your questions now. Back to you, operator. Thanks so much.
Thank you. As a reminder, if you wish to ask a question, please press star and one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, if you wish to ask a question, please press star and one on your telephone keypad. Your first question comes from the line of Charles Coldicott from Redburn. Please ask your question.
Good morning. Thank you for taking my questions. I just had two, please. The first, the core ASP is now back up to GBP 149,000. Given the destocking is now complete, and that the DBX made up 55% of wholesales in Q1, which I guess is probably fairly typical of future periods. Should we assume that the core ASP now stabilizes at this level? Or at least until perhaps you reach the refresh of the front engine cars in a couple of years' time. My second question, I appreciate you stopped reporting retail sales figures. Given the importance of the model, can you just give us an idea on how many retail sales of the DBX you had in Q1 in comparison to the 600 in Q4? Or maybe just whether retail sales totaled more or less than the 746 wholesales. Thank you.
Let me talk about the ASP. Yeah, we're really pleased with the ASP in Q1. It's fair to say it definitely does reflect a couple of the factors that you described with DBX coming in, and DBX, we don't have any incentives with that car. It also reflects the fact that year-on-year, the level of retail incentives on sports cars is about half the level it was last year, so in the same quarter last year. Those factors help. There's also some help from foreign exchange. The euro was favorable in the first quarter, and a couple of other factors. I don't necessarily say we see GBP 149,000 per unit every quarter, because I think the movements in foreign exchange and some movement in market mix may soften that a bit.
Overall, pleased with the number, and we'd be confident that the ASP will continue to show that year-on-year improvement versus last year.
Almost our expectation is on a more robust level.
Yeah
from now on. Q1 was-
Q1 is really a high spot.
Yeah. Volume, retail numbers and wholesale numbers are aligned now.
Yeah.
This is part of the journey. We finished our destock processes, our project regarding the sports cars. Wholesale and retail is aligned similar to DBX. We keep our projection for the full year with 6,000+ wholesale, which is almost 50% DBX car line and 50% sports/GT car line. We keep that up and running as a projection for that year. Retail is aligned to that wholesale number. That's the strategy of the company.
Okay. Thank you.
Once again, if you wish to ask a question, please press star and one on your telephone keypad. Your next question comes from the line of George Galliers from Goldman Sachs.
Yep. Good morning, everyone, and thanks for taking my questions. The first question I had was on the working capital. Obviously, a good result there and good for free cash flow. It looked like the quality was good as well, with lower inventories and lower receivables. Is there still scope to bring these down from today's level, or do you think relative to sales volumes, this is a kind of level we should think about going forward? The second question I had was just again on the ASPs. I was just interested to know, are you seeing an increase in option uptake by your customers, and is that helping with your ASPs? One of your competitors gives a mid to high teen revenue contribution from what they describe as personalization.
Are you able to give us any insight into what kind of % of the ASP comes from customer selected variable options? Thank you.
Let me take the working capital. Yeah, really pleased, actually, with the working capital improvements we saw in Q1, which is on the back of also working capital improvements we saw in the back end of last year. They've perhaps come a little bit quicker this year. It was part of our plan for this year. They've come a little bit quicker in Q1. I think it reflects on the receivable side. It reflects some of the benefits of having a stronger position, as Tobias was just saying, with retail in mind with wholesale and cars and dealers not having cars in stock for so long, so they end up paying for cars a bit quicker. We also have put in a new receivables financing arrangement for the dealers, which came into effect in the quarter.
That will continue to support keeping those receivables very much under control through the year. I look forward to that. On the inventory side, there's always a bit more you can do on inventory. We'll always have cars in transit to markets, of course, and that will elevate a bit depending on the volume. Some of the work we've been doing internally in the business, there's still reduction in fleet inventory, and there's reduction in inventory and work in progress in the factories, which we still expect to see some benefit from in Q2. I think the big bit of the working capital improvements probably happened. Going forward, we definitely look to optimize and keep it under control, recognizing that it will always ebb and flow a bit because of volume and production timing.
On the operational side, we cleaned out Gaydon so far. There's still a path to go because our stock inventory in our warehouse is still not at the point. There are more optimizations to do with Project Horizon. That's Gaydon and then St. Athan. That journey started now. Over the course of the year, we see a further ongoing improvement on that regarding our operations side.
Although we don't give specific figures on options uptake and the proportion, it is an important part of the revenue stream for us. It was slightly positive year-on-year in the quarter. That's been a positive development and definitely something we want to build on going forward.
As I said on that, it is given. If you move away from wholesale and company stock cars and you move to a more retail-loaded order intake, you move up. That's given by nature, kind of. If you're more retail oriented, you have a higher option take rate. That's normal. That's standard. A company always was more linked in company stock than dealer stock. This is not good. Having more retail orders, you see a natural uplift on options.
Understood. That's very helpful color. Thank you very much.
Right. Thank you.
Thanks.
Your next question comes from the line of Angus Tweedie from Citi.
Hi. Good morning. It's Angus from Citi. My first question is back on the high ASP numbers. You clearly called out lower incentive figures. Are you perhaps a little bit disappointed with the EBITDA drop through on that? I mean, are there any costs in the first quarter, so OpEx costs going through that perhaps weighed on the operating leverage there that you could call out? Secondly, please could you provide an update on where we stand on specials, particularly how we're getting on with the Valkyrie, and any renegotiation of deposits on the Valhalla, please? Thank you.
I mean, the short answer is no, we weren't disappointed in the first quarter. The EBITDA performance was in line, in fact, slightly ahead of our internal expectations on the back of volume that was in line with our expectations. Very much we felt that we were pleased with the performance. There is in the quarter, if you look at the year-on-year bridge on slide five, for EBITDA in the quarter compared to Q1 of last year, you can obviously see the benefits of the volume. You can see the benefits of the net pricing, which is largely the lower incentives year-on-year. You can also see the benefits of lower net operating expenses, about GBP 8 million in the quarter, lower in Q1 than the same quarter a year ago. Overall, we were pleased with how it went.
Well, I agree on specials. As you know, this year is very well loaded on the second half of the year regarding our projection. Records are doing good. Yeah, it's still a challenging journey, but there's no signal that we're not going to achieve our targets and over the course of the second half of the year, nothing at all. We do reviews every week. I just drove it from Gaydon to Silverstone, and it works. Was really good. Valhalla, damping was not a question. There is no significant move back and forth. We're going to present the new Valhalla to our customer in the next two months. I'm really very optimistic that we gain traction back on that program.
Brilliant. Thank you very much for the comments.
Thank you.
Your next question comes from the line of Thomas Besson from Kepler Cheuvreux.
I guess it's me, it's Thomas Besson with Kepler Cheuvreux. I must have not articulated properly, I guess. I have three questions, please. First, could you give us a bit more color on the order bank by model, in terms of maybe months of sales or units, however you want, and by region. The second question, is it possible to have some comment on the evolution of ASPs for sports cars? You mentioned lower incentives. Basically, I'd like you to comment on the ability to price up these products versus the sale period that took place over 18 months, and that's done now, if I understand correctly. Lastly, I think there have been comments about first battery electric vehicle from Aston in 2025.
I'd like you, if it's possible, to comment on that, to confirm the timing, and confirm if the technology comes from Mercedes or whether it requires some specific investments and where it's going to be produced, please. Thank you very much.
Okay. Hopefully, I kept everything in mind. Order bank, we're comfortable with order bank two, three, all car lines. For us, very comfortable and really good. Second question was?
ASP and opportunity to price up sports cars.
ASP is, definitely we see a recovery of ASP in sports cars. That's just due to the reason that we cleared out the stock. Now that it's a demand-driven order situation, we see an increased share of retail orders in our order income per week. Just the Formula One Edition is very surprising in regards of retail, in a positive way, absolutely. All of these things are helpful for recovering ASP, and I think we're going to see a more robust ASP and I'm sure over the whole year, and this is the future for the company. Price increase sports cars. Formula One Edition is a good example. It is an increased pricing for Formula One Edition. You have to consider always that we are facing a bit of an aged generation of sports cars.
Anyway, what we see as order intake from the customer side is more than promising, and that's more than we thought. Yeah. What we're working on is model year 2022 for Vantage, DB11, and DBX, so that's in the final definition. There is some room for improvement. We bring a new configurator to market, which is an exceptional customer journey, which I think gives us an opportunity to get to higher option take rates and things like that. That's a bit too early to discuss that in detail. The last question was? Space-time. We have a clear focus on electrification and electric drive. It is given that all mid-engine programs, Valhalla and Vantage, going to be plug-in hybrid. We're going to have the first DBX as a plug-in hybrid in 2023.
The launch of derivative of DBX this year, which is an SOP in September, which is given. There's nothing what's going to hold us back. It's a mild hybrid. That's not a plug-in, it's a mild hybrid. Plug-in hybrid, the whole hybridization, electrification journey starts in 2023. After 2023, there's no car launch anymore without electrification. The purely electric-driven cars or the best-driven car, that's. Now, middle of that decade, we have to achieve that. It's clear for us, and yeah, we is discussion with procedures what we're going to do there. There is more than one platform you have to consider. Yeah, that is a clear journey, and I think it's mandatory for us to have that electric drive, next generation sports car. Yeah. It is going to be fully electric driven. That's mandatory, that is a must for us.
It's a glide path into 2030, when you increase your portfolio in electric drive cars and you decrease your electrified or standard ICE-driven cars, vehicles in the portfolio. Hopefully I answered your question.
Thank you.
You're welcome.
Your next question comes from the line of Horst Schneider from Bank of America.
Yes. Good morning, thanks for taking also my question. Just have got a few left. I remember to the last call that we had on the full year 2020 results where you said that you were steering away a little bit volumes from the U.K.. I think you were referring to the DBX just because some dealers were still closed. I'm just interested to know how that is developing now since the dealers, they have opened up in the U.K.. How do you expect your sales in the U.K. going forward? Not just DBX, but in general, should we expect a major uplift, maybe as of Q2 already? The last one is, again, a question related to the xEVs. I just want to know, what is the feedback that you're getting from some countries, on the high emissions that your cars still produce?
When we look, for example, at a country like China, where the BEV seems getting more and more important, what's the feedback from the customers that you're getting there? Is that holding the people back to buy the DBX? You think with the PHEV, the sales could be much, much stronger? Just some color on that would be appreciated. Thank you.
U.K. is in a recovery mode at the moment. We did right when we transformed orders into other regions, was absolutely the right thing to do. Now U.K. is in a recovery mode, and we see a good improvement at the moment. Probably, I hope that it's going to last for everybody. It's similar for us than for other brands. I think hopefully we can catch up with the whole year projection for this year in U.K.. Anyhow, other regions are stronger than we expected. It's okay. It's good. Yeah. We do a lot of things regarding DBX. We performed three weeks of test drive, or we are in the middle of performing three weeks of test drives in Millbrook on a proving ground. The conversion, what we see there from leads is really promising.
It's a good journey for us now in U.K., back again. Regarding emissions, regarding fuel consumption, it's almost like the fuel consumption. The situation is you have still many customers in China buying cars like the DBX. It's an increasing segment. It's a growing segment, the luxurious segment, even especially the SUV luxurious segment is growing. Yes, you have to have an electric drive car on the marketplace, the latest 2025, 2026. That's crucial and that's important. Feedback from customers is, if you talk about customers, they bought the car. Do we have rejections for DBX regarding emissions or something like that? It's hard to answer, honestly. Yeah. You see the segment, and the segment is still growing. A PHEV, as you know, you need a range in China, and you don't get any more number plate, the number plates with PHEVs.
That changed in China. Yeah, you still have a high, and consider you have an increasing high wealth pocket in China still. That's going to, I don't know how long they're going to last, but we are in a similar situation than many other manufacturers as well, where we have a clear strategy path to electric. That's where-
Mm-hmm. Last follow-up. If I want to order a DBX now, how long would I have to wait for that? It's still this five, six months that you are booked out on the DBX?
Yeah. Probably November.
All right. Okay. Thank you.
You're welcome.
Another reminder, to ask a question, please press star and one on your telephone keypad. Your next question comes from the line of Christoph Laskawi from Deutsche Bank.
Hey, good morning, and thank you for taking my question. It's a bit of a follow-up, really on the questions on the order book. The current visibility into Q3 obviously is encouraging. My question would be, is that essentially where you plan to be in terms of order book and order waiting time for the customer, let's put it that way? Or do you plan to push it out or increase it even a bit further? In that regard, where would you see the sweet spot for the order book and waiting times also when it comes to pricing the models across regions? Thank you.
We are really comfortable with that situation at the moment. Is it really added value if you have to wait two years for a car? I'm not so sure about that. The customers are, especially in the luxurious segment, they want to buy a car, and they want to have a reasonable waiting time for that. Sometimes if they have to wait too long, probably they don't like it. It is hard to judge finally. We need a proper order book, and we are comfortable with the order book as it is. We are really flexible now on the manufacturing side, and we can breathe easily, especially in sports cars. We can easily improve line or change our line rate by three, four, five vehicles per day without any different efficiency. It's always a similar efficiency how we're going to run our lines now in future.
That makes a difference to the past. On order book, a waiting time of six months, seven, eight, nine months, it depends as well from the segments. For Valkyrie, our customer was waiting now for two years. In a mid-engine program, if you have really engaging, sophisticated product, people are going to wait for 12 months, 15, 16, 18 months. On a DBX, what we drive is customization, personalization, which is very important for us. Our new configurator is going to be benchmarked in the segment, how you can configure it in a personalized way, in a very personalized way, your personal DBX. That's a longer waiting time. I think six, nine months order bank, that's comfortable, and we're going to have the next variant with us with the DBX.
Let's see what comes, but I think we're going to have a longer waiting time with beginning of next year with DBX, I'm sure about that.
Thank you. On the derivatives, do you already take orders for that? Or when you launch in Q3, that's the point where you really will take it up?
No, we're going to take orders by, I think, September.
All right. Thanks a lot.
That's star and one if you wish to ask a question. Your next question comes from the line of Jose Asumendi from J.P. Morgan.
Good morning, Tobias. A couple of questions, please. I think the first one is, do you see an opportunity to create a bit more of a structural change in the geographical mix and use this COVID situation to the post-COVID transition phase to reduce a little bit more the dependence on the U.K. market and sell more into Europe, into U.S. and China going forward? That'd be the first question. Second question, can you speak a little bit more about this sort of conceptual path to free cash generation or cash generation in the company over maybe a one- or two-year view? Can you talk about the buckets of unit sales, EBITDA, and then, whether from a manufacturing perspective, were there more efficiency gains you can generate, which could improve structurally also the free cash flow of that company? Thank you.
Let me answer the first and the third one, probably. The second one, I hand over to Ken. Structural changes in the regions, yeah, we just appointed a new head of Europe. There are many things going on. I'm not going to talk about that in detail because that's kind of a very sensitive topic, what we change in regions, but you're going to face a serious change in all regions. Just Europe, we appointed a new head of Europe. We got to restructure Europe as a region. U.K., we have a very new, strong person. He used to run Europe. He now take care about U.K., and he's really disconnected, and that's one of the reason why we improve here. There's a lot of things what we're going to take as an action. There is a lot of room for improvement. We do so.
It's sensitive, so please accept my apologies that we are not talking in detail about that. Efficiency in the company is key for us. It's absolutely key. Just now, I came in the company, we had 400 cars in the process in Gaydon to build 12, 15 cars a day. Now we just have 100 cars in the process. We had 70 assembly line stations, 70, seven, zero. Now we have 23. We're going to have all cars in one paint shop in the future in St. Athan, which is the most efficient way to paint the cars because the paint shops, you have to run that full throttle. We're going to shut down the paint shop in Gaydon. We just bring all the special paints, which is crucial for us as a brand, we're going to do that in Gaydon.
Gaydon is the hub of sports cars in the future. We've grown in Valkyrie, which was a bespoke building before, in a different manufacturing site. We brought in Valkyrie into the main plant in Gaydon. We brought in all the special manufacturing sites into the location of Gaydon. Everything is under one roof now. There's more to come. We have some optimization program for St. Athan as well that started four weeks ago. If you would come to the company, probably you have been here before, but if you have been here before, you would see a huge difference. This is the feedback what I receive from everybody. It's a have company now. We optimize transportation, logistics, inbound, outbound. Nothing is untouched. Are we talking about an efficiency gain of 35%-45%, in some areas 50% of efficiency gain?
We touch base on bill of material, on material costs as well, which is almost not that simple because we have long-lasting contracts with our suppliers. As well, we see some improvements there as well. We're working on a facelift of the whole sports car generation. Even there we see improvements by sourcing new parts, which is really, never thought that it's going to be that much, but it is a lot of them.
With us? Yeah. On the medium term, the medium-term vision as we've talked about before, targets for GBP 500 million of EBITDA, circa GBP 2 billion of revenue, and supporting that 10,000 units or so of volume. The journey towards that has a number of pieces. I think that was your question. In terms of volume, that's clear. Supported by refreshed sports cars and more derivatives on the DBX side, giving us the opportunity to get towards that volume level, and that volume obviously bringing the operating leverage with it to help improve the EBITDA margin as we move through time. That's point number one. Point two, clearly in terms of net revenue position, we've made some big step forward this year compared to last year, with the lower incentive spending on the sports cars.
I think as we look through time, there's more opportunity on that side. Refreshed sports cars allow us again to move forward on the net revenue side, and a mix of derivatives on DBX also allows the opportunity for improvement on the net revenue side. Tobias talked about the cost side, where we've made some really big improvements or are making some big improvements this year on the manufacturing side. Here, controlling what we can control in the factory, which will help through this year. Then as we go through time, material costs, yes, it takes a bit longer, but we plan and need to make improvements on the material cost side as we go through time.
Those things together, if I thought structurally, to get GBP 500 million of EBITDA on revenue of GBP 2 billion or so is an EBITDA margin 25%-30%, in that sort of range. Having that sort of EBITDA margin requires us to have a gross margin of circa 40%. Right now, in this quarter, the gross margin is right about 30%. First quarter last year, the gross margin was 16%. We're clearly on a journey towards that. The building blocks that I just talked about in terms of volume and operating leverage, further improvements in net revenue with lower incentives and better mix of fresh product and continued work on the cost side, are the building blocks we need to improve that gross margin.
We'll keep the fixed cost of the business under very close control, and those are the building blocks towards that medium-term target that we've given and are standing by.
Thank you. Thank you very much. Very interesting. Thank you.
We have no further questions. Please continue.
I will close this session. Thanks very much for joining us this morning and for your interest. We look forward to keep you updated on our progress regarding Project Horizon and all our turnaround and growth strategy with our report on the first half of the year results at the 6th of July.
End of July.
End of July. Sorry about that. Okay. Thanks very much.
That does conclude our conference for today. Thank you for participating. You may all disconnect.