AM losses increase, but DB11 to the rescue

[12pack]

Including one-offs, significantly higher losses. But DB11 sales provide some optimism.
http://www.reuters.com/article/uk-astonmartin-resu...

[M5MarkM]

Ouch it's a shame! Hopefully the new AMG, sorry DB11, will help get numbers back. Amazing when you think how much these cars cost, looking around the factory it's easy to see where the cost comes from. Good for them sticking to keeping manufacturing in UK

[RobDown]

Company projecting a 37% revenue jump in 2017 though (presumably based on db11 order book and FX tailwind). So should be a very nice year for them

[hornbaek]

The weak pound might help them sell some DB11s but it is not helping them when they have to import most of the technical bits such as engine and drivetrain. Also financing costs are going through the roof. They need to be bought by one of the large players to survice.

[V8 Vantage GT]

The weaker pound does not appear to be bring down the MSRP on British cars sold here.

[tuffer]

Not sure if its relevant but I saw someone on the tube at Canary Wharf responding to an email regarding an Aston Martin 7% Bond, great OPSEC.

[12pack]

V8 Vantage GT said:

The weaker pound does not appear to be bring down the MSRP on British cars sold here.

I assume you mean in the US. They would need to hold prices to recoup losses on parts imported from Europe which are now more expensive. They would need to hold prices abroad to see any benefit from weaker pound-based U.K. manufacuting and overheads.

Edited by 12pack on Friday 24th February 22:27

[RobDown]

V8 Vantage GT said:

The weaker pound does not appear to be bring down the MSRP on British cars sold here.

That's exactly the point

[hornbaek]

Well - that is only a small part of the pricing equation. With a large part of the components comming from Europe cost prices will obviously increase and margins will get squeezed. This is somewhat hedged by sales in other currencies which translate into more pounds at home but unless AML can increase prices abroad (to make up for the higher input prices) they will loose out eventually. Short term these fluctuations are covered by hedging with price lists probably being fixed for 6 - 12 months in advance so its too early to tell. The bigger challenge is in which currency the debt is as I am not sure it is in pounds.

[Jon39]

tuffer said:

Not sure if its relevant but I saw someone on the tube at Canary Wharf responding to an email regarding an Aston Martin 7% Bond, great OPSEC.

Very relevant.


Aston Martin really do have several of their very own Bonds, in addition to the fictional association. -

The real ones are huge debts, with a high interest rates (I think interest payments might be delayed until the debt repayment dates).

A quick internet search gives the details.
One of them is £304 million, showing a repayment date 15th July 2018, and an interest rate of 9.25%. If I remember correctly, that bond debt was to pay Ford for the purchase of AML.

Sometimes businesses will refinance at maturity dates, if financial conditions are appropriate. The consequences of AML not being able to repay or refinance, don't bear thinking about.


As you say, terrible to be writing that email on a train.

Edited by Jon39 on Saturday 25th February 13:09

[RobDown]

hornbaek said:

Well - that is only a small part of the pricing equation. With a large part of the components comming from Europe cost prices will obviously increase and margins will get squeezed. This is somewhat hedged by sales in other currencies which translate into more pounds at home but unless AML can increase prices abroad (to make up for the higher input prices) they will loose out eventually. Short term these fluctuations are covered by hedging with price lists probably being fixed for 6 - 12 months in advance so its too early to tell. The bigger challenge is in which currency the debt is as I am not sure it is in pounds.

80 percent of sales are non-UK. More than 20 % of costs are UK. Simples

They should be able to refinance that bond at a lower rate, given where long rates are and now the business is moving into profitability next year (indeed made an operating profit in 2016). Just not sure whether it was swapped though, so not clear what the benefit might be

It's not the exchange rate that's the problem by the way. It's the potential tariff and non-tariff costs under Brexit that might kill the business

HTH

[Jon39]

RobDown said:

They should be able to refinance that bond at a lower rate, given where long rates are and now the business is moving into profitability next year (indeed made an operating profit in 2016). Just not sure whether it was swapped though, so not clear what the benefit might be

Of course Rob, a lower rate will depend at the time on confidence in the Company's ability to repay, but good to see an operating profit reported (in the fourth quarter I think, so presumably DB11 deliveries), but it is an expectation of an actual net profit that investors want to see obviously. They have many deductions to make from the operating profit, before arriving at the real result.

We hope for the best, but the total debt and associated interest, must be a big concern for the management and investors.

[RobDown]

Jon, most of the debt is owed to the investors I believe (and iirc denominated in dollars and subordiinated?). I'll check that on my Bloomberg next week if I get time

The key thing that will work in AML favour here is the operational gearing. The gross margin on the cars is high (and has been moving higher thanks to the mix improving). And a lot of the costs are semi-fixed and won't increase at anywhere near that rate. So AML should be nicely profitable soon, particularly having cleared the decks and written off a chunk of old tooling etc last year

The company's problem is a)brexit and b) maintaining the momentum. They can't rely on the db11 alone beyond the next 2-3 years because inevitably sales will fade at some point. So either the new Vantage or the DBX need to also be successful.

I note Andy Palmer is still talking about a new model launch every 9 months. Does that suggest Vantage is actually quite imminent?

[Murph7355]

RobDown said:

...
It's not the exchange rate that's the problem by the way. It's the potential tariff and non-tariff costs under Brexit that might kill the business

HTH

IMO that's nonsense

If any automotive sector was able to withstand the doomsday prophecies of Brexit it's the very upper end - customers are used to waiting, and prepared to pay.

What will kill them is poorly considered product and marketing/sales strategies.

Vantage will be very interesting and with the direction they've elected to take probably vital. IMO they need to be concentrating on the other end. And I don't mean fripperies like the Vulcan.