Tuesday 29th April 2014

Pain before gain at Aston Martin

Investment will bring great cars and returns says Aston after slender profits announced

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We'd imagine the biscuit budget is more custard creams than Duchy Originals at Aston Martin right now. The sports car maker has revealed it is operating on wafer-thin margins as it ploughs any available money it has into developing future models.

Last year the firm made an operating profit (i.e. before tax) of just £1.5 million on revenues of £519 million. That's a pitifully small amount given that sales that were actually up 11 per cent on 2012 to 4,200 cars.

Centenary year sales good but profits small

That worried financial ratings agency Standard & Poors enough to downgrade the firm's debt rating and label the independent maker's latest round of financing as 'junk', i.e. extremely high risk for investors.

Should we as Aston fans be worried? Absolutely not, the firm told us. "It's to be expected," a spokesperson said. "While we're investing in future product we're spending more than we're taking in sales. But at the end of the investment phase we're expecting significant returns."

The firm's chief financial officer, Hanno Kirner, described the current investment in a statement as "the biggest...in our 101-year history". Aston confirmed to us this money was the same £500 million to be spent over four years talked about when majority investor, Italian venture capital firm Investindustrial, announced it was buying into Aston Martin back in 2012.

And in fact, this cash pot has grown. "We've probably added to that amount," the spokesperson told us.

Vantage sales actually up on 2013

That money is being spent right now on the new, Aston-only sports car platform, as well as new engines and an electrical architecture, the last two developed with Daimler. We know the engine will be an AMG V8, likely to be a new 4.0-litre turbocharged unit.

The spokesperson also told us that SUV options are being considered, but that nothing has been decided.

Aston Martin wouldn't comment on the length on the current investment phase or when the new cars would be ready, but that four-year promise at the end of 2012 takes us to 2016, which is a long time for investors (and buyers) to hold their breath.

We still don't know who's going to be running Aston Martin after Ulrich Bez stepped down last year. Prodrive's Dave Richards also quit the board last year, although both men are still shareholders (as is Daimler to the tune of five per cent).

AMG a good partner for engines, right?

Helping tide Aston over until the launch of the new cars is the ongoing appeal of the current range, despite the older underpinnings. In the first three months of this year in Europe (Aston's biggest market after the US), sales of the V8/V12 Vantage were actually up 30 per cent compared to the same period the year before.

With that helping to top up the cash pile and the expectation of greatness from the latest AMG powerplants in the new cars, we reckon the biscuit tins of Gaydon should be bulging with organic stem-ginger oatcakes from 2016 onwards.

[Tubbycharged]

Everyone (other than maybe Porsche!) is hoping for a healthy Aston, so fingers crossed they can pull this off!

[XJ Flyer]

Going for the usual V8 and auto combination that it's competitors are offering seems like a retrograde step for a marque noted for the V12 and manual box formula in recent years.

[chelme]

I wonder what the board members get paid there.

I seem to recall men in sharp suits flying around in helicopters for marketing events and wasting money on silly ideas like the Toyota IQ Aston Wannabe.

Perhaps if they stopped paying themselves so handsomely, running down irrelevant rabbit holes and focused on engineering great cars (which they are capable of doing), they would have more money left in the piggybank to continue reinvesting in this great brand...

What with this AMG Mercedes partnership, I hope they are able to pull out of their rut with their brand identity firmly in place.

[Denorth]

XJ Flyer said:

Going for the usual V8 and auto combination that it's competitors are offering seems like a retrograde step for a marque noted for the V12 and manual box formula in recent years.

this might be a reason for those sales going up - people trying to buy another incarnation of 'last of true Aston Martin'

[ds2000]

chelme said:

What with this AMG Mercedes partnership, I hope they are able to pull out of their rut with their brand identity firmly in place.

As a V12 owner I can say our in car tech is a little dated and the satNav awful. I don't give a monkeys about this though. If AMG are developing 8/12 cylinder engines with cylinder deactivation/hybrid functionality then it's in AM's long term interest to move with the times. AMG also have mega money, AM simply can't compete with that

[MonteV]

'Should we as Aston fans be worried? Absolutely not, the firm told us. "It's to be expected,"'

Historically it's part of Aston Martin's tradition and legacy not to make a profit.

[Zod]

Yes, but it's not sustainable. It is time the Company moved on. I love my car. It is hugely enjoyable to drive, but I also enjoy more modern cars and Aston needs to be able to offer modern engines (with modern power and consumption figures), gearboxes (although I hope against probability that they will continue to offer a manual box on at least one model) and in-car systems.

[Neil1300r]

chelme said:

I wonder what the board members get paid there.

I seem to recall men in sharp suits flying around in helicopters for marketing events and wasting money on silly ideas like the Toyota IQ Aston Wannabe.

The IQ only cost $12M impairment charge on the balance sheet

[Amirhussain]

Maybe making a car that doesn't look the same as the rest would be a good start....

[f328nvl]

Confused. Operating profit 1.5m? All other commentators are quoting 84m. AML raised $165m about two months ago in a bond issue. Are you sure you have this analysis right?

Are you confusing pre-tax profit (after goodwill amortisation) for cash flow? EBITDA is presumably the 84m number quoted elsewhere, which would mean that AML generated around £80m in cash before funding costs and capital expenditure and capitalised research and development. They raised £100m in bonds and,if I speed read correctly another £100m in equity. So all in all over 50% of the £500m cash needed to fund the development products.

Maybe chocolate digestives are available in warwickshire after all.

[leedsutd1]

Amirhussain said:

Maybe making a car that doesn't look the same as the rest would be a good start....

That's what I was going to write, I cant tell one Aston from another, so would you buy the most expensive model when it looks like the cheapest model , Because they use a lot of parts on the range of cars I really don't know how they don't make a big profit. The works department is always busy and not cheap ?
I am not having a go at the car itself ,I would buy one if I could afford it !

[donteatpeople]

chelme said:

Perhaps if they stopped paying themselves so handsomely, running down irrelevant rabbit holes and focused on engineering great cars (which they are capable of doing), they would have more money left in the piggybank to continue reinvesting in this great brand...

What? Like £500m over 4 years?

[paranha]

"Making a Car that looks like all the others in the range"

THIS doesn't seem to have put off Porsche 911 buyers, for the last 50 years---

[Neil1300r]

leedsutd1 said:

That's what I was going to write, I cant tell one Aston from another, so would you buy the most expensive model when it looks like the cheapest model , Because they use a lot of parts on the range of cars I really don't know how they don't make a big profit. The works department is always busy and not cheap ?
I am not having a go at the car itself ,I would buy one if I could afford it !

If you can't tell a Vanquish from a Vantage you need to go to Specsavers.
Works is a separate company. No longer fully owned by the factory.

[mike-r]

paranha said:

"Making a Car that looks like all the others in the range"

THIS doesn't seem to have put off Porsche 911 buyers, for the last 50 years---

Arguably Astons have looked 'the same' since the DB9, which is around a decade. Long enough for the design to look old hat, but not long enough for it to become a design staple. The photo on this article epitomises Aston's efforts at facelifting; add more holes, change the wheels and paint it funny.

Personally I think Aston's look great and don't think they need a new design but it isn't really comparable to Porsche, and I can see why people think they look dated or unoriginal, and can understand why people don't buy them new.

[P-Jay]

leedsutd1 said:

Amirhussain said:

Maybe making a car that doesn't look the same as the rest would be a good start....

That's what I was going to write, I cant tell one Aston from another, so would you buy the most expensive model when it looks like the cheapest model , Because they use a lot of parts on the range of cars I really don't know how they don't make a big profit. The works department is always busy and not cheap ?
I am not having a go at the car itself ,I would buy one if I could afford it !

I'm sadly not in a position to buy an Aston, so perhaps my opinion is Moot.

But if my ship comes in, I'm not sure I could actually buy an Aston, not a new one anyway.

To me it's not that you can't tell them apart that the problem, it's that they're not actually that different.

As far as I can tell they haven't made a new, new car in a decade (save the Rapide which is sort of new) it's still just the DB9 and V8 Vantage, yes they've changed the bumpers, and put a bit more power in, then taken it out again and used up all the V names they can think of to make 'new' models, but it's still a decade old car really.

I know it's Porsche's way to constantly evolve rather than reinvent, aside from a new notable leaps - but with Aston it seems to me more MG Rover than 911, changing the basics like the bumpers and the dash to keep an old car looking fresh on a limited budget -I might be doing them a massive disservice.

[NickGibbs]

f328nvl said:

Confused. Operating profit 1.5m? All other commentators are quoting 84m. AML raised $165m about two months ago in a bond issue. Are you sure you have this analysis right?

Are you confusing pre-tax profit (after goodwill amortisation) for cash flow? EBITDA is presumably the 84m number quoted elsewhere, which would mean that AML generated around £80m in cash before funding costs and capital expenditure and capitalised research and development. They raised £100m in bonds and,if I speed read correctly another £100m in equity. So all in all over 50% of the £500m cash needed to fund the development products.

Maybe chocolate digestives are available in warwickshire after all.

Operating profit was £1.5m, EBITA was £84m. That's not much wiggle room, hence S&P's doom and gloom (their junk rating was for that recent finance issue you mention)

[smilo996]

The germanisation of AML and it's relegation to being a coachbuilder is now omplete.
Dr Bez must be thanked for increasing sales but not for his attempts to move all production to Austria / Germany and for signing an agreement for AMG to supply the guts of all future Aston Martin cars. Since when did anyone buy an AMG because it had the industry's best engine.

I really wonder whether Dr Bez called : Ricardo, Cosworth, Jaguar, Ferrari, GM, Ford or anyone else. Sadly I doubt it.

It also seems odd for an Italian investment company to make an investment in Aston Martin, seeing it as best use of its funds to obtain the maximum return.

No new car until 2016 - that is really asking alot from current and potential customers.

A shame Tata did not just buy Aston. Then again Dr Bez would not have aloowed that.
Imagine a new Aston to sit above and clear of the F Type, a new four door GT and an exotic supercar at say 250K.
Then they would not have to consider making an SUV for Cheshire. They could have even supplied the new floorpan to the XKR replacement and reduced the development cost. Added 4 cylinders to jag's V8 with little need for development.

So Dr Bez moves to bigger and better
Dave Richards resigns
Investment profile moved to junk
Aston becomes coach builder
No new car until 2016
AMG engines
No new MD

New German MD. AMG takes majority stake. Will anyone care, nope.

Edited by smilo996 on Tuesday 29th April 18:09

[Zod]

Second attempt was a little more coherent, but you still need to try harder.

[f328nvl]

NickGibbs said:

Operating profit was £1.5m, EBITA was £84m. That's not much wiggle room, hence S&P's doom and gloom (their junk rating was for that recent finance issue you mention)

It is an unusual use of the phrase operating profit to equate it to pre-tax profit, but I guess there's no strict definition.

EBITDA is the key to understanding whether AML can afford the capex and r&d coming up. £84 EBITA means that there's actually a pile of depreciation to add back too, so in cash terms they should be fine a while to come. I haven't looked at detail, just added up the numbers quoted in various articles. This is the day job though, so hopefully an educated guess.

Junk bonds are just non-investment grade, and if S&P knew their arse from their elbow it wasn't obvious in the financial crisis!