AML - Stock Market Listing
Discussion
Thank you Reg.
The amount of R&D placed on the AML balance sheet intrigues me, because as we have seen, it can change a pre-tax loss in to a reported pre-tax profit (eg. 2017).
The proportion of development cost placed on balance sheets by motor manufacturers differs considerably.
Ferrari .......... = 24.97%
Daimler ........ = 32.18%
BMW ............. = 39.70%
VW ................ = 40.46%
Volvo ............ = 56.00 %
JLR ................. = 78.04%
Aston Martin = 95.05%
Therefore, AML treated almost all of its development spending as an investment, not an expense.
Please drscribe what happens to this balance sheet item in future accounting years.
Are the initial development costs gradually returned to the profit and loss account ?
If so, then presumably AML have to face future reported profits being depressed, by this accounting arrangement.
If you capitalise assets such as development costs you write them off over their expected life. Most likely 5-10 years. This means that your depreciation figure in the P&L increases with the said amount. This is also why notional profits or indeed EBITDA (Earnings before interest,tax and depreciation) can be misleading and hence cash flow is the really important figure because that cannot be manipulated. AML’s cash flow is hugely negative. “Companies don’t go bust because they show a loss, they go bust because they run out of cash”
If you capitalise assets such as development costs you write them off over their expected life. Most likely 5-10 years. This means that your depreciation figure in the P&L increases with the said amount. This is also why notional profits or indeed EBITDA (Earnings before interest,tax and depreciation) can be misleading and hence cash flow is the really important figure because that cannot be manipulated. AML’s cash flow is hugely negative. “Companies don’t go bust because they show a loss, they go bust because they run out of cash”
hornbaek said:
If you capitalise assets such as development costs you write them off over their expected life. Most likely 5-10 years. This means that your depreciation figure in the P&L increases with the said amount. This is also why notional profits or indeed EBITDA (Earnings before interest,tax and depreciation) can be misleading and hence cash flow is the really important figure because that cannot be manipulated. AML’s cash flow is hugely negative. “Companies don’t go bust because they show a loss, they go bust because they run out of cash”
That’s correct HB, however cashflow is also not the be-all/end-all because if you purely focused on that then you’re effectively saying the investment is worthless. The truth is somewhere in-between and that’s why analysts are looking at a combination of EBITDA and cashflowI’m on my blackberry so can’t check the accounts from where i am. But from memory AML has had a very generous amortisation policy on investment in vehicle development (ie not amortising at all) one reason why it frequently (every few years) takes a big write-down as the auditors refuse to accept that the Bulldog design is still worth millions
. That generous accounting may have changed with the IPO, I haven’t checked I think the last big writedown was about the the same time AML started muttering about an IPO (a clearing of the decks?)
soofsayer said:
I have never understood why anyone gets knighted for doing the job they are paid (usually very) handsomely for, well, or not, as is sometimes the case. Not sure which of those applies to AP.
Knighthoods are rarely JUST for business, there's usually some philanthropy involved.Glancing at AP's Wikipedia page has this:
"Palmer Foundation
In September 2018, Palmer announced a charitable foundation to fund apprenticeships targeting young people from disadvantaged background."
Edited by faa77 on Thursday 19th December 02:47
There are few things in the world that I'm more cynical about than the Honours List. It's also very easy to be charitable when you've just paid yourself several million pounds. Yes, it would be even easier to pay yourself the same amount and not be charitable but it's not exactly a hardship.
V8V Pete said:
There are few things in the world that I'm more cynical about than the Honours List. It's also very easy to be charitable when you've just paid yourself several million pounds. Yes, it would be even easier to pay yourself the same amount and not be charitable but it's not exactly a hardship.
I agree that the Honours List has been corrupted in recent times although there are still many worthy recipients.'Successful' is also a word that's been corrupted - it used to apply to those who were talented and skilled in what they did, now it merely means having amassed riches. Honouring someone merely because they've got pots of money and feeds a bit into a charity debases the whole system (imho of course).
Jon39 said:
Thank you Reg.
The amount of R&D placed on the AML balance sheet intrigues me, because as we have seen, it can change a pre-tax loss in to a reported pre-tax profit (eg. 2017).
The proportion of development cost placed on balance sheets by motor manufacturers differs considerably.
Ferrari .......... = 24.97%
Daimler ........ = 32.18%
BMW ............. = 39.70%
VW ................ = 40.46%
Volvo ............ = 56.00 %
JLR ................. = 78.04%
Aston Martin = 95.05%
Therefore, AML treated almost all of its development spending as an investment, not an expense.
Please drscribe what happens to this balance sheet item in future accounting years.
Are the initial development costs gradually returned to the profit and loss account ?
If so, then presumably AML have to face future reported profits being depressed, by this accounting arrangement.
Think the %s above may be misleading (and unfair to AML) as if IAS standards applied correctly the models costs put onto the balance sheets as intangibles should be the same. Big manufacturers also struggling with profit warnings (Daimler 3 this year at least) so would expect to be capitalising costs with vigour also.
Big manufacturers are doing more research into new battery/propulsion and automated/self driving vehicles which must be written off/expensed in year as can't be directly related to a profitable new model. In case of Daimler the expenses written off in year of spend (Euro 6.5 bn are mainly staff costs - page 257).
AML are also catching up with new models so amount being amortised will be behind costs as main new models only recently introduced and in case of DBX all being held for future launch. I would assume AML estimates model production and spreads costs per cars sold each year by model.
A better view of intangible/model development costs held on balance is: Opening NBV of capitalised cost/amortisation in year (which gives an approximation of how many years on average a model costs take to be written off ).
AML 2018 gives £512m divided by £61m = 8.4 years (2019 & 2020 will be much more in line with other manufacturers)
Daimler 2018 (page 262 table F29) gives Euro 10,280 m divided by Euro 1.553m = 6.6 years
AML number compares very well to Daimler considering the number of Mercedes cars, trucks and vans in production and development and would expect AML number to come down closer to 7 years in 2019 and under 7 years in 2020.
Thank you Reg for your detailed explanation.
A complex subject, but I am learning more.
I recall one comment relating to this aspect, which may or may not be true.
There was a mention in 2018, that different accounting rules are applicable in USA and UK. Consequently it was suggested, that if the Company flotation had taken place in New York (as per Ferrari), then the amount of R&D placed on the balance sheet would have to be lower.
Jon39 said:
Thank you Reg for your detailed explanation.
A complex subject, but I am learning more.
I recall one comment relating to this aspect, which may or may not be true.
There was a mention in 2018, that different accounting rules are applicable in USA and UK. Consequently it was suggested, that if the Company flotation had taken place in New York (as per Ferrari), then the amount of R&D placed on the balance sheet would have to be lower.
https://corporate.ferrari.com/sites/ferrari15ipo/f...
see p56 for R&D (plus p80 & p192/F35 at back) - does show small amount of capitalised development but much more externally purchased capitalised development - Euro 243m external development costs in 2018!
graph on p25 illustrates Ferrari sales resistance in bad times verses Luxury Performance Car Segment (incl AML)
some great detailed (readable) stuff in there history p23, models and organisation and production and procurement (p37) and car shipments per market etc
press release show Ferrari NV (Dutch holding co listed on NYSE) has also bought back shares over year - into 3rd tranche - so not short of cash at the moment,
Bincenzo said:
cardigankid said:
Charity wash. Did you see how much money he took out of the company.
Wait till you see how things turn out at AM before promoting the obese twister for any kind of honour.
Christ, you’re really quite acidic aren’t you?Wait till you see how things turn out at AM before promoting the obese twister for any kind of honour.
cardigankid said:
Bincenzo said:
cardigankid said:
Charity wash. Did you see how much money he took out of the company.
Wait till you see how things turn out at AM before promoting the obese twister for any kind of honour.
Christ, you’re really quite acidic aren’t you?Wait till you see how things turn out at AM before promoting the obese twister for any kind of honour.
Quite a lot of smoke and mirrors thou - Aston Martin will never be Ferrari
Take as much money off the suckers as possible, is how I would put it, then divide the spoils, meanwhile the company collapses. I can't see why he should be honoured for that. particularly when you think back to some of the heroic types who kept AM going, in fits and starts, in the old days.
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