Aston Martin’s first-half revenue fell 11% to £603mn, with declines across all regions. This reflected an expected drop in volumes as changes to the portfolio were made ahead of new model launches. Average selling prices (excluding specials) were down 2% from the prior year, at £180,000.
Underlying operating losses widened by 15% to £99.8mn.
Free cash outflows worsened from £218mn to £313mn, largely due to lower levels of cash generation by the business. Net debt rose from £0.8bn to 1.2bn.
Full-year guidance remains unchanged, with a “significant” increase in volumes expected in the second half. Free cash flow is also set to turn positive before year-end.
The shares rose 9.1% following the announcement.
Our view
First-half results highlighted Aston Martin’s painful transition and revenue and profits both fell at double-digit rates. This was due to a planned reduction in production volumes to prepare for the release of four new cars this year.
The biggest victim of this “immense product transformation” was the SUV, as sales of the lucrative DBX model fell by 67%. Aston has placed its bets on the upgraded DBX707 and upcoming V12 sports car to drive sales in the second half. But it’s leaving itself with a lot to do if it is to hit full-year guidance.
The group's also focused on selling Specials, which command a much higher selling price than its core offering. The cars have also become cheaper to make, thanks to efficiency improvements, making them higher margin which has provided some relief to profitability during this transition.
While we're supportive of Aston Martin's enviable brand and product prowess, there are some things to be aware of.
High debt has been a problem, which it’s committed to reducing once cash flows improve. In March, it refinanced £1.15bn of debt on better terms, leading to a reduction in future borrowing costs. Despite this, decreasing cash reserves caused the overall net debt to rise to around £1.2bn, up over 40% on the prior year. Having recently had its credit rating upgraded by Fitch, this debt pile isn’t an immediate concern. But turning cash flow positive will be key to staying on top of these obligations and we’ll be tracking progress closely.
We're also aware that brand positioning could insulate it somewhat from the shift away from petrol, but electric is the direction of travel for automakers. The first hybrid cars are pencilled in for 2024 release, with a full battery Aston expected a year later. This transition to electrification and rising prices means capital expenditure is on an upward course. The group’s also spending big on marketing. That’s a natural step when you’re trying to reposition a brand like AML, but we need some proof that money’s being spent to grow market share, rather than hold onto it.
The group faces challenges if it wants to come good on business targets. While its electrification strategy will be a key driver of long-term success, in the short term, its new models must be blockbuster hits. The valuation is likely to come under further pressure if there are any delays to the ramp-up of new models and there’s no dividend on offer to reward investors for their patience.
Environmental, social and governance (ESG) risk
Most of the auto industry falls into the medium risk category in terms of ESG. Product governance, particularly around safety, and the carbon emissions from companies’ products and services are key risk drivers. Business ethics, labour relations and operational carbon emissions are also contributors to ESG risk.
According to Sustainalytics, Aston Martin’s management of ESG risks is average.
ESG issues are overseen by the board and overall disclosure is strong. There’s a robust environmental policy in place, with a commitment to net zero for scope 1 and 2 emissions by 2030 and scope 3 emissions by 2039 and has interim targets in place. However, AML doesn’t divulge sustainability-linked revenue and environmental impact isn’t systematically considered in the design phase. Although some of AML’s facilities are externally certified, scope is unclear and its product and safety programme needs improvement.
Aston Martin Lagonda key facts
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