Aston Martin Lagonda – revenue rises on record selling prices

Aston Martin’s full year revenue rose 18% to £1.6bn. This reflected record average selling prices of £231,000, helped by an increase in more expensive, personalised vehicles. Volumes also rose 3%.

The higher revenue helped underlying cash profit margins reach 18.7%, up from 13.8%. Growth was partially offset by a 26% increase in operating expenses, including higher marketing costs. Underlying operating losses improved to £79.7mn from £117.9mn.

There was a free cash outflow of £360m, which was higher than last year’s £299m. This reflects higher investments in next generation vehicles and the group’s electrification programme. The timing of deliveries also had an adverse impact on cash flow. Net debt was £814mn at the end of the period, up from £766mn.

The timing of launches means volumes will be heavily weighted to the second half of the new financial year.

The shares rose 3.9% following the announcement.

Our view

The response to full year results was positive, but not enough to offset a broader deterioration in sentiment seen over the last year. But we’ll start with the good news.

Broadly speaking, financial performance is relatively robust. That's especially evident in the group's ability to push average prices higher. The kind of people spending £230,000 on a car are on average less susceptible to economic ups and downs too, which means the luxury end of the market is a better place to be.

The group's also focused on selling higher-margin Specials. Customers sign up and pay a deposit for these rare models before they're built, allowing for tighter working capital control. The cars have also become cheaper to make, thanks to efficiency improvements.

While we're supportive of Aston Martin's enviable brand and product prowess, there are some things to be aware of.

Something that affects free cash flow is capital expenditure, and this on an upwards course because of the ongoing transition to electrification and rising prices. 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.

Production delays have been especially painful. The bulk of cash only comes in when cars are delivered. So we're keen to see continued progress on this front - it's too soon to say issues have been cured, even if problems are easing.

The revamped strategy is also being pushed forward. The strategy shifts have left Aston Martin in a slicker position and included a complete overhaul of the way it sells cars. The group ran down dealer inventory levels, helping demand outpace supply. This supported stronger pricing and added to the cachet that comes with buying an Aston Martin. These efforts don't come cheap though, and Aston Martin has already come cap-in-hand to investors, so there's pressure for things to work out.

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. It'll take until 2030 for a full range of electric vehicles to be available.

Management's targeting annual revenue of £2bn, with underlying cash profits of £500mn by 2024/25.

Near-term, the group faces some challenges if it wants to come good on its promises. The execution of the electrification strategy will be a key driver of long-term success, and recent strategic partnerships show the group's putting the building blocks in place. Further pressure on the valuation is likely to come from the unclear roadmap for volumes and the success of the electric strategy, especially while the group continues to burn cash. 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 carbon emissions from products and services are key risk drivers. Business ethics, labour relations and direct 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.