Aston Martin Lagonda Global Holdings plc

Ladies and gentlemen, thank you for standing by and welcome to Aston Martin Lagonda Full Year Results. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question, you will need to press star 1 1 on your telephone. I would now like to introduce the conference of the Lawrence Stroll Executive Chairman, Aston Martin Lagonda. Please go ahead.

Good morning, everyone, and thank you for joining us for this Q&A on our full year results of 2022. I hope you had a chance to read the release and also watch my address and the presentation of the results from Amadeo and Doug that are on our investor relations selection of our corporate website. Last year saw Aston Martin continue to build on the strong foundations that have been established over the last three years. While the last 12 months presented industry-wide challenges, we look to the future with renewed confidence in our ability to deliver on our vision and the targets we have set. We ended the year with significantly improved growth, margin enhancement, and positive free cash flow in Q4, exiting 22 with the strongest order book in many, many years. Since I became executive chairman, we have focused on fixing the core fundamentals of this company and building the necessary foundation to deliver on our vision, which is to become the world's most desirable ultra-luxury British performance brand. Over the last three years, we have rebalanced supply to demand, consistent with an ultra-luxury business. which has resulted in record ASPs and the strongest order book ever. Starting with the DBX-707, we launched the first product developed under my stewardship, combining ultra luxury with high performance. Crucially, all these new models target a 40 plus percent contribution margin, a very significant increase from the past. We have rejuvenated our iconic brand, further amplified by our partnership with the Aston Martin Aramco Cognizant Formula One team, which is attracting a rapidly growing new generation of customers and offers new opportunities to enhance our brand image and appeal globally. We have built a world-class leadership team and added significant bench strength across the organization, with a focus on innovation, execution, and efficiency to support our longer-term growth. And we successfully completed a significant equity capital raise, which has allowed us to delever our balance sheet, accelerate our future growth, and our target remains to be sustainably free cash flow positive from 2024. Having completed this heavy lifting over the last three years, we are now at the exciting part of the journey and set to reap the rewards of this multi-year transformation. Starting this year with the delivery of the first of our next generation of sports cars, a whole new lineup including high margin specials. And with the cadence of incredible new sports cars launching this year, and in 24, this will truly reposition Aston Martin for our future success. Over the last three years, I have consistently referenced our target to deliver around 2 billion of revenue, 500 million pounds of adjusted EBITDA by 2425. I am extremely proud that given the strong progress we have made to transform Aston Martin into a truly ultra luxury business. This is now demonstrated by the trajectory of our ASP and gross margins. And we are on track to meet these financial targets, but with significantly less volume than originally envisioned. Due to the greater gross margin, we're able to get to our EBITDA numbers without necessarily having the higher volume at this point. In addition, I remain highly confident that we will achieve our targets to deliver 10,000 home sales over the coming years and with it significantly enhance financial performance. And with that, we are now happy to take your questions.

Ladies and gentlemen, we now begin the question and answer session. If you wish to ask a question, please press star 1 1 on your telephone. If you wish to withdraw your question, star 1 1. We are now taking the first question. Please stand by. The first question for Hadi Agassi May for Barclays. Please go ahead. Your line is open.

Good morning. Thanks for taking my question. The first one is, please could you provide a bit more color on the extreme H1, H2 phasing of EBITDA in terms of unit sales revenue per unit and costs. Just trying to overall understand better why H1 would be so much weaker than H2 this year. The second question is on the new front engines. Please, could you provide some more detail on when the transition is happening and the dynamics here in terms of the order book and order intake, as well as the margin. Will these all be 40% gross margin vehicles from the first day? And then lastly, on the liquidity, You're guiding for a pretty significant negative free cash flow in the first half. What liquidity level could be expected by the year end? What's the level you wouldn't want to cross the downside? And I guess ultimately, can you rule out needing more capital in the future? Thank you.

Thanks, Henning. It's Doug. I'll take the second. Yeah, I'll do the third. Okay, so let's run it in that order. So I think we've tried to be fairly clear on our guidance for 2023 and tried to be helpful in terms of the phasing. I think just to put a little bit more color to it, there's a bit of color in the script on the presentation and the video that we put up on the website, but we do see quite a heavy weighting against the second half of this year. As I referenced alongside the presentation, we expect 2024 to be much smoother. Now, the reasons for that are, as you alluded with your second question, we've got to phase in the next generation of sports car launches, and they commence from Q3 onwards. So there's a little bit about managing volumes in the first half of the year. We expect DBX and particularly DBX 707 to be strong in the first half of the year, but we need to start to manage the transition to the new sports car. So that's part of it. Secondly, we are running, obviously, with an increased cost base. We're investing, continue to invest in the business to set it up for future performance. So that will carry over from last year, A, at a higher run rate, but also increasing to invest behind the business. And I think finally, really with regards to the weighting, it's very second half weighted because we've got so much to look forward to in the second half of the year. We've got very high margin specials coming in through the 110th year anniversary special, through the DBR22. And we also start to see quite significant volume ramp up of the first of the next generation sports car launches in the second half of the year. So that hopefully gives you a little bit more color as to the reason why we expect it to be weighted. We're trying to be helpful by giving you a little bit more guidance on the expected phasing for the year. If I just deal with the third question as well, and then Lawrence, you can come back and talk about the sports cards. So you're asking about liquidity level. Look, I think from our perspective, as I said, from a guidance point of view, I think we've given you the drivers of how we expect the guidance to work out this year. We obviously successfully completed quite a significant capital raise during the course of last year. This year for us is all about execution. So we've got to execute the plan. We've got to get to where we need to get to in the second half of the year. And if we do that, then I don't have any liquidity concerns. So that's really how I'm thinking about it. This year is really about execution. And as we've talked about, as Lawrence has just mentioned as well, from 24 onwards, we really start to see this business hopefully delivering a little bit more smoothly and also getting into free cash flow positive territory from 24 onwards.

I'll pick up where Doug left off, but the answer is as long as Doug rightfully says execute on the plan, we do not see any liquidity needs whatsoever. Talking about the plan, it all reverts to two things. One, the continued success of DBX 707, which is critically acclaimed as the greatest high-performance sports SUV in the market and capturing over 20% market share and continues to be the highest rated by all journalists SUVs. And equally as important, the next big step in our journey, I always said the first step was the DBX, and the second big step, which is our DNA, is our new generation of front-engine sports cars. So our first front-engine sports car is being built as we speak. Customer deliveries will commence in Q3. Back to Doug's point, that's why we're heavily weighted in Q3 and Q4, because we want it to slow down. the delivery of these sports cars that will be phased out as the new sports cars come into the dealer showrooms. So our first sports car, as I said, is under new generation sports car is under production. And over the next 18 months, you will see our whole range of new sports cars, all with a significantly higher minimum 40% and higher contribution margin. And at our capital markets day, which we will hold this summer, At Gaydon, we will be showing you guys all the whole future product portfolio, the new generation of sports cars, including our cab, our hybrid program, and all the way to our full BEV, full electric. So we're going to show you all this in true color, in real life, at our Capital Markets Day this summer.

Thank you for your question. We are now taking the next question. The next question from George Galliers from GS. Please go ahead. Your line is open.

Good morning, and thank you very much for taking my questions. Actually, I just wanted to follow up on the new products. Obviously, a very exciting period for Aspen. But you mentioned the new sports cars coming from Q3. Obviously, I think under your definitions, sports car is the vantage, so presumably a replacement for that. Can you give any insight into the GT cars? Should we also expect a new range of GT cars to replace DB11 and DBS? And if yes, at what point in time should we anticipate those? Also, is Aston still committed to a core mid-engine car at some point in the coming years? The second question I had was more with respect to the gross margin evolution. Obviously, in Q4, you had very strong performance on the DBX, but we only saw a marginal improvement sequentially in the gross margin. Doug, could you just highlight what's holding the gross margin back at this point in time because obviously you do expect it to show significant improvement in the second half of this year and then into 24 and 25 and then the final one was just with respect to the capex um you're guiding obviously for a big step up in capex this year i understand you have a lot of new products coming as well as your electrification plans is this year's capex guide a good proxy for

underlying capex on a look forward basis or can you give some insight into what that might step down to in 2024 2025 thank you i'll take the first question that's lawrence um just for clarification when we say new generation sports cars we're referring to all our front engine range which includes Vantage that you referred to, a new DB11, and a new DBS. So we refer to all three of those models, which is actually six models in total if you count the Volante, the convertible versions. In addition, there's Evolutions and Specials. But all three of those models in both Cooke and Volante, as I said, first one of those models is currently in production, and we will start delivering to customers in Q3. Again, that's why it's so heavily weighted towards Q3 and Q4, because of the launch of these new sports cars. And in the next 18 months, all three of those models, a total of six variations, will be coming to market. I hope that answers the question on that. As far as the mid-engine program, we're currently focused on our very exciting hybridized Valhalla and the balance of the whole new portfolio We really don't want to talk much more in this call, but we are very looking forward to show you on our capital markets day this summer.

Morning, George, Doug. So if I take those two questions in order then. So with regards to the gross margin evolution, I think you're referring to Q4 versus Q3 last year. Yes, we started to see some benefit in the gross margin from a core point of view with strong deliveries of the DVX-707. that delivery profile had been disrupted as we moved through last year with the interruptions we had in Q2 and Q3. However, as you quite rightly point out, perhaps the gross margin for Q4 not looking as strong as we would have liked it and perhaps you would have expected it to be, but for three main reasons. One, a bit of geographical mix going on. So China towards the end of last year played a part in that. As we alluded to at our Q3 results, We were incurring supply chain recovery costs as we came to the end of the year recovering from the issues that we dealt with in Q2 and Q3. So they had an impact on margin. And also finally, just regards to specials mix. So we had two things going on there. One lapping, sorry, no, Q4 versus Q3 was really, you know, the number of Valkyrie deliveries in the quarter and the customer mix therein. So we've talked about in our release the impact of the ongoing situation with Nebula and in particular in Q4, quite a lot of cars went to those affected customers and that impacted the margin. That said, going forward, we do expect strong trajectory in margin as we move through this year. As we've been saying in the first part of the call, the second half of the year in particular with high margin specials and the start of the next generation sports cars with a targeted margin of 40% plus to complement the margin that we already target on the DBX 707 at 40% plus, we do really see strong trajectory in margin as we move through this year. With regard to CapEx, George, yeah, so this year is a step up. We've described that as what we expect to be the peak in CapEx over the course of the next few years. We illustrated the reasons why this year steps up, a bit of phasing from last year. There is obviously very, very high inflation that not only us, but a lot of other businesses, all businesses incurred last year, and that will carry through We're investing in the 110th year anniversary special that will give us quick returns and really help us in terms of delivery in the second half of the year and into 2024. And then also it's the sort of crossover period between heavy investment in ice and investment in electrification. So they're the reasons why this year peaks. We expect it to readjust from 2024 onwards. And I think, again, not going to give any color or guidance on that number. but as we move into the capital markets day and can describe to you what the plans are for the future, we can disclose a little bit more detail on that at that time, hopefully.

Great, thank you, and very much looking forward to the CMD in the summer. Thank you.

Thank you for your question. We are now taking the next question. Please stand by. The next question from Christophe Lagarski from Deutsche Bank. Please go ahead. Your line is open. Christophe Lascawy, your line is open. Hello, Mr. Lascawy. Your line is open.

It's the next question operator.

Yes, we are going to take the next question.

The larger pure one.

The next question for Hostinator from Bank of America. Please go ahead. Your line is open.

Yes, good morning and thanks for taking note of my questions. A very simple one maybe for the beginning. That is, when you say you want to achieve up to 20% EBTA margin, is there also a kind of lower threshold? So what's the minimum you want to achieve? Maybe you can provide some color on that. Then the second question that I have that refers a little bit to the demand situation, because you say you have got the record order book at the moment, so maybe you can shed some color on the current inventory situation that you have. And maybe an add-on to the demand question is, What I observe is that there are major price differences between regions, so that the prices that are charged in the U.S. seem to be very much higher as compared to Europe. So shall we interpret that as a sign that the U.S. dealers basically charge prices above list prices? Maybe you can comment on that as well. And if you give me a last one, that is on the technology partnership, because I ask myself all the time in the context of this technology agreement with Mercedes, You mentioned, for example, in your prospectus, a reference price that is maybe valid in the upcoming stake race that might be done by 2024. Is this reference price still valid, or has that been diluted as well? Thank you.

Let me start with your last question. As far as Mercedes-Benz is concerned, we have a Terrifically strong partnership, we've never been closer. Most recently demonstrated by them investing 60 million pounds into our last rights issue this past summer, which demonstrates again the strength of our partnership. So partnership could not be stronger technically or from a shareholding point of view as well. What was the first question?

The first question, that was related to the up to 20% EBITDA margin if there is a lower threshold.

Yeah, okay. Let me take that one. So I think, look, we're expecting significant improvement in our profitability this year. We're not going to put a floor on the EBITDA margin, but I think the language is fairly clear. We expect significant improvement and we expect that if we execute our plans as we're talking about, we'll get up towards that level of 20%. Okay.

Okay. The demand has never been stronger. As we've mentioned, our order book is sold out for sports cars and for DBX 707s and DBX 550s until the third quarter of this year. So demand's never been stronger. A lot of that has to do with the great new DBX. A lot of it has to do with the strong following we're enjoying with our Formula One teams. We've brought a whole new younger customer to Aston Martin that we never had previously demonstrated by our success in the Vantage F1 edition, which 72% of those customers are new to Aston Martin. So through great product, through a great Formula One platform to help market this brand, we're enjoying greater demand than we've ever seen in the history of the company. And it'll only get stronger with the launch

all of our new next-generation sports cars as I mentioned starting in the third quarter of this year yeah no that's great but but just follow up then on Mercedes you cannot comment on this reference price issue right regarding the technology agreement or you don't want to comment on that well the what stated in the prospectus is factually correct but as Lauren says you know we we don't anticipate that being something which is part of the conversation with Mercedes we've got a very very strong relationship with them and as and when you know, that comes to be the conversation. We don't expect that to be an issue at that time.

Yeah, just as demonstrated in July by the rights issue where we required the amendment for the technology agreement. So, again, the relationship's never been better, never been stronger, and we work together to work out whatever we do. It's a long-term relationship. Okay, excellent. Thank you. You're welcome.

Thank you for your question. Good morning and thank you for taking my questions as well.

The first one will be on the rollout of the new models. You already said you are starting production right now or you are already in production. Is there any execution risk that you would see in the ramp-up, sort of like a quality-led ramp-up, like for the DBX, that could pose a bit of risk to the volume assumptions for H2, or is everything running very smoothly and the models are, in the way they are built, so similar to the old ones that there shouldn't be any issues to come? And then, third, you come back to that on the margin question that Horst had as well. You made clear that you don't want to provide a floor for that. Is there anything in specific we should watch outside of what you said, the execution of the plan that would bring you towards the 20%? Do you need the 7,000 units or could it be slightly less? A comment like that would be much appreciated. And then just on the ASP in Q4, where core was down versus Q3, is it right to assume that this was just geo and product mix that was driving the core ASP down and nothing fundamentally has changed versus the gains that you had in previous quarters? Thank you.

That would be the starting of the production of the first front-engine car. We started the procedures a few months ago, and now we are completing the procedures. We go for job one at the first of April. And then we need to start up the preparation of the customer car. As I mentioned, we will deliver the cars in early Q3. This is the first one. The second one, we start on the second part of April. To complete or to prepare the launch of the cars, we have done in Gaydon three weeks ago two days of work with the more important supplier of the cars in order to understand the readiness also of the external partners. Of course, we are part of the play, but then we need to have all the partners supplied with us. was a very interesting moment to understand if they are, in which position they are versus the starting of the production. And frankly speaking, the meeting was very positive. And we had the possibility to discuss with them. We did 18 workshop on the specific component of the different segment system of the cars. And then I think we have a pretty clear idea what they are, especially the completion.

Okay, coming back to the EBITDA margin. Yeah, so I've already tried to answer this question. We expect significant margin enhancement this year. I think consensus is currently 18.5%. We're expecting to get up towards 20%. We're confident on the trajectory in our gross margins, which will support that. We haven't referenced on this call already, but as you all know, we've had a very strong order book on for example, DBS 770 Ultimate. Also on the specials that we've talked about, we've still got V12 Vantage to run through this year. A lot of those products, all of those products indeed are sold out. So that gives us confidence in our ability to have the gross margin trajectory to support EBITDA margin direction that we expect to deliver in 2023. Again, assuming that we execute our plans and as Amadeo just said, make sure that we bring the new sports cars to the market on time and in full and avoiding some of the issues that we had last year with the DBX 707 ramp up. On your question on ASP, you answered it yourself. So yes, predominantly, in fact, the vast majority of impacts in Q4 was geographical mix. So nothing fundamental and we expect to see ASP trajectory move in the right direction through the rest of this year.

Understood, thanks. Thank you for your question. We are now taking the last question. Please stand by. And the next question is from Daniel Vesca from Bernstein. Please go ahead.

Good morning, gents. Congrats on Q4. Thanks for taking my question. Number one, what are you doing to maintain the production schedule in 2023? What I'm looking for is kind of any color of measures you've put into place recently to monitor the up and the downstream supply chain. How can you react to unforeseen events? How well do you see supply chain bottlenecks coming your way? Or how well can you deal with supply chain bottlenecks downstream to your dealers? If you think about the capital market today in 2023, you already provided some color alluded to the main topics. On electrification, what's the level of detail you're aiming to showcase at that capital market today? How much do you think can you unveil and share with us by that time? And then for Doug, I'll come back to the cash flow this year. Let's see if there were some unforeseen events that would create some disruptions in your cash flow. What are the levers you're thinking about? If there were a cash gap to open up, what's the floor of cash you would deem acceptable for the business? Do you think the markets are open as you're looking at them right now? Just thinking about the contingency planning, if you will, on the cash front this year.

I'll let Amadeo start, and then I'll go, and then Doug, you'll

Okay, I think the 707 last year was a good experience to understand where we have to strengthen the organization, internal and external, means the supplier. I think what we have done is to a little bit change the organization of the production line. As mentioned, we have started this month going on the main line. Until now, we have produced several tens of cars on the pilot line in order to prepare the production and the networks of the supplier. Now we are moving on the final phase, which will end up until the end of March. So I think the experience we got give us the understanding where we have to strengthen the organization, and this was done in the production side, as mentioned. From the other side, we have decided to strengthen the cooperation with the supplier, which is If you want, 70% of the values of the car is coming from outside. So we have decided to really have the supplier as partners, not only as supplier. And this was the very well new way to work that we have decided to do end of last year, starting this year, in order to have all the enlarged company, that means us and the supplier working together. This was the reason of the meeting. We decided to have... two weeks ago with the 40 main suppliers for the new car, and I think the result is coming. Then, of course, we have to still improve, but I think the starting of the production phase of the new car, I think it started better than was the 707.

As far as your second question regarding Capital Markets Day and what we're going to share and how much we're going to share, We're going to share a great deal. We're going to share our future product plans. We're going to share the capital requirement to deliver it, which does not dramatically change from the numbers you guys already are imagining. We're going to share our complete electrification strategy, and we're going to share our midterm guidance. So it's going to be a very exciting day. You'll visually see the products that I'm referring to, so it's not only going to be us discussing them, you'll visually be seeing Models of them, some will already be made, some will be prototypes, but you'll see a real clear vision of the journey that I've been building for the last three years, which is now really coming to light. It came to light first with the first new vehicle under my management to DBX 707. Now you're going to see all the rest of the cars this summer. It's going to take us through our full combustion story. It's going to take us through our PEV, our hybrid story. and it's going to take us right through the full journey of the plans for electrification. So a tremendous amount to share, and really excited to share it with you, because again, it's all the last three years of heavy lifting and the work we've done, but now we're seeing the light at the end of the tunnel of how we get to the famous 10,000 cars in the next few years.

Morning, Daniel. Just on your last question. So look, I think I'll start by saying again that we've got confidence that we've got the resource that we need to meet the plan for 2023 and beyond. So, you know, our target of becoming free cash flow positive from 2024 remains. And our plan is all about execution, as we've talked about before. So I don't foresee, you know, any issues from a liquidity point of view in 2023. If there were, you know, extreme pressures that came onto the business, the first place we'd look is internally in terms of the profile of our spend, our investment in, you know, variable costs that we can control, but really no plans on the radar in terms of anything external. So we're confident that we've got the cash that we need in the business to execute on the plan. If we execute the plan that takes us with very strong momentum into 2024 to deliver on the midterm targets that Lawrence has just talked about, and we'll talk about refreshing as we move into the summer.

Brilliant. Thanks very much, Sean.

Thank you for your question. There are no further questions at the moment. I will hand back for closing remarks.

The only closing remarks, as I've stated, is the last three years has been a journey to take us to this exciting point, which is our core DNA, the launch of all our new next generation sports cars. Currently, our first one is under production, delivering third quarter this year. In the next 18 months, all of them will be coming to market. So this is the moment we've all been waiting for, continuing on the success of our critically acclaimed DBX-707 and moving on to our Valhalla, our super mid-engined hybrid. So it couldn't be a more exciting future. This is all what we've been working for. We believe we have our issues behind us in supply chains. We learned a great deal from last year. And as Amadeo mentioned, our suppliers are now becoming partners rather than suppliers. So learning from last year, bringing the experience of that into this year to hopefully have a very smooth ramp-up and delivery of all our exciting new front-engine sports cars. So please continue to follow us on this exciting journey. It's just all about to get started. Thank you.

That concludes the conference for today. Thank you for participating. You may disconnect.