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Hello, and welcome to the Aston Martin Lagonda Q1 2019 Investor Results Call. [Operator Instructions] Please note, this call is being recorded. Today, I'm pleased to present Mr. Mark Wilson, Executive Vice President and Chief Financial Officer. Please begin your meeting.
Good morning, everybody, and welcome to the Aston Martin Lagonda Q1 2019 Results Call. So firstly, I'm going to take you through the presentation available on the IR section of our website, and then, of course, I'll be very, very happy to take your questions from there.So turning to the Q1 highlights. The key message for the quarter is that we remain absolutely focused on continuing to execute the Second Century Plan, building on the progress we have made since its launch in 2015. We're now firmly in Phase III of the plan, portfolio expansion. We're on track, and we are progressing well. Customer demand for our range of sports cars continues to drive our growth. And you will, of course, confirm steps to deal with the supply chain issues and consequent stock position at the end of last year. Set against the backdrop of weak global automotive market trends, weakness was stretched out, in fact, to impact everyone below the luxury segment, we feel our sales results underpin our luxury credentials as growth in both wholesale and retail units continues. So Q1, seasonally small, and this year is no different. And just to touch on some of the key metrics. Revenues at GBP 196 million are up 6% over the prior year, driven, of course, by increasing wholesales, improved personalization and the sale of new GT3 and GT4 race cars. Despite this growth, gross profit's flat at GBP 83 million, reflecting fewer Specials, the impact, of course, of the lower margin Vantage and the shift to V8 variants, remembering, of course, in the same period last year, we were selling almost exclusively DB11s. Adjusted EBITDA at GBP 28 million was down versus last year, driven entirely by planned fixed cost increases supporting our product expansion, the growth of the brand and, of course, the growth in our operating footprint ahead of the DBX launch next year. D&A at GBP 31 million, consequently also up in line with plan and reflecting, of course, the 3 new vehicles brought on since last year. And accordingly, therefore, adjusted operating profit level, we delivered a moderate loss of GBP 2 million. Core wholesales, up 12%. And with fewer specials year-on-year, total wholesales were up 10%, with continued strength in the Americas, Asia Pacific and China, offsetting continued challenges that we see in Europe and the maturity of the U.K. market. For the first time in this set of results, we're also talking about retail units, and we're doing that specifically in the context of the supply chain disruption we experienced last year, and to demonstrate that we are taking the right steps to manage this business in the right way for strong and profitable growth in the future. Those retail units were significantly ahead of the prior year, up 39% globally and well ahead of wholesales in the quarter. And of course, the net effect of the retail rate running well ahead of that wholesale rate is that we significantly destocked our dealer network, returning to more normal levels of inventory in theater and dealing with a lot of the commentary we received from you at the end of last year. It's also important that we contextualize that retail wholesale dynamic. Of course, in a growth business, and, over time, you'd always expect wholesales to run ahead of retails, we expect that trend from Q1 to continue through Q2 this year before it starts to invert a little as we go into launch for DBX next year. And as you would expect, when we launch DBX, we'll be stocking the dealer network, and the wholesale trend will run further ahead. On which, preparations for DBX firmly on track, that first production build we told you about in February, it commenced, as we said, on the 15th of April, and as previously communicated. And I'll come back on the DBX with some more color and detail later in the presentation. The Geneva Motor Show at the start of March was our platform to reveal the fifth and sixth core cars in the 7-car lineup. They received an extremely positive response from customers, investors, the media alike. Car #5, the main engine super car, bringing back the Vanquish name to the brand; and of course, car #6, the All-Terrain Lagonda SUV. And of course, you will remember, this marks the relaunch of the brand, and it will be our first car for the first fully electric luxury car brand in the world. And finally, but, of course, by no means least, our special edition cars continue to be in high demand, with the most recent special, AM-RB 003 concept, also revealed at Geneva, receiving significant attention. That car is now oversubscribed. Turning to wholesales, and just looking at those in a little more detail. The geographic wholesale trends seen towards the end of last year continued into the first quarter of 2019. There was significant positive momentum across both Asia Pacific and the Americas, resulting in 30% and 20% growth, respectively. Within APAC, China remains a key growth market for us in this quarter, wholesales up 29%, that was no exception. This was balanced by a softer quarter in Europe and the U.K., both down year-on-year. These 2 regions were the most exposed to the late December deliveries due to the supply chain disruption we've previously detailed; and in particular, in Europe, continue to show less favorable macro dynamics, the U.K. dynamic, of course, being related to the maturity of that market, where we already have a very high market share. Turning to average selling price, ASP. You can see that in the bottom left corner of this slide. The core model of this was GBP 149,000 compared to GBP 160,000 last year, as expected, given the model shift towards V8 variance and, in particular, Vantage itself. Looking at the sequential move, ASP was up from GBP 138,000 in Q4, with those Vantage sales being offset by the strength of the DBS Superleggera, a positive geographic mix and higher personalization and option uptake rates also contributing favorably. Total group average selling price was GBP 160,000 versus GBP 177,000 in the prior year, the major difference there, of course, being more specials in the prior year, 48 last year compared to the 32 this year, again, as we expected. And that will continue through Q2 and Q3 until the DB4 GT Zagato continuations arrive in Q4, Q2 and Q3 being almost no specials in those quarters. And of course, that products, the DB4 GT Zagato Continuation, provides the bulk of the specials in the year. The net results of volume growth and average selling price led to modest growth from vehicle sales along with growth in the sales of parts and service, reflecting, obviously, more cars in circulation and income from brands, motorsport and, as I say, sale of those racecars we talked about earlier, all of this delivering 6% revenue growth quarter-over-quarter. Turning to key profit metrics below the top line. Gross profit was stable at GBP 83 million year-on-year, the gross margin up 42%, lower than the 44% in Q1 2018, largely due to those mix factors and ASP factors I've described previously. Adjusted EBITDA at GBP 28 million at 14.4% margin was down from GBP 44 million in the prior year as we continue to invest for long-term sustainable growth in the cost base. Looking at the chart, you can see the clear readthrough, the positive contribution from additional wholesales, offset at the gross level by lower core average selling price and fewer specials. GBP 18 million of planned cost increases reflects our continuing investment in DBX, and running costs of St Athan, continued marketing and sales spend supporting the residual launch of Vantage and DBS, derisking of the supply chain, spend on motorsport and, of course, versus last year, PLC-related costs that we didn't have in 2018. Then, of course, a positive exchange impact of GBP 5 million, primarily due to dollar, sterling and some euro movements and a GBP 3 million benefit from the first time adoption of the IFRS 16 standard. Moving down the income statement to depreciation and amortization. This increased 41% to GBP 31 million, representing almost 40% of the total operating costs of the quarter, which were GBP 85 million in total. And this increase mainly due, of course, to the number of products currently available and with 3 core models and the DB11 Volante in production is in line with the charge, what we saw in Q4 2018, which was, of course, the first quarter with all 3 of these core models selling. Overall, these costs leading to adjusted operating loss of GBP 2 million, with GBP 1 million of adjusting items relating to pre-IPO long-term employee incentives, as we discussed at the prelims. And these adjusting items will total GBP 4 million for the full year. Finally, as you would expect for a business close to SG&A maturity, we're taking a firm line on costs with a view to ensuring we both drive efficiency and effectiveness into the business as we look forward. And you will see some of this benefit come through at maturity in the second half of this year. So moving out of the income statement towards cash and net debt. And on to this slide, starting on the left, the main working capitalist movements in the quarter were positive, and they relate primarily, as you would expect, to the unwind of the majority of the GBP 90 million receivables buildup that we chronicled during the prelims. GBP 64 million of that total has now been collected. That is partially offset by an inventory outflow as we increased factory inventory, representing a rebuild from the low stock level at the end of the year. And, of course, worth understanding the manufacturing dynamic here. With Gaydon an optimum run rate, a peak run rate during a seasonally small quarter of deliveries you'd expect, of course, for us to build ahead in order to meet our volume aspirations for the year. A final thing to say, of course, on inventory. Approximately GBP 5 million of that inventory increase relates to the Brexit stop we discussed before and moderate but negligible frictional costs in the P&L associated with that, but carrying around GBP 5 million of inefficiency for contingency stock. We will continue to work at that heightened level until more certainty on Brexit is seen. There's also, finally, a small working capital benefit from timing on creditors, which we would expect to reverse as the year goes through. CapEx at GBP 10 million lower than prior year at GBP 78 million, largely due to a combination of timing of new product launches. Clearly, last year, we were heavily into Vantage and late-stage DBS. And also, R&D spend on new programs are ramping up more slowly than we've seen in the prior year. This is clearly a dynamic we've seen in previous quarters as well as you start the programs. Spend on CapEx and R&D expected to accelerate through the second half, although it's now expected to be at the lower end of the previously guided range, which was GBP 322 million, GBP 340 million. So overall, a GBP 70 million cash outflow since the year-end versus an outflow of GBP 72 million in the prior-year period and cash balance at GBP 128 million, up from GBP 96 million last year. Moving on to the right-hand side. That reduced period-end cash balance and increase in loans and overdrafts, primarily relating to back-to-back facilities to extract currency from China and on the water cars -- on the water funding for cars in transport, resulted in a GBP 30 million increase to net debt at the end of the period. Leverage at 2.6x. LTM adjusted EBITDA up from 2.3x at the last year-end, and this follows the same intra-year trend, as seen previously with the business, consuming cash in half 1 and balances generally restoring during half 2, expecting that to continue this year. It's also worth highlighting the technical decrease in net debt year-over-year, of course, following the conversion of the preference shares to ordinary shares. At IPO we see a technical dynamic on a year-over-year basis. Including the pro forma look of the first-time adoption of lease liabilities per IFRS 16 of GBP 112 million, net debt at the end of the period was GBP 702 million.So to close on the financials. Immediately following the period-end, on the 1st of April, we issued $190 million of 6.5% senior secured notes, this capital increase allowing flexibility in the investment portfolio expansion throughout Phase 3 of the Second Century Plan. It underpins resilience, provides us with a more robust funding position. And post the new issue, leverage was unchanged pro forma at 2.6%., and we updated, of course, interest guidance for the year to approximately GBP 63 million, reflecting that issue at the time. Secondly, Brexit, as I say, we see nominal frictional costs in the quarter, built approximately GBP 5 million of inventory. Now that we've had Brexit timing moved to October, we plan to build resilience and contingency in the same way, just over a slightly more extended period. And so we maintain our previous guidance in that respect. And finally, as we look towards the end of June, we expect adjusted profit to be lower year-on-year in the first half, principally due to the non-repeat of the GBP 20 million consultancy contracts and fewer specials. And in addition, of course, the fixed cost run rate for Q2 remain in line with this quarter, supporting those growth ambitions. A lower run rate as we drive efficiency into half 2 can be expected thereafter. It's also worth reminding you the seasonality of our core cars, which tend to build from Q1 into Q4, and we expect this year to be no different. In addition, this year, the specials cadence, as I've mentioned, with almost 0 specials in Q2 and Q3, primarily, of course, supporting the ramp-up of the much anticipated Aston Martin Valkyrie prototype build and ramp up into production. And also, as we develop products for inclusion in the upcoming Bond film, Bond 25. Specials, of course, therefore, being heavily weighted towards Q4, with the DB4 GT Zagato continuations accentuating that seasonality. In terms of full year, we are on track with our plans. And at this early stage, we expect to deliver in line with market expectations. Before I open it up for questions, I'd just like to spend a moment on a couple of strategic highlights. First, our new products. We opened the roof on the DBS Superleggera, with the Volante due to ship in Q3. This car delivers all evocative talent to our critically acclaimed Super GT flagship and blends it with class-leading convertible technology. Secondly, Q4, we'll see the first manual for the new Vantage. And we said we would always do manuals. We are sticking to that promise, with the motor sport-inspired 7-speed transmission featuring a dog-leg first gear, that car limited to 200 units, and 59 of those crafted in celebration of the 60th anniversary of our triumph in the 1959 24-hours of Le Mans, with, of course, the iconic DBR1. Vantage will continue to feature manual gearbox as an option to all cars from Q1 of 2020. The Rapide E revealed at the Shanghai Motor Show to great acclaim, and development of this first electric car continues apace. I'm sure you will have all seen the dynamic reveal at the Monaco ePrix last week. We've also commenced the initial prototype built of the Aston Martin Valkyrie following the reveal of that car in its full trim at Geneva. There's an extensive program, a dynamic event planned over the summer with a dedicated period of testing building into the final stages of the year. The first delivery of that first car planned for later this year, and a progressive ramp-up then sees deliveries building towards run rate maturity from Q2 of 2020. And just worth also touching on progress that we've made to further derisk our supply chain. Obviously, that was a topic for us at the end of last year. And of course, you will remember Andy talking at the prelims about the recruitment of a new supply chain head reporting into him. As you might expect, John's been pretty busy. We've now put purchasing and supply chain together, amalgamating a skilled supplier improvement resource with the operational team to ensure it's deployed in the right place, on time and crucially early on in the process. We further strengthened the highly skilled rapid reaction team that we're able to deploy to resolve client issues quickly and effectively. And finally, we've made significant improvements to early warning processes and systems, giving us a better feel for suppliers close to distress, so we're better able to respond in a timely manner. There are, of course, many more projects going on in supply chain management, but we want to give you an idea that we have taken significant steps and progress in that respect since the end of last year. Moving on to the future of our business. I know a topic that all of you are keen to hear more about. Whilst we were able to see many of you at Geneva, I know not everyone will have seen the cars we presented there, so just worth touching on the 3 design concepts revealed to the world, which generated an outstanding response. The stand at Geneva was packed all day every day. Starting on the left. The AM-RB 003 special edition, with volumes strictly limited to 500 units at around GBP 1 million a car, and for which, as I said earlier, we are now oversubscribed. It's tricky to work out who to prioritize in that list. I guess you would say a nice problem to have. The car is part of the mid-engine Valkyrie bloodline, of course, continuing our partnership, successful partnership with Red Bull Advanced Technologies. And it will be the first car to have our new Aston Martin designed U.K. manufactured hybrid V6 turbo engine. Next in the middle is the core mid-engine car, bringing the Vanquish name back to life car 5 in the 7x7x7 plan. Not only does this car clearly demonstrate our commitment to beautiful, our love of beautiful, but as you'd expect, it delivers the highest technical specification, has a variant to that new V6 from the 003. And the reveal of that production car will be next year, this one, of course, being a concept for now. Third car on the page is the Lagonda All-Terrain vehicle #6 in the core car lineup marking the launch -- the relaunch of the iconic Lagonda brand. And we plan that to be the world's first all-electric luxury brand designed specifically to disrupt the duopoly that exists currently in that segment. The global reveal for this car are planned for 2021. Importantly, last but not least, touching on the next critical inflection point for this business, the DBX. The message here clearly is that we're on track. We remain on track, consistently hitting our milestones towards the start of production in half 1 of next year. Testing is well underway, with activity in multiple locations, including cold-weather testing in Sweden, sound and cooling tuning at Silverstone, brake and slip control at our test center at the Nürburgring. The first production trial started, as I said, as planned, on the 15th of April. Those of you who follow us on Twitter will have seen the tweet that morning and those since. We started customer clinics on the car with a very encouraging response, including favorable comparisons to competitor products. High scores were design, dynamics and utility. And as a reminder, we start the build of that order book from September, with the global launch unveil to the world in December. Of course, not forgetting the factor we're able to make those cars, continuing to progress apace, the test track is now complete. We're putting DB11s through the paint shop as we finalize testing on that facility. The new access road to the sites -- direct access road from the main trunk road is being built -- is now being built. The site is now home to over 200 people, including 90 who have been training alongside our Gaydon teams for the past 2 years. And these employees start to -- now to extensively and significantly test the manufacturing processes in the next few weeks as we progress, taking the assemblies from the Wellesbourne facility through the various manufacturing stages. We've still a lot of work to do, but we remain on time, on budget, and the car is coming together as we expected. We will, of course, keep you very up to date with our progress.So to reiterate, in closing, before I take your questions, really strong retail growth, good wholesale growth, taking the necessary steps to answer the criticism stock levels at the end of last year, costs in line with expectations for a growing business. We're comfortable with consensus, and our guidance is unchanged; and of course, heavy half 2 exacerbated by specials and helped by SG&A maturity. And with that, operator, that concludes the more formal part of the presentation. I'm happy now to take questions. Thank you.
[Operator Instructions] And our first question comes from the line of Thomas Besson from Kepler Cheuvreux.
It's Thomas Besson of Kepler Cheuvreux. Can I have 3 questions, please? One, on the retail figures, please. We've discovered -- I know -- any more granularity you could give us on retail figures beyond the absolute 39% growth you gave for the quarter? Can you give us an indication of retail growth for 2018 or give us some geographic granularity over the 39% by region in Q1? The second question is on the DBX. I'd like to know if you could confirm both the date of the commercial launch and the date of the first deliveries, which I assume would take place either in the U.K. or in Europe.
Yes. Thanks, Thomas. In terms of more granularity, look, we saw really, really strong retail growth in the U.S. almost doubling. All regions, we were pleased with. Some therefore, obviously, work out. We're below the average, but good and looked good. And across the board, we are pleased. We're not going to give specific granularity, but we think the retail rate at its own level of 39% globally speaks strongly for itself. In terms of DBX, we've said that commercial launch is around September, the early part of September, and we've said the worldwide reveals when the public sees that car is December. The -- and what's the difference between the 2? Well, fundamentally, that's the time we then have with our prospect list, our black book, if you like, to show those people in a controlled and appropriate environment how the -- what the DBX is and what its capabilities are and start the build of that order book. So those are the 2 differences between those 2 dates. I think we said, and, well, I know we said, that we expect deliveries of the DBX to commence in Q2 of 2020. We haven't been specific on region, but of course, it would be entirely logical to assume that, just for geographical purposes and distance between factory and end customer, you will probably see the first cars in the U.K. and Europe and then once they're off the boats, the U.S. and China and beyond.
Our next question comes from the line of Kai Mueller from Bank of America Merrill Lynch.
The first one is on your employees for the new St Athan factory. You mentioned you have about 200 people working there now full time. Can you give us a little sense in terms of the cost headwinds that is in terms of a margin and absolute number for the full year? Obviously, you showed that planned costs step up. How do we have to think of that, and especially in light of your confidence that you are going towards the -- where Street estimates are and where you're guiding the market to? The second point is on your V8 -- sorry, V6 turbo engine, hybrid turbo engine that you mentioned, you've designed and [ assumed it would ] be launched in the AM-RB 003, is that an in-house engine? Or in what relationship is that to Daimler? Or is that fully done by you? Or where do you source that from? And the last one would be on specials. You mentioned now obviously the new AM-RB 003 500 units at GBP 1 million. That's obviously quite a significant step up in terms of the units and in terms of the price points versus some of the prior versions you've been selling. Can you give us a bit of an idea when those revenues should be coming, and how you actually think on -- of the split of your specials revenue and earnings contribution compared to the rest of the group going forward in light of some of these launches?
Thanks, Kai. Yes. So touching on expenses for St Athan run rate, clearly, those are headwinds to us at the moment. We -- as we ramp up our growth at St Athan. And with people there and clearly no product coming out of there until Q2 next year in terms of revenue, they will be broad headwinds. We haven't been specific on the quantum of those expenses, but those St Athan expenses will continue to ramp up as we go through the year. But of course, also, as we go through the year, we get a benefit in maturity of SG&A spend as we bring down the intensity of marketing in the second half. Remember that we have to launch Vantage and DBS, 2 core products in the second half of last year. Where we don't have that significant product launch, we start the process of DBX. But in terms of cost intensity, that helps weigh against -- that helps support the weight of the St Athan expenses. But we haven't been necessarily specific on those numbers. In terms of the V6 turbo, yes, this is an all Aston Martin in-house designed proprietary engine. There is no relationship with Daimler on that engine. That engine is -- it lives today in prototype form. It's being extensively tested as we speak. And we haven't yet revealed where we're going to build it and who we're going to build it with, but it will be in the U.K. It's going to be a U.K. engineered and a U.K. sourced engine. In terms of specials, you will see the first revenues for that 003 coming through in 2021. Just to pick up a sort of point you made rather than a question you asked, in terms of volumes, that's entirely in line with the price volume dynamics that we would see for the competitor set at that level. And clearly, you will have in mind cars like LaFerrari. You will have in mind cars like the McLaren Senna and, of course, the 918. That car, some years old now, nearly 1,000 cars in its product life cycle. So I think in terms of volume, we're very comfortable with that. And of course, the pricing dynamic's also supported at that level and reflective of the Valkyrie bloodline and the significant demand we see from customers at that price point for cars like that. So you will see the first revenues for that car later in 2021. In terms of specials earnings, what we have said is 2 specials each year every year. Clearly, one of the things you will see with Valkyrie is it will have a bigger overall impact on some of the numbers certainly at the top line as we go through the period. And we'd expect that specials cadence to normalize in terms of its impact on the P&L as we go through the latter part of the -- or the starting part of the next decade.
Perfect. And maybe just to follow up. You mentioned, obviously, Q4 will be the quarter for your specials delivery. Can you give us a little bit of an idea of how many of your Valkyries of the total will get shipped still in 2019 versus than '20 and possibly '21?
So what we've -- yes, I mean, Q4, clearly, DB4 GT Zagato is the major player in that quarter. You know that that's the first part of the twins specials. You know what they sell for. And therefore, I guess, you can work out that that's a high transaction price car. What we said about the Valkyrie, we said all along that there wouldn't be significant effort, there wouldn't be significant impact from the Valkyrie in this year's numbers. You will see maybe an early delivery. And we've said that then there's a gentle ramp-up into the start of next year as we hit full production cadence for that car. Remember, that car not built from a production line, it's an extremely specialized car, built in race bays at our special projects Wellesbourne facility. So the ramp-up is a longer-term ramp-up. And it's actually part of the reason, the Valkyrie ramp-up, that we are not doing any specials in Q2, Q3. We want to give the operational teams the very best opportunity to work with the prototypes and the production ramp-up for that car.
Okay. Maybe just last one on -- you said Q2, Q3, you're working for the new James Bond movie. Are you getting compensated for these models?
We never talk about our relationship with Bond other than to say it's an extremely positive relationship. It's a long-term relationship. We've been there since Goldfinger in 1964. But what I can tell you is that we don't pay to be in that movie.
Our next question comes from the line of Giulio Pescatore from HSBC.
The first one, on personalization, can you give -- you mentioned that the personalization take increased in the quarter. Can you maybe give us an idea of where you stand now in terms of percentage of revenue? The second one, on the DBS, so you're launching the Volante edition in Q3. Does that mean that, as a whole, the DBS will pass the 1,000 units mark that you initially indicated as a maximum output for that model in 2019? And last one, on the Vantage, it was really my understanding that you were going to launch a Volante version of the Vantage as well this year. I don't know if that was the initial plan, but has there been any delay that you should -- that we should be aware of?
Thanks for that, Giulio. And in terms of personalization, most of the uplift came from the fact that, obviously, we had a greater intensity in the quarter of DBS, as it's a higher ticket price car, and we tend to see greater levels of personalization on that car than we do on others, for example, such as Vantage. So you see a sort of run rate issue as DBS. People spend more on DBS than they do on any other car, I think, is the point there. I don't think we've ever given specific guidance on exactly what the quantum is of individualization revenues, but they're growing there, and they're strong. You can probably back-solve in many respects. DBS Volante and DBS itself this year is strong on volumes. It's -- I think we see that car as well, the DBS Volante coming on time as a minimum, and we're doing everything we can to accelerate it. In terms of overall volumes for the year on DBS and DBS Volante, you're probably not a million miles away from where our expectations are. And in terms of the Vantage, the Vantage Roadster, we don't call it the Volante. We, of course, call our open top Vantage Roadsters. The reveal for that car is this year.
Our next question comes from the line of Daniel Schwarz from Crédit Suisse.
My first question would be on the guidance for the first half. You said EBITDA down in the first half, principally due to the non-repeat of the GBP 20 million effect from last year. After Q1, would you say that first half is down, cost at least as much by the operating performance? Or what I want to know, is the decline from the operating side, is that still expected to be less than GBP 20 million? And the second question would be on the seasonality. Q1 revenues is just below 16% of the full year consensus. Could you explain a bit more what's driving this significant seasonality? I know at far, your see similar effects, but just not that significant. And then last question, the stronger wholesale in the U.S. Is part of that buildup of inventory before potential tariffs? Or is it just driven by retail demand?
Yes. Thanks very much, Daniel. I'll go back to front there. The easy answer is, in the U.S., no, it is strong retail demand. There's no buildup ahead of tariffs at all. And in fact, a lot of what we're doing in the U.S. is because the brand is getting significant traction and we're getting the retail offerings right, and we are encouraged by performance in the U.S. In terms of seasonality, the seasonality we have, the selling season, the shape of the year is very much similar to what we see with this business in most years. It's exacerbated, of course, by those DB4 GT Zagato continuations in Q4. But the relative quantums are in line with what we've seen previously. Q4 is always a strong season for core cars for us. And in terms of the first half, you should expect broadly the operating performance you've seen in Q1 to continue through Q2, minus, of course, that non-repeat of the consultancy income. And that's why, since the start of the year, we've been calling out half 1 as being softer expectation with the skew towards half 2.
Our next question comes from the line of José Asumendi from JPMorgan.
José, JPMorgan. 3 items, please. Can you comment, please, on the -- your expectations for geographical mix over the coming quarters if you should expect a similar pattern to Q1? Second, clearly, for me, at least, the market is not believing at all in your EBIT margin guidance for the year, and you're making a clear statement that you want to be for around 13%. So coming back to this margin quarterly cadence that we have, can you maybe just help us understand a bit more the D&A bucket for 2019 on an absolute level or a quarterly basis? Just roughly how should we think about that? Should we just multiply that for the increase you had in Q1? And then on these other operating expenses, can you maybe just comment a bit more the other 2 buckets that we have there, the marketing expenses and the higher number of workers? How should we think about the expenditure over the coming 2 quarters? Final question will be please on the leverage for the company. How do you think the leverage could progress going forward? Or what is your year-end target in the light of Q1?
Yes. Thanks, José. Just in terms of geo mix in the coming quarters, we've obviously had strong demand in the U.S., APAC and China. We expect that to continue. We are driving towards those markets that have performed less strongly and looking to see where that recovery is going to come from. So you may expect a slight shift back towards those other markets as we go through Q2. But broadly, we expect the trend that you see now to continue. In terms of guidance and D&A specifically, D&A, I think where you are in Q1 is a reasonable proxy for the rest of the year, but, of course, remember that in Q4, you've got those specials. Remember that our D&A policy is over years, it's not over car units. And of course, therefore, the delivery of those DB4 GT Zagato cars is going to impact a bit higher D&A in Q4, but, otherwise, normal run rate. In terms of expenses, let's just talk about those SG&A expenses. Obviously, in the first quarter, and we would expect this in Q2 as well, you've got a trend of ramping up in St Athan and you've also got the residual marketing expenses associated with the Vantage and DBS launch. As you come through into half 2, those marketing expenses, as I've said earlier, are less intense because you don't have those 2 huge launches. We are spending on DBX, of course. But in terms of bigger product launches, the intensity is less. And therefore, we get a benefit. We also get an SG&A maturity benefit. This business sort of matures in terms of its SG&A profile this year. And so a lot of the things we've done historically, which have potentially involved outsourced working or consultancy or hired and contracted services, some of those things we brought back in-house, and therefore, we will be able to see those cost efficiencies in the second half year. I'll give you a tangible example. We use a facility in the Midlands for a lot of our testing. It's called Millbrook. It's quite an expensive facility. You will have seen last year, we now have a facility at Silverstone. It's our own facility. It's less than half the cost of what we do at Millbrook. And there are lots of examples of how that SG&A maturity is feeding through into improved efficiency in the second half of the year. So that's how -- that's why we expect the SG&A run rate to be lower in the second half than it will be the first half, marketing intensity and more efficiency. And then in terms of leverage, we haven't given a specific target other than to -- obviously, we gave some longer-term targets back in the IPO, reaffirmed those at the start at the year. Clearly, there's a natural deleveraging as this business grows over time in terms of its growth potential. The next big inflection point in terms of that growth, of course, comes with the DBX. But of course, we reaffirm our growth targets for this year also. So my statements on leverage is we expect it to put the business to continue to delever. There is an intra-year movement, of course, and we talked about that at the start of the call, where this business tends to consume cash in the first half of the year tends to build that cash balance back up with static net debt. Therefore, you would expect leverage to increase as we go towards the half. You saw that last year and then come down again as we come towards the end of the year building our cash profile accordingly. So I think those are the 4 answers to the 4 questions you asked.
That's great. Can I just follow up quickly on the Rapide E? Where do we stand on that vehicle in terms of showing it to -- unveiling that car? And in terms of taking orders, when will you start invoicing for that vehicle?
So obviously, you saw that car launched at Shanghai a couple of weeks ago. It had its global dynamic reveal in Monaco last week. Very successful. To great acclaim, we have received in advance of that a lot of interest already. That has only accelerated since those 2 launches. We are filling up the order book as we speak. We are heading forward with that. And you should expect to see that car is going to hit the income statement towards the end of next year, the start of the year after. That's when the majority of the income statement benefit is going to start coming through.
[Operator Instructions] And we have our next question from Philip Taylor from Deutsche Bank.
Mark, you mentioned that the U.S. demand obviously has been increasing. And I suppose, with that in mind and the knowledge that it's a market which lends itself more to financing, can you please give us a little bit more color on how you see that developing in that market and elsewhere and where the natural levels are?
Yes. Thanks, Phil. It's a good question. I mean, we see -- one of the things we are really, really pleased with now is that we've got that retail offer in the U.S. right. I mean, the U.S. is, as you say, a predominantly lease-driven market. More than 3/4 of our Vantage customers in that market and increasing look to lease their cars. And so, therefore, firstly, having the right partner in place which we now have. We've added a new partner this year. And then having a strong relationship with residual value agency is really important. That helps us to deliver a compelling proposition. And you see that traction being a significant part of the development of the U.S. market and the strength of that U.S. market. I'm also pleased that we have rolled out a similar proposition now with SCA Bank in pan-European and very, very difficult to get a pan-European lease proposition unless you're underwriting on your own balance sheet. We're not doing that. It's a white label offering. But SCA can offer facilities pan-Europe bar the U.K., of course. And we are rolling out a similar process or started rolling out a similar process during Q1, and we are optimistic that, that will get some traction as we go through the year. Those are the 2 major markets. Obviously, the U.K. as well. The U.K., we use a different provider. That's a good market. We've had a good proposition in the U.K. for a while. Financial service is less relevant in other parts of the globe. I think it's primarily a U.S.-European-driven piece. And we are quietly pleased with what we see and quite encouraged by what's happened in the U.S.
As we have no further questions, I'd like to return the conference back to our speaker.
Thank you, operator, and thank you to all of you for taking the time to dial in this morning. Thank you to those of you who gave questions. That concludes the call. I look forward to keeping you updated throughout the year. Just a reminder, half 1 results at the end of July, date to be confirmed shortly. In the meantime, have a good day. Thank you for your time.
Thank you. This now concludes our presentation. Thank you all for attending. You may now disconnect.