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Good day, and thank you for standing by. Welcome to the Aston Martin Lagonda First Quarter Results 2021 Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today on Thursday, the 6th of May 2021. I would now like to hand the conference over to your first speaker today, Tobias Moers. Please go ahead.
Thanks very much. Good morning. Welcome, everyone, and thanks for joining us this morning for Aston Martin Lagonda's Q1 Results Call. I'm Tobias Moers, CEO, and I'm joined this morning by Ken Gregor, our CFO. I hope you had the chance to read our results release that went out this morning. The release, along with accompanying slides on the Investor Relations section of our website as usual. Before we open up the line for Q&A, Ken and I will make a few introductory comments. First, Ken, I would like to hand over to you for the numbers.
Thanks, Tobias, and good morning, everyone. Q1 was a significant improvement year-on-year, which was good to see, largely, of course, driven by the volume with the launch of the DBX, which wasn't there last year with wholesales of 1,353 units in the quarter. The volume wasn't the only improvement. We also saw improvements in cost, and we also saw improvements in the level of incentive spending, and therefore, the net revenue. Revenues were $224 million. That did have the benefits of stronger pricing dynamics or lower incentives, primarily with the core average selling price being circa GBP 149,000 per unit, a little bit of strong mix, geographic mix in there with China coming in. But actually, one of the big factors was the -- year-on-year was the lower retail financing support as we completed now the destocking process. Adjusted EBITDA was GBP 21 million, with a 9% margin, reflecting the improved trading, some initial cost saving benefits through the headcount reductions and very much in line with our expectations. There's an operating loss of $15 million, reflecting the depreciation and amortization increase as guided due to the expanded range with, obviously, the DBX coming in. One thing that was -- I was very pleased to see was positive free cash flow of $24 million. That included a working capital inflow of almost GBP 50 million, which was driven largely by improvements in receivables, little bit on payables, continued work to control inventory through the quarter. So all of that was good to see. Obviously, we have capital expenditures, about $50 million in the quarter, a little bit below the quarterly run rate, but we do expect to catch up through the year. So -- and also, our interest expenses paid in Q2 and Q4. So Q1 does benefit by not having at that interest expense. But nonetheless, still pleased to see the positive cash flow. We finished the quarter with GBP 575 million of cash on the balance sheet. That obviously includes the almost GBP 80 million of proceeds from the place -- the bonds placing that we did in February, but good to end the quarter with significant liquidity that gives us -- it continues to give us the runway to execute our business plan over the next couple of years. And in terms of outlook for the full year, we have guided that our expectations remain unchanged. We have updated the net interest guidance to reflect foreign exchange rates. But other than that, we are still talking about 6,000 units plus of wholesale volume and mid-teens EBITDA margin for full year and CapEx in the range GBP 250 million to GBP 275 million. Sorry. And at that point, back to Tobias.
Thanks, Ken. Yes. Well, so we're very pleased with our performance. I'll tell you what in line with the expectations, mark a substantial improvement with regards to last year. So we've also continued to make good progress and the execution of our business transformation through Project Horizon. So very important to demand and supply, dealer inventory stocked for sports cars and GTs is cleared out slightly earlier than we planned. So we're done with that journey. So the destock journey is over now. I'm probably not going to talk any more about that. We're encouraged with the continuing growth of the order bank and the visibility, which is given for us the sports, GT and DBX is really encouraging. In March, we have -- a lot of it started with Formula One season, which really -- it was a boost for the brand awareness. And as well, we have the Vantage as a safety car and DBX as a mid car. We launched a first of our new vehicles or plan for the next couple of years. The [ flat ] Vantage for Milan edition offers improved horsepower and performance with unique badging and styling. And we're very pleased because our -- the initial order bank. What we build for that car is more than we expected at the moment. So it's really good. And we have a very perfect reviews from some customers and interested customers. Regarding the operational excellence of our plants, we have taken action to improve the performance of our manufacturing in both sites, Gaydon and St Athan. For example, just Gaydon moved to the single line operation by moving down the stations from 70 to 22 stations. From 400 cars almost by August last year down to almost 100 cars in the process to optimize the assembly of Gaydon, a single line approach now. And St Athan, where we've got to move -- or St Athan going to serve with the new paint shop there and our paint shop for all cars, both sports cars, GT and DBX. Actions such as these are driving efficiencies and improving plant performance, that's for sure. This is all underscored by our commitment to quality, which is now embedded as well in our company reward ownership. Under the go-to-market segment of our strategy, we have made changes for our team, including bringing as we experienced luxury, our expert to lead dealer operations here in Gaydon, a new Head of Europe as well as President of Europe. And so we expand and strengthen our dealer network as well on that note. For example, recently, we appointed a new dealership in Germany. And there is more to follow. So another 2, 3 dealerships in Europe to follow because we have certainly opportunities there. Finally, within portfolio strategy and tax planning, we have relocated the whole assembly, which is part of Project Horizon as well. For all their relatives like an Aston Martin Valkyrie or the V12 Speedster to Gaydon. So we consolidated all sports car manufacturing sites. We have more than 1 was almost 3 in 1 location now here in Gaydon in the main plant. With these special programs on track for delivery of this year as well as planned. As we said in the statement this morning, today's results underpin our confidence in delivering our exciting growth plans to transform Aston Martin and create a world-class safe sustaining luxury automaker. With that, we will be happy to take your questions now. Back to you, operator. Thanks very much.
[Operator Instructions] Your first question comes from the line of Charles Coldicott from Redburn.
I just had 2, please. So the first -- the core ASP is now back up to GBP 149,000 given the destocking is now complete and that the DBX made up 55% of wholesales in Q1, which I guess is probably fairly typical for future periods. Should we assume that the core ASP now stabilizes at this level or at least until perhaps you reach the refresh of the front engine cars in a couple of years' time? And then my second question, I appreciate you stopped reporting retail sales figures. But given the importance of the model, can you just give us an idea on how many retail sales of the DBX you had in Q1 in comparison to the 600 in Q4 or maybe just whether retail sales totaled more or less than the 746 wholesales?
Let me talk about the ASP. Yes, we're really pleased with the ASP in Q1. It's fair to say. It definitely does reflect a couple of the factors that you described with DBX coming in and DBX, we don't have any incentives with that car. It also reflects the fact that year-on-year, the level of retail incentives on sports cars is about half the level it was last year. So in the same quarter last year. So those factors help. There's also some help from foreign exchange. The euro was favorable in the first quarter and a couple of other factors. I don't necessarily say, we see GBP 149,000 per unit every quarter because I think the movements in foreign exchange and some movement in market mix may soften that a bit. But overall, pleased with the number, and we'd be confident that the ASP will continue to show that year-on-year improvement versus last year.
So almost our expectation is on a more robust level from that one. And Q1 was -- Q1 was very high spot volume. Retail numbers and wholesale numbers are aligned now. This is part of the journey. And we finished our destock processes or project regarding the sports cars. So wholesale and retail is aligned similar to DBX. We keep our projection for the full year with 6,000-plus wholesale, which is almost 50% DBX car and 50% sports/GT car line. So we keep that up and running as a projection for the year. And retail is aligned to that wholesale number. That's the strategy of the company.
[Operator Instructions]Your next question comes from the line of George Galliers from Goldman Sachs.
The first question I had was on the working capital. Obviously, a good result there and good for free cash flow. And it looks like the quality was good as well with lower inventories and lower receivables. Is there still scope to bring these down from today's level or do you think relative to sales volumes, this is the kind of level we should think about going forward? And then the second question I had was just, again, on the ASPs, I was just interested to know, are you seeing an increase in option uptake by your customers? And is that helping with your ASPs, one of your competitors gives a mid- to high-teen revenue contribution from what they described as personalization. Are you able to give us any insight into what kind of percentage of the ASP comes from customer selected variable options?
Let me take the working capital. Yes, really pleased actually with the working capital improvements we saw in Q1, which is on the back of also working capital improvements we saw in the back end of last -- the back end of last year. They perhaps come a little bit quicker this year. It was part of our plan for this year and they've come a little bit quicker in Q1. I think it reflects on the receivable side, it reflects some of the benefits of having a stronger position as Tobias was just saying, with retail in line with wholesale and cars and dealers not having cars in stock for so long, so they end up paying for cars a bit quicker. We also have put in a new receivables financing arrangement for the dealers, which came into effect in the quarter. So that will continue to support keeping those receivables very much under control through the year. So I look forward to that. And on the inventory side, there's always a bit more you can do in inventory. We'll always have cars in transit to market, of course, and that will ebb and flow a bit depending on the volume. But some of the work we've been doing internally in the business, there's still reduction in fleet inventory and there's reduction in inventory and work in progress in factories, which we still expect to see some benefit from in Q2. So I think the big bit of the working capital improvements probably happened. But going forward, we definitely look to optimize and keep it under control. Recognizing that it will always ebb and flow a bit because of volume and production timing.
On the operational side, we cleaned out Gaydon so far. So -- but we still not -- there's still a path to go because our stock inventory and our warehouse is still not at the point. The more optimization to do with Project Horizon. So that's Gaydon. And that journey started now. So over the course of the year, we see a further ongoing improvement on that regarding our operations side.
And although we don't give specific figures on options uptake and the proportion, it is an important part of the revenue stream for us. It was slightly positive year-on-year, in the quarter. So that's been a positive development and definitely something we want to build on going forward.
Because as I'll turn on that, it is given. If you move away from wholesale and company stock cars, and you move to a more retail loaded order intake, you move up -- that's given by nature, kind of. If you're more retail oriented, you have a higher option take rate. That's normal. That's standard. The company always was more linked in company stock and dealer stock. This is not good. Having more retail orders. You see an actual uplift on options.
Your next question comes from the line of Angus Tweedie from Citi.
It's Angus from Citi. My first question is back on the high ASP numbers. You clearly called out lower incentive figures. Are we perhaps what -- are you perhaps a little bit disappointed with the EBITDA drop-through on that? Are there any costs in the first quarter that we should be -- so OpEx costs going through that perhaps weighed on the operating leverage there that you could call out? And then secondly, please, could you provide an update on where we stand on specials, particularly how we're getting on with the Valkyrie and any renegotiation of deposits on the Valhalla, please?
I mean the short answer is, no, we weren't disappointed in the first quarter. The EBITDA performance was in line, in fact, slightly ahead of our internal expectations on the back of volume that was in line with our expectations. So very much we felt that we were pleased with the performance. And there is -- in the quarter, if you look at the year-on-year bridge on Slide 5 for EBITDA in the quarter compared to Q1 of last year. You can see the -- you can obviously see the benefits of the volume. You can see the benefits of the net pricing, which is largely the lower incentives year-on-year. You can also see the benefits of lower net operating expenses, about GBP 8 million in the quarter, lower in Q1 than the same quarter a year ago. So overall, we were pleased with how it went.
Valkyrie on specials. As you know, this year is very, very loaded on the second half of the year regarding our projection. But Valkyrie is doing good. It's still a challenging journey, but there's no signal that we're not going to achieve our target to handover costs in the second half of the year. Nothing at all. So we do revenues every week. And I just drove it from Gaydon to Silverstone. And it works, [ what we guess ]. And Valhalla [ dumping ] was not a question based on the significant move back and forth. So we are going to present the new Valhalla to our customer in the next 2 months. And I'm really very optimistic that we gain traction back on that program.
And your next question comes from the line of Thomas Besson from Kepler Cheuvreux._
I guess it's me, it's Thomas Besson with Kepler Cheuvreux. I must have not articulated properly, I guess. I have 3 questions, please. First, could you give us a bit more color on the order bank by model in terms of maybe months of sales units, however you want, and by region? The second question, is it possible to have some comments on the evolution of ASPs for sports cars? I mean, you mentioned low incentives. Basically, I'd like you to comment on the ability to price up these products versus kind of the sale period that took place over 18 months and that don't know, if I understand correctly. And then lastly, I think there has been comments about first battery electric vehicle from Aston in 2025. I'd like you -- if it's possible to comment on that, confirm the timing. And confirm if the technology comes from Mercedes or whether it requires some specific investments and where it's going to be produced, please?
Okay. Hopefully, I kept everything in mind. Order bank, we're comfortable with the order bank Q3, all of our lines are, for us, very comfortable and really good. Second question was...
ASP and opportunity to price up on sports cars.
ASP is -- you have assurity recovery of ASP in sports cars. That's just due to the reason that we cleared out the stock. And now it's a demand-driven order situation. We see an increased share of retail orders in our order income per week. Just the Formula One addition is very surprising in regard to retail in a positive way, absolutely. So all of these things are helpful for recovering ASP. And I think we're going to see a more robust ASP and I'm sure over the whole year. And this is the future for the company. Price increase, sports cars, Formula One addition is a good example. It is an increased pricing for Formula One addition. You have to consider always that we are facing a bit of overage, an age generation of sports cars. But anyway, what we see as order intake from the customer side is more than promising. That's more than we thought. So yes, what we're working on is not year '22. Now for Vantage, DB11 and DBX. So that's in the final definition. And there's some room for improvement. And then we bring a new configurator to market, which is an exceptional customer journey, which I think gives us an opportunity to get to higher option take rates and things like that, but it's a bit too early to discuss that at least.And the last question was [ battery drive]. We have a clear focus on electrification and electric drive cars. It is given that all mid-engine programs, Valhalla and Vanquish going to be plug-in hybrid. We're going to have the first DBX as a plug-in hybrid in '23. The launch of the derivative of DBX this year, which is an SOP in September, which is given. So there's nothing that's going to hold us back. It's a mild hybrid. That's not the plug-in, it's mild hybrid or plug-in hybrid. The whole hybridization, electrification journey starts in '23. And after '23, there's no car launch anymore without electrification. The purely electric-driven cars and the battery-driven car that's middle of that, the case we have -- they have to achieve that. And it's clear for us. And yes, we are in discussion with Mercedes what we're going to do there. But there is more than 1 platform we have to consider. But yes, it's a clear journey, and I think it's mandatory for us to have that electric drive next-generation sports car. It is going to be fully electric. But that's mandatory, that is a must for us. And then it's a glide path into 2030 and increase your portfolio in electric drive cars and you decrease your electrified or standardized driven cars within the portfolio. Hopefully, that answers your question.
Your next question comes from the line of Horst Schneider from Bank of America.
Just have got a few left. I remember to the last call that we had on the full year '20 results where you said that you are steering away a little bit volumes from the U.K., I think you were referring to the DBX just because some dealers were still closed. I'm just interested to know how that is developing now since the dealers, they have opened up in the U.K. So how do you expect your sales in the U.K. going forward, not just DBX, but in general, should we expect a major uplift maybe as of Q2 already? And then the last one, it's again a question related to the xEVs. I just want to know what is the feedback that you're getting from some countries on the high emissions that your cars still produce. So when we look, for example, at a country like China, where the best team is getting more and more important, what's the feedback from the customers that you're getting there? I mean, is that holding the people back to buy the DBX? Or you think with the PHEV, the sales could be much, much stronger? Just some color on that would be appreciated.
U.K. is in a recovery mode at the moment. So we did right when we transformed orders into other regions, was absolutely the right thing to do. Now U.K. is in a recovery mode, and we see good improvement at the moment. And probably, I hope that it's going to last for everybody. And it's similar for us than for other brands. We so I think hopefully, we can catch up with the whole year projection for this year in U.K. but anyhow, other regions are stronger than we expected. So it's okay. It's good. We do a lot of things we've done in DBX. We performed 3 weeks of test drive, or we are in the middle of performing 3 weeks of test drives in Millbrook and on [indiscernible]. The comparable version of what we see there from these is really promising. So it's a good journey for us now in U.K. back again. And regarding emissions, regarding fuel consumption, it's almost like fuel consumption. I think the situation is you have still many customers in China buying cars like the DBX. It's an increasing segment. It's a growing segment, it's luxury segment, even -- especially the SUV luxury segment is growing. Yes, you have to have an electric drive car in the marketplace, by latest '25, '26. That's crucial, and that's important. But our feedback from customers is, if you talk about customers, they bought the car, so they bought the car. So do we have rejections for DBX regarding emissions or something like that? It's hard to answer, honestly. But the steel segment and the segment is still growing. A PHEV as you know, you need a range in China, and you don't get any more of that number plates, the number plates with PHEVs. So that change in China. So yes, you still have high and consider you have an increasing high worth pocket in China still and that's going to -- I don't know how long that can last, but we had a similar situation than many, many, many auto manufactures as well. But we have clear strategic path to electric. And that's why.
A last follow-up. If I want to order a DBX now, how long would I have to wait for that? It's still this 5, 6 months that you are booked out on the DBX?
Yes. So probably in November.
[Operator Instructions] Your next question comes from the line of Christoph Laskawi from Deutsche Bank.
A bit of a follow-up really on the questions on the order book. The current visibility into Q3, obviously, is encouraging. My question would be, is that essentially where you plan to be in terms of order book and order awaiting time for the customer, let's put it that way? Or do you plan to push it out or increase it even a bit further? And in that regard, where would you see the sweet spot for the order book and waiting times also when it comes to pricing the models across the regions?
It is -- we are really comfortable with that situation at the moment. Is it really added value if you have to wait 2 years for a car? I'm not so sure about that. The customers are -- especially in the luxury segment, they want to buy a car, they want to have a reasonable waiting time for that. And then sometimes, if they have to wait too long, really they don't like it. It is hard to judge finally. Yes, we need kind of a proper order book, and we are comfortable with the order book as it is. We are really flexible now on the manufacturing side, and we can breathe easily, especially in the sports cars. We've got -- we can easily improve line or change our line rate by 3, 4, 5 vehicles per day without any different efficiency. So it's always a similar efficiency, how we're going to run our lines now in the future. And that makes the difference to the past. So on order book, a waiting time of 6 months, 7, 8, 9 months, it depends as well from the segments. So likely our customers waiting now for 2 years. And in the mid-engine program, if you have re-engaged in sophisticated product, people are going to wait for 12 months, 15, 16, 18 months. On the DBX, what we drive is customization and personalization, which is very important for us. Our new configurator is going to be benchmarked in the segment. How you can configurate in a personalized way, in a very personalized way, your personal DBX. That means that's a longer waiting time. But I think 6, 9 months, order bank, quite comfortable, and we're going to have a next variant with us with the DBX. So that's going -- see what comes. But I think we're going to have a longer waiting time with beginning of next year with DBX, I'm sure about it.
On the derivatives, do you already take orders for that or when you launch in Q3, that's the point where you really will take that on.
No, we're going to take orders by, I think, September.
[Operator Instructions] Your next question comes from the line of José Asumendi from JPMorgan.
Tobias, couple of questions, please. I think the first one is, do you see an opportunity to create a bit more of a structural change in the geographical mix and do you see this COVID situation to the post-COVID transition phase to reduce a little bit more the dependence on the U.K. market and sell more into Europe -- into U.S. and China going forward? That'll be the first question. And second question, can you speak a little bit more about this sort of conceptual path to free cash generation or cash generation in the company over maybe a 1 or 2-year view. Can you talk about the buckets of unit sales, EBITDA and then whether from a manufacturing perspective, where there are more efficiency gains you can generate, which could improve structurally also the free cash flow of the company?
I'll answer the first and the third one, probably. And the second one, I'll hand over to Ken. Structural changes in the regions, yes, we just appointed a new Head of Europe. And there are many things going on. I'm not going to talk about that in detail because that's kind of a very sensitive topic, what we changed in regions. But you're going to face a serious change in all regions. Just Europe, we appointed a new Head of Europe. We're going to restructure Europe as a region. U.K., we have a very new strong person. He used to run Europe. He now take care about U.K. and he's really connected. That's one of the reasons why we improved here. So there's a lot of things that we're going to take as next gen. And there's a lot of room for improvement. And we do so, we do so. But it's sensitive. So please accept my apologies that we are not talking in detail about that. Efficiency in the company is key for us. It's absolutely key. And just now -- I came in the company, we have 400 cars in the process in Gaydon to build 12, 50 cars a day. Now we just have 100 cars in the process. We had 70 assembly line stations, 70, 7-0. Now we have 23. We're going to have all cars in 1 paint shop in the future in St Athan, which is the most efficient way to paint the cars because in paint shop you have to run that full total. So we're going to shut down the paint shop in Gaydon. We just bring all the special paints, which is crucial for us as a brand. We're going to do that in Gaydon. So Gaydon is the hub of sports cars in the future. We brought in Valkyrie, which was a bespoke building before. In a different manufacturing side, we brought in Valkyrie into the main plant in Gaydon. We brought in all the special manufacturing sites into the location of Gaydon. So everything is under one roof now. And there's more to come. We have some optimization program for St Athan as well. That started 4 weeks ago. If you would come to the company, probably you have never been here before. But if you have been here before, you would see a huge, huge difference. This is the feedback what I received from everyone. So it's a different company now. We optimize transportation, which is the inbound outbound. Nothing is untouched. Are we talking about an efficiency gain of 35% to 45% in some areas, 50% of efficiency gain. We will touch base on material or material cost as well, which is almost not that simple because we have long-lasting contracts with our suppliers as well, we see some improvements there as well. And we're working on facelift of ultra generation, even there, we see improvement by sourcing new parts, which is really -- we never thought that it's going to be that much, but it is a lot. With that..?
Yes. And on the medium term, the medium-term vision, as we've talked about before, target for $500 million of EBITDA, circa $2 billion of revenue and supporting that 10,000 units or so of volume. And the journey towards that has a number of pieces. And I think that was your question. In terms of volume, that's clear, supported by refreshed sports cars and more derivatives on the DBX side, giving us the opportunity to get towards that volume level. And that volume, obviously, bringing the operating leverage with it to help improve the EBITDA margin as we move through time. So that's point number one. Point number two, clearly, in terms of net revenue position, we've made some big step forward this year compared to last year. With the lower incentive spending on the sports cars. I think as we look through time, there's more opportunity on that side. Refreshed sports cars allow us again to move forward on the net revenue side and a mix of derivatives of DBX also allows the opportunity for improvement on the net revenue side. Also, Tobias talked about the cost side, where we've made some really big improvements or making some big improvements this year on the manufacturing side here. Controlling what we can control in the factory, which will help through this year. And then as we go through time, material costs, yes, it takes a bit longer, but we plan and need to make improvements on the material cost side as we go through time. And those things together, and both structurally to get $500 million of EBITDA on revenue of $2 billion or so is an EBITDA margin, 25% to 30% in that sort of range. Having that sort of EBITDA margin requires us to have a gross margin of circa 40%. Right now, in this quarter, the gross margin is round about 30%. First quarter last year, the gross margin was 16%. So we're clearly on a journey towards that. But the building blocks that I just talked about in terms of volume and operating leverage, further improvements in net revenue with lower incentives and better mix of fresh product and continued work on the cost side are the building blocks we need to improve. That gross margin will keep the fixed cost of the business under very close control, and that's -- those are the building blocks towards that medium-term target that we've given and are standing by.
We have no further questions. Please continue.
So thanks very much for joining us this morning and for your interest. We are looking forward to keep you updated on our progress regarding Project Horizon and all our turnaround and growth strategy with our report and -- on the first half of the year results at the 6th of June.
End of July.
End of July, end of July. Sorry about that. Okay. Thanks very much.
That does conclude our conference for today. Thank you for participating. You may all disconnect.