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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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Good morning, everybody, and welcome to the Aston Martin Lagonda Quarter 3 2019 Results Call. As the operator said, I'm Mark Wilson, I'm the CFO here at Aston Martin Lagonda. So first, I'm going to take you through the presentation that I'm sure you've seen, and that's available on the IR section of our website, and then I'll very happily take your questions at the end of that presentation. So without further ado, moving on to Slide 1. It's clearly been a very difficult year for us, and trading conditions have been tough, particularly in the U.K. and Europe. Despite this, in the first 9 months of the year, retail sales grew in all regions, up 13% globally as we took market share in our segment, which itself is outperforming the wider auto industry. As we look to find a balance between growth, brand positioning and dealer inventories, we controlled wholesale volumes, they are down 3% in the period and 16% in the third quarter on its own. Although worth noting, of course, that the particularly strong comp of the prior year following the launch at that point in time of the Vantage and the DBX. Revenues at GBP 657 million in the year-to-date were down 7%, with a greater mix of Vantage and fewer Specials as we planned and communicated, in addition to those lower core volumes. Adjusted EBITDA at GBP 70 million for the 9 months was impacted by the GBP 19 million provision for doubtful debt taken in the first half as well as costs associated with an improved retail financing offer. Reflecting the seasonality of the business and an increased contribution from Specials, GBP 48 million of this EBITDA came in the quarter in Q3, and this resulted in a modest operating profit in the quarter of GBP 11 million. Cash generation in the year-to-date was GBP 69 million, with sequential improvement in the third quarter, where we generated GBP 48 million of cash from operating activities following an outflow of GBP 26 million in the second quarter. CapEx for the year-to-date stands at GBP 255 million, with a majority of investment for DBX and St Athan now complete. Net debt at the end of the period was around GBP 800 million. The additional bond raise we announced at the end of September closed in October, post the quarter end. We raised GBP 150 million of senior secured notes with an option to draw an additional GBP 100 million to improve near-term financial flexibility. In terms of the operation, DBX is on track. We're pleased with the reception that car is receiving from its customers. You will have no doubt seen the reviews that came out yesterday, those initial reviews. Two new Vantage variants are coming in the short term, AMR, with its manual gearbox and, into spring of next year, the Roadster, both of those cars will support the Vantage in its life cycle. And we've started to deliver the DB 4 GT Zagato Continuations, as you know, a key driver of profitability for 2019. All 19 are due to be delivered by year-end, and 6 of those have already been delivered during quarter 3. So moving on. Before we touch on performance by geography, let me say, we're generally pleased with the ongoing performance of DB 11 models and the DBS Superleggera. However, it's very clear that Vantage has and continues to sell at a rate that is below our original plans and expectations. Despite this, we've been taking share, as I said earlier, from the competition in the segments of the market in which Vantage competes. But of course, it's worth noting that the segment in which it competes is also declining, down 4% so far this year. And of course, it's also the most economically sensitive of our segments. And in Q3, we hit the anniversary of the impact of the Vantage and DBS Superleggera launches last year, which drove a near doubling of wholesales and retail growth of over 50% in that prior period. So of course, the comparative base has been getting tougher as we progress throughout the year.Turning to the regional trends for wholesales. The Americas, our largest markets, continue to grow, up 25% year-to-date and 2% in Q3 despite quite exceptional growth of 185% in the prior year. APAC is stable, with China up 15% year-to-date and we're starting to see some maturity for our sports cars in China, having delivered a CAGR of 40% over the past -- last 2 full years. DBX, of course, we expect to lift those sales going forward. We see China being a critical key market for this car. And the softness that we've been talking about for a year now in the U.K. and Europe has continued, albeit the slowdown in Q3 was at a lower rate than that in Q2 despite a tougher comparative between those 2 periods. In terms of mix, you can see from the chart in the top left, the V8, V12 mix remained relatively stable, consistent at around 70% of core volumes in favor of the V8. Finally, average selling price, the chart in the bottom left. The year-to-date core average selling price was GBP 136,000, down from GBP 140,000 in the same period last year, principally due to the costs of the improved retail financing offer, particularly in the Americas and in addition to the increased mix of Vantage relative to the total. This pressure on average selling prices was partially offset by strength in the DBS Superleggera Coupe and the launch of the Volante building from the third quarter of this year. With fewer Specials than last year, 47 units in total versus 110 million in the prior period, total average selling price was down from GBP 157,000 to GBP 147,000. Q3 itself saw an uptick from GBP 144,000 to GBP 151,000 as we delivered 6 of the high-price point DB 4 GT Zagato continuations. Turning to the next slide and to profits. The results from the year-to-date clearly include the GBP 19 million provision taken in the first half relating to that sale of legacy intellectual property in 2018 that we briefed you on previously. Stripping out this, adjusted EBITDA in the year-to-date was GBP 89 million against GBP 140 million in the prior year on a comparative basis. So looking at the chart, you can see the most significant impact is the mix shift, a GBP 40 million headwind year-over-year. And of course, the GBP 19 million of planned cost increases, reflecting DBX and St Athan costs, higher marketing support to new vehicles and motorsports spend in addition to first-time PLC related costs, is offset by a benefit for the first-time adoption of IFRS 16 and a GBP 7 million foreign exchange benefit principally due to U.S. dollar sterling movements. In terms of the Q3 adjusted EBITDA itself of GBP 48 million, underlying performance was consistent, but of course, we had the benefit of those 6 DB4 Zagato Continuations. Moving down the income statement to depreciation and amortization, the step-up to GBP 92 million versus GBP 69 million last year reflects the expanded range of core sports cars now selling and the impact of IFRS 16. This step-up will continue into 2020 with the DBX and St Athan starting its depreciation life in addition to the Vantage Roadster, Valkyrie and the annualization effect of the increase seen this year. Below this, on adjusting items, GBP 3 million relates to pre-IPO long-term employee incentives, as previously discussed, and there were GBP 2 million of restructuring costs in the quarter as we seek efficiencies across the business. Net adjusted financing costs of GBP 59 million were lower year-on-year driven by the conversion of preference shares to ordinary shares at IPO partially offset by a foreign exchange headwind on unhedged U.S. dollar borrowings. In our release this morning, you'll have seen that after those financing costs, we reported an adjusted loss before tax of GBP 80 million for the period. Finally, on the income statement, we had a tax credit of GBP 19 million, with 228 million shares in issue, our adjusted diluted EPS was negative 29 p. The effective tax rate for the full year is still estimated to be 21%. On to the next slide, dealing with cash and starting on the left. Cash generated from operating activities in the period was GBP 69 million, GBP 48 million of which was generated during quarter 3. The movement across the year was primarily driven by EBITDA at GBP 70 million adjusted for working capital movements. These 2 comprising our receivables inflow combined with tight management of payables resulting in a positive cash movement of GBP 101 million, and this being somewhat offset by a GBP 91 million inventory outflow and this being due to holding more finished goods in stock and plant ahead of proportionately greater wholesale deliveries expected in our seasonally large fourth quarter. We are also holding around GBP 15 million of additional stock in anticipation of the U.K.'s previously expected departure from the European Union at the end of October. CapEx was GBP 255 million, with the majority of DBX and St Athan spend now complete. The balance of CapEx for the year of GBP 45 million reflects the timing of product launches and R&D spending on new programs. The GBP 148 million of cash received from financing reflects the $190 million of funds received from the [ eurobond ] placement in April, and note that the cash from the most recent issue of senior secured notes in September was, in fact, not received until early October. So not in these numbers. Overall, there's been a GBP 35 million cash outflow in the year-to-date compared to an outflow of GBP 81 million for the same period last year. The cash balance at the end of September of GBP 110 million was up from GBP 87 million in the same period last year, GBP 17 million down from Q2 this year. The balance then being GBP 127 million. Moving on to the right-hand side of the slide. The change in senior secured notes reflects the April debt raise and a GBP 21 million mark-to-market exchange impact of those unhedged notes. The additional drawdown of the RCF, along with the net cash outflow resulted in net debt of GBP 800 million. Leverage at this level was 5.5x last 12 months adjusted EBITDA. Including a pro forma look at the first-time adoption of lease liabilities per IFRS 16 of GBP 116 million, net debt at the end of the period would have been GBP 915 million. On the 25th of September, we announced a private placement of $150 million of senior secured notes with the option to draw a later $100 million subject to some conditions. These notes closed after the period end, and the proceeds were used to replace short-term cash borrowings totaling GBP 90 million, including the RCF mentioned above and related transaction fees. The remaining cash balance has improved our short-term liquidity position as we continue to invest for the future. The company will keep its strategic financing options under review as required. Moving on and to the outlook and to close on the financials. It's very clear that this year has been a difficult period of trading and that we've not met our own expectations. We see pressure on volumes continuing to the end of the year and now expect total wholesales to be lower than previously guided but within the range of market expectations. As we head into the peak delivery period for both core and special vehicles, despite lower volumes, we expect to meet market financial expectations for full year 2019. And for your reference, of course, we've published the current consensus expectations on our IR website. It's appropriate that we're taking actions therefore to control our costs, looking across all areas for efficiency, and this includes but it's not limited to reducing contractor spend, reviewing our operating footprint. To that end, and as we assess our plans, we continue to look prudently at 2020, and we expect to provide a further update when we report our full year 2019 results in February of 2020. Finally, on this slide, you can see our updated interest guidance, reflecting current exchange rates for your models, and we confirm there is no change to our CapEx guidance for the year of GBP 300 million. Turning to strategic progress, firstly, new products. Fresh off the back of the successful start to DBS Superleggera Volante, which, of course, won the Sunday Times Sports Car of the Year Award, we've also opened the roof on the Vantage, deliveries for that model starting in the spring next year. The manual Vantage AMR received 4.5 stars from Auto Car and deliveries of that 200-unit limited run start in quarter 4 of this year. This quarter, we also released first images of the second car in the DBZ Centenary pair , the DBS GT Zagato, due for delivery in half 2 next year. The first car of this pair, of course, being our most expensive new car, the DB 4 GT Zagato Continuation, as we said, 6 of those delivered in Q3. The remaining 13 scheduled for delivery by the end of this year. And whilst we're on the topic of Specials, the Aston Martin Valkyrie development continues apace with deliveries of those highly technical cars expected to reach run rate maturity in the second half of next year. Next, the DBX, the next model in the lineup. And as you can imagine, we remain intently focused on the delivery of the car. Start of production is fast approaching, Q2 next year. We're on track. We're excited about its performance. We're very pleased with the customer reception to date. Starting with the operational side of things. The first production trial, where cars have been built end-to-end in the factory, it's now complete. These cars have been out in the real world completing extensive testing regimes, and they're also now being used for customer events globally. And the second production trial, 2PT, starts later this month. The plant is now commissioned. There are over 300 employees on site, and this number will quickly double ahead of the start of production. You've seen -- we've announced that St Athan will be officially opened on the 6th of December, 3.5 weeks from now. Moving on to launch plans. Yesterday, you saw we announced the DBX global reveal will be on the 20th of November in Beijing, and there'll be a simultaneous event in Los Angeles. And at this point, the official dealer order book will formally open. We also confirmed the price point in the U.K. of GBP 158,000, including 3-year servicing. And we're exactly where we'd indicated it would be relative to competitive cars. And of course, you would have seen the very first interior image of the cars and some videos posted on various motoring websites. In terms of technical specs, the car will be powered by a tuned 4-liter Turbo V8 from Daimler, making it the most powerful V8 in our range. And there's a wide options range of tailored lifestyle packages to suit individual needs from the snow pack through to the pet pack. We will provide a more fulsome update, including a view of the order book at the full year results in February. However, as we stand here today, we're increasingly confident in the DBX's potential following the initial customer confidentials and the reception that the car has received so far. So in closing, trading this year has been challenging, particularly for Vantage and in the U.K. and Europe. We're working hard to deliver this year. And as we head into our peak trading period, balancing growth, brand position -- brand positioning and dealer inventories is top of mind. We're taking actions to control our costs, and there is intense focus on preparing for the launch and delivery of DBX next year. We look forward to keeping you updated on our continuing progress. And with that, thank you, operator. I'll now open up the lines and take your questions.
[Operator Instructions] The first question is from the line of Kai Mueller from Bank of America Merrill Lynch.
The first one, I think, what I wanted to touch upon is maybe just the sellout in the back end of this year, you obviously said it's your key trading period when you sell into your dealership networks in Q4. Has there been any change in behavior given, obviously, your dealers will be looking at inventory stocking for the DBX as you go into next year? And then the second question is you mentioned the Valkyrie is hitting the full run rate in H2 2020. Just wanted to check is that a change because I understood, obviously, first, we tried -- we were planning to get the first unit this year, that changed then to 2020, now it's H2 2020? And can you give us a bit of an update in terms of the comparative profitability of the Valkyrie versus your core models? Because I understand it was to do with engineering that has led to somewhat of a delay on that product.
Yes. Thanks, Kai, for the questions. Just dealing with Q4, first off. No, I mean, look, again, we said it's been a difficult year. It's been a difficult year for us. It's also been a difficult year for our dealer groups. At the end of Q3 dealer inventories were lower than they were at the end of last year. And we will do the right things as we come through this quarter to manage demand, brand positioning, costs, volume, as you might imagine. So that's where we are at Q4 as we come into this typically larger sales period. Valkyrie, in 2020, I think when we spoke at the half year, we confirmed that the bulk of those cars that you would see next year would come in, in half 2. You asked that there was, some time ago, a discussion about whether there'd be one this year or not. There won't be one this year. We saw an opportunity with a particular customer who requested to get a pre-validation and pre-homologation car. We don't think that's in the right interests of the customer. So that car will come in 2020 along with the others. Of course, worth reminding you that not all Valkyries will be delivered in 2020. We've said historically that would span 2020 and into 2021 as well. In terms of comp profits, we haven't really spoken about Valkyrie other than to say that it delivers reasonable profits, I think. It is a technically extremely complicated car, it's very high priced. We said historically before, it has a very high bill of materials as you would expect from a car at that level of performance, but we haven't specifically commented on margins.
And maybe just checking, on your total Specials shipments for this year, I think you were talking about something like 65 units in total. Can you give us an update on how many Specials you expect to ship this year and maybe the split of those?
Yes. I don't think we've changed our expectations, Kai.
Okay. So basically, the DB4 Zagatos you shipped in Q3 are just not coming in Q4, but you're not adding any incremental ones in Q4 of other specials?
Correct. That's correct. Yes, that's correct.
Next question is from Giulio Pescatore from HSBC.
So a first question on your cost base. Am I right in thinking that your ability to control cost has been a key factor for you in order to maintain the guidance? And maybe can you give us some color on the actions you have taken? And how much more can you do? Second question, maybe slightly related to this one. Q2 and Q1 next year actually look pretty tough as quarters because you're going to have to increase your cost base in preparation for the DBX launch. So maybe can you give us an idea about how can you offset that, also, in the absence of key model launches and the still weak demand in key markets next year? Then the third one, on the free cash flow. Am I right in thinking that the free cash flow should turn positive in Q4, thanks to better EBITDA and lower CapEx as well? Maybe can you give us some color on the working capital outflow or inflow in the last quarter of the year.
Thanks very much. Yes, look, I mean, I think we've demonstrated all the way through that controlling cost is very front of mind for us. We've done that. We will continue to focus on that. You heard me say in the statement just now that we'd be looking to all areas across the business to see where we can be more efficient and more effective. That will include but not be limited to satellite footprint. It will also include contractor base. We're looking at all ways in which we spend cash in order that we can preserve more of it. In terms of Q2 and Q1, look, we're going to update on 2020 in 2020 itself. But I think that's where we would leave Q2 and Q1. We don't expect the seasonality to be very different. But of course, you will correctly -- you're correct to identify, we'll be building inventory for St Athan in that period. I think we've clearly said that previously. In terms of FCF at the end of this year, clearly, as we come into our largest selling season, we are optimistic for free cash flow in that period. But don't forget as well that there is some initial DBX build going on in there as well that may come back the other way. And we'll roll through that, and we'll see how we get on.
And so on the inventory, to come back on that point, for how long should we still expect retail to outperform wholesale. Is there a pattern that we should expect to continue for the next 6 to 12 months? Or is there a point in which the 2 should start to perform in line?
So it goes without saying that any company with growth aspirations has to be wholesaling more than it's retailing, otherwise, it's shrinking. But of course, there is a seasonal aspect to all of that. Clearly, you will see the retail/wholesale dynamic, today, where retail is ahead, you'll see that start to invert as we come into initial order supply of DBX. Clearly, we'll be supplying and system filling that car into dealers, satisfying not only their showroom and demonstrator cars but also that initial strong early demand that we expect. So that's where you'll start to see that inversion take place. But certainly, this year, so far, we've seen that retail run ahead of wholesale as we look to sort of balance volume versus dealer stocks and pricing.
Can I just maybe squeeze one last one in? On the DBX, I found it interesting that the price in dollars was lower than the price in euros. Can you maybe explain why is that? And what's the dynamic behind it?
Well, I mean, I would first say this is that we price to markets and markets don't always reflect purchasing power parity or relative currency movements. So clearly, the U.S. is a competitive market. There's also -- it also needs to be spec adjusted, they don't all go to the same markets with the same specifications, there are different legal requirements. But fundamentally, we price to the market. You can see where our competitors are priced, we price in that competitive segment. And as you've seen, pricing, as we said we would, in the midrange of where the Bentayga and the Urus sit.
And next question is from Stephanie Vincent from JPMorgan.
Just have 3, if that's okay. Can we speak about the onetime marketing costs next year related to the DBX? Also wondering, given your comments on cash flow, I appreciate you can't talk about 2020, but are you expecting any revolver borrowings through year-end? And then finally, you have, of course, touched on the regional difficulties and the difficulties in the Vantage in particular. Just wondering how you view the Vantage versus its competitive subset, I guess, the competitive position.
Yes. Thanks, Stephanie. We haven't commented specifically on the marketing cost of the DBX, but clearly, we're incurring some of those now. You see them come through in our numbers. So they kind of weigh on the numbers despite the efficiencies we're making in Q3 and as we come into Q4. But we'll talk about 2020, as I said at the prelims in February in more detail. In terms of cash flow in this year, again, you heard the answer I gave to Giulio around it being our largest selling season. I don't think we're going to comment on particular aspects of financing, where we expect to be at that point in time. In terms of regional difficulties, regional variances Vantage versus competitors, I think it's fair to say -- it's true to say that Vantage is taking share in the marketplace, but it's also true to say that, that marketplace is declining. Vantage, in all the reviews it's getting, is a strong, it's a minimum 4 out 5 star car. It has been 4.5 and up to 5 stars as well. So it's a great car. Those people who will buy it, tell us they really enjoy it. They think it's a great car. I think where we're now focused is on getting the message more widely disseminated, that it really is a great car, and it's an outstanding purchase in the segment. So that's where we're focused on Vantage. And of course, reminding you that there are 2 clear product actions coming, the AMR limited run manual car, that starts in Q4. That will support Vantage. And the open top car comes in the spring of next year. That is a substantial proportion of the life cycle volumes of that car. So again, supporting the Vantage line as we go through the next 6 months.
And next question is from the line of Sanjay Jha from Panmure Gordon.
Just a couple of questions, if I get my head around. So you're saying Vantage, you're saying fell short of your original plans. Does that mean that the 7-year cycle that you've mentioned before, does that sort of mean that you'll have to find a replacement for Vantage much sooner than you had expected? And my second question is, what is the GBP 350 million CapEx next year is going to be on? Because it looks like St Athan is nearly done. So what's the sort of major items next year you plan to spend on?
Yes. Thanks, Sanjay. No, there's no change to life cycle at all for Vantage, no replacement anytime sooner. As I said, we are -- it is a single car, unlike DBX, I'm sorry DB11, which has, perhaps, 4 variants in its life cycle, Vantage only had one. So the next obvious thing to do is to bring out the product refresh actions that we're doing, the AMR, as I mentioned and just moments ago, the Roadster as well. So in that sense, I think it's true to say, it hasn't met our expectations to date, but that doesn't mean it won't do going forward. And as you would expect, with a company like us, you've seen what we've done with the DB11 and the product actions there, you can expect us to follow a similar disciplined trend with Vantage. In terms of next year, as I said, we're going to talk about 2020 in more detail at the prelims in February.
But you must have some idea where you're going to spend on because GBP 350 million is quite a -- so you spent GBP 300 million this year, you're saying St Athan is nearly done, so I'm just trying to say why you've got GBP 350 million as a number. Just trying to get my head around that.
Well, clearly, we're on a growth trajectory. We're 3.5 cars into our plan. As you saw we launched at Geneva this year in respect to the product actions there. So you might imagine that some of it is going in those directions. And of course, there are also the slightly more boring things like legislative compliance that you have to manage within the CapEx cycle. But look, we're going to comment more fully on what we expect for 2020 in February of next year.
And next question is from the line of George Galliers from Goldman Sachs.
Just as a first question, I just wanted to follow-up on the question from Kai at the start of the call. If we just compare your Q3 presentation to H1, it looks like you had 11 Specials in the quarter, of which, 6 were the DB 4 GT Zagato Continuation. Were the other 5 Zagato [ shooting brakes]? And when we think about Q4, does that mean the 29 that you mentioned for Q4 previously now drops by 11 plus the one Valkyrie that you also referenced being postponed till next year?
Correct, George.
Great. And then following on from that, can you give us any insight into how much the Specials contributed to the cash from operations during the third quarter?
No, we don't separately disclose those breakdowns. So I'm afraid I can't give you any more details.
Okay. And then just moving on back to the last question on the CapEx and the R&D. When we think about next year, will you be starting to make the investments in both the Valhalla and also the AM 9.? And when we think about platforms, is the Valhalla, as has been described by the press, sort of son of or child of Valkyrie and the AM 9 on a completely new distinct platform for you? Or is there some crossover between these two products?
Look, George, as you heard me just answer to Sanjay, we're sort of not going to be drawn on what's in 2020 today. That's a question for another day. And in respect of Valhalla and Am 9, what we launched at Geneva, we showed you there. We haven't said anything specific about those in the meantime. But of course, we do have -- I would draw your attention to what we said about carryover/carry across, our strategy. That's a core theme of what Aston Martin does. So any product that we deliver, we'll always be looking to optimize and maximize reuse of existing assets that are already invested. So you can take that as a clear line forward. It's been the way we've operated in the past 4.5 years as well.
Okay. And can I just ask one final one. Are you able to give us any insight into the R&D expenditure and the associated capitalization rate for the quarter?
So George, in line with our usual expectations.
Next question is from Thomas Besson from Kepler Cheuvreux.
I give it a try as well. I'm sure you're probably going to give me the same answer to all previous questions. But particularly, your volumes, your wholesale volumes this year should end up approximately 20% below the initial target on the path to 2022? Could you effectively confirm, first, that Vantage is really the only deviation compared with the plan? And second, could you tell us whether there's going to be an update to the 2022 target at one point, maybe in February? That's the first question.
Thanks, Thomas. Look, I mean, we're calling out Vantage as having underperformed. And very clearly in the statement, we said we're happy with DB11 and DBS. So that's the -- I don't think I can be any clearer than that. In terms of an update to the medium term, we've said that we're planning prudently. And we're reviewing plans at the moment, and you should expect to hear from us in due course on that.
Okay. I have another question, if I may. I mean on the difference between wholesale and retail, I mean, normally, on the kind of cars you sell, there shouldn't be such a wide difference, I guess you agree. Could you give us an idea of where you stood in terms of a gap between wholesale and retail year-to-date? And whether -- what kind of destocking we still need to see? And basically, what I'd like to get to is ultimately whether the plan for the new SUV is going to be -- to have a more aligned level of wholesale deliveries to effective level of customer orders rather than dealer orders.
Yes. So look, the retail/wholesale dynamic isn't straightforward because, within the mix, you've got different cars and cars like the DBS, for example, sell much more on a longer-term order book basis, they're much more customized. It's a much longer tail buying experience. We said before that Vantage sells a lot more like a 911. And therefore, you have to service a walk up market. So those 2 facts of themselves will tell you that, that difference between retail and wholesale is very often product-driven as much as it is timing. I mean, you've also got launch cadence as well and how we flow new products into the system and how dealers will stock up. So you'll always run ahead wholesales there than you will retails because, clearly, dealers keep their showroom and demonstrator cars for longer. So look, it's not quite as straightforward as that. I would say on -- clearly, as you start the life of a product, that relationship is much more one to one. So you're correct to draw out the fact that, as you come through into DBX, you would expect once you're into customer orders and you've filled the dealer pipeline, those stocks -- those showroom and demo cars that every dealer must have, then you would expect a greater level of -- or a smaller delta between wholesales and retails. But over the life for a growing company, as I said earlier, wholesales have to run ahead of retails.
Sure. Last one, if I may. How many demonstration cars should we expect for DBX? And when do you plan to put these into dealerships?
Yes. So our dealer standards say that each dealer must have at least one showroom car and one demonstrator, so that's one static car for customers to see in the showroom and one for them to be able to drive. We have, and I'm going to look to Charlotte, 166 dealers globally, right, 166, so fairly easy math to work that one out. And of course, naturally, you would expect all of those cars to be there before any customer takes delivery of their first car as well, stocking the dealer -- or putting those 2 cars into the dealer, should I say, is very important. So that's the way that particular dynamic would work.
And next question is from Akshat Kacker from JPMorgan.
Akshat from JPMorgan. Three from my side. And again, coming back to the Vantage, as you said, it has sold well below expectations. Just wondering, when you do your internal review and benchmark it against competition, has anything stood out in terms of digital and tech content on the interiors? And how do you compare that on the DBX versus competition? That's the first one. And the second one is on the core ASP. I've seen that it's -- on my math, it's roughly flat in the third quarter year-over-year. Can you explain what's going on there, despite you telling us that the DBS and the DB11 have continued to sell well? And the last question is how comfortable are you with your EBIT guidance of GBP 67 million for the year? Can you discuss a few downside risks to that number, please?
Thanks, Akshat. In terms of the Vantage, I mean, we build and engineer and sell the car relative to its competitive set. Obviously, we specification adjust, and we think the Vantage, both from a pricing and offering perspective, sits in the right place in its market segment. The DBX, again, we do exactly the same. We looked to the DBX, its main competitors are the Bentayga and the Urus. We benchmark extensively those cars, and that's how we've come up with the price and product offering for that particular car. In terms of the ASP year-over-year, clearly, we've seen a -- we said we've seen a geographic mix shift away from Asia Pacific and China. You've seen that in the presentation. And we saw an ASP benefit there in Q2. So that's moving against us. You've also seen a higher proportion of DB11 V8s versus V12s in Q3 than Q2. And we also said that pricing pressure we felt has come most keenly in supporting retail financing and lease rates, and that obviously has a negative incremental impact on ASP. Clearly, we're giving guidance because that's appropriate for us to do so for the year-end. And clearly, Q4 is all about our core sales volumes and how the market goes for us in this seasonally important quarter. It is and it has been a large quarter for the past 4 years for us. And so I guess, if you're asking to discuss risks, that's the risk. Costs are well in control. CapEx is well in control. We feel very confident and comfortable with where we are with Specials. So as ever, for us, as we come into that final quarter, it's to do with core wholesales.
Just one follow-up on the Vantage. I think the question I was trying to get to is has anything stood out as a special weakness to you guys when you do your review after the product launch?
I think we would probably say that awareness of the car is not necessarily where we would want it to be. I think dynamically, you can read what you need to read in the various trade magazines, dynamically, it is the equal and, in some cases, the better of its competitors. I think its price point is appropriate. I think we have to do more to get the story out there, to get it in front of people because, as I said earlier, those people who buy it are very, very pleased with the car.
Next question is from Christophe Boulanger from Barclays.
I will have 3 questions. The first one is on your dealer inventories on the core model. So I understood, you mentioned earlier, that with the launch of DBX, your wholesale should indeed outperform your retail sales. But if you put the DBX on the side and you just focus on the existing models, existing core models, at which point would you expect wholesales to be in line with retail sales? That's the first question. And the second question is really on FX. We've seen the dollar appreciating quite significantly versus the sterling in the past few months. And if we would take a scenario where the sterling stays in line with the dollar's level of the past few days. Into -- going into 2020, what will be the impact? Do you have any type of sensitivity and analysis you could share with us for a 1% move of the sterling/dollar impact on your EBIT? That's the second question. And the third question is on your net leverage? So you are standing at 5.5x now, coming up from 2.3x at the end of last year. Do you have any targets in mind going into next year? Or is there any guidance you want to share with us for the coming years?
Yes. Thanks, Christophe. Just in terms of inventories, just in case I've understood your question correctly. I mean, at the moment, on core cars, retail runs ahead of wholesale. And as we said in the statement, we are controlling those wholesales in order to allow that destocking. And at the end of Q3, dealer inventories of core cars were lower than they were at the end of the year.
But does it mean that you're happy with it? Does it mean that you are happy with this level now?
Yes. I mean look, we're satisfied with where it is. And as we then come into DBX, clearly, those inventories will increase initially to provide the ability for the dealer to retail those cars out subsequently. In terms of FX, we don't give any sort of cent to cent movement, but I can sort of talk briefly about the various movements. Clearly, our major exposure is long dollars. We have a lot of dollar income not a lot of dollar spend. Set against that, we've also got a substantial proportion of our gross debt configured in dollars these days as well. So there is a little bit of -- there's a little bit of arbitrage there. But we don't necessarily publish a cent-for-cent movement in FX. On leverage, yes, you're correct that we are at an elevated level of leverage today. Over time, and as we said at the IPO, anything sub-2 is acceptable. I don't think we've changed our view on that. I think it's taking longer to get there than perhaps we expected.
But do you have any targets in mind in terms of timing to go down at least below the 4x?
I mean, no, we have never given targets in respect of when we expect to move on net debt other than to say that, over time, we expect it, and we would like it to be below 2.
Next question is from Charles Coldicott from Redburn.
I've got 2, please. First, following a question earlier, actually. I'm just wondering how much visibility you have on wholesales into year-end. Can you give any idea on the orders you have against the wholesales that you're expecting to come in Q4? And then secondly, on cash, can I just confirm that you're expecting to utilize that $100 million debt option that you have next year? And secondly, on that, you've said previously that the only source of additional financing that you would consider is the debt markets. Is that still the case? Or you're tempted at all, perhaps, to raise equity and fix the balance sheet in one fell swoop?.
Thanks, Charles. Obviously, against the backdrop of us having a difficult year, we have less visibility and have had less visibility all year than we would have ideally liked. But as we come into the quarter, we've given you a point of view on where we think volumes will be. It's obviously lower than we thought. So that obviously, that tells you a little bit about how we're thinking. In terms of cash, we configured the debt raise in the way we did so that we have the option to draw should we need it, should that need to be the case, then yes, we would draw the $100 million, it's obviously undrawn today. And in terms of sources of financing, look, very clearly in the statement, we've said we keep all of our options under review. And as you know, and I can't give you an absolute guarantee and nor would you expect me to. And there are many different factors that will influence cash over a 2-year period. I'm confident, following that recent bond issue, we're better placed to weather any short term pressures. And just always worth making the point, looking out further, just remind you of the consistent support we've had and continue to have from our majority shareholders. They're represented on our board. They see our performance and our plans. They have been and remain strongly supportive of this business, and that's been the case for the long term.
And next question is from the line of Philippe Houchois from Jefferies.
I have a question -- a few questions on the balance sheet. First, maybe on the CapEx. So you said you've done the majority of the DBX CapEx, the majority is a bit vague, it could be 51%, it could be 80%. Could you maybe clarify how much of that CapEx has actually hit your cash flow?
I mean we haven't been specific, but it is the substantial majority.
Okay. All right. Trying a different way. If I look at your balance sheet, you only give us a summary balance sheet in the quarter. But you've got GBP 945 million of current liabilities. Normally, you contract CapEx, and then, eventually, the final payment in CapEx will be after the production has started, which is within 12 months. So I'm just trying to understand, of the GBP 945 million of current liabilities, do we have pretty much all the contracted out CapEx for DB11 -- for DBX?
So you're asking about the level of accruals in there, really, aren't you?
Yes, exactly.
Yes, yes, yes. I mean, pretty much. There's a little bit left to go.
All Right. You probably have about EUR 300 million of, basically, commitments of CapEx that have yet to turn into cash in that balance sheet position?
Well, I'm not going to be drawn on a specific number, but thanks for trying.
Right. Yes, and I won't try again on the customer deposits. Let's assume there's still about [ GBP 200 million ]. And -- okay. And I've got a last question, which I hear your comment about in Charles' question about raising equity, et cetera. And you've got the support of your shareholders, et cetera. But it feels to me, from the outside not knowing the details, a bit of brinkmanship, what your shareholders have basically told you, you're not going to get any more equity, you work it out. And they take -- they're willing to take it very far. I mean the share is at [ 400 ] versus the IPO price. And I'm just wondering, we know you would need an EGM to get through for a rights issue but something else is blocking your shareholders. And what are we missing here? Because it is getting a bit destructive to starve Aston of equity at this stage.
Look, Philip, I mean, I would -- they're all your conclusions. And the way we see it is that these are long-term shareholders, truly long-term shareholders. They've been with us for a long time. They have supported this business in a variety of different capital structures to help it grow to more than 2.5x the size it was when Investindustrial joined and substantially greater than that when the Q80 interest joined. So we have no reason to believe they won't continue to support that. They are supportive at the Board. But I can't specifically comment on any of the points that you make, they will be matters for those shareholders.
Yes, understood. Yes, okay.
And the next question is from Stephanie Vincent from JPMorgan.
I apologize to jump in here again, but there's a lot to go through. So just one of the questions I did have, if you're willing to disclose it or maybe, if not now, maybe willing to disclose it at the annuals, is just where you are in terms of your covenant EBITDA on your bonds and whether or not you'd be able to review that on your 2020 guidance just so that bondholders will know how much additional secured financing is available to you at maybe the year or half year? And then I realize that you're a small volume manufacturer, but just your view as we move into 2020 about the EU emissions requirements and your plans for moving those emissions down over the next 2 years? And any additional cost, in your view, that could be related to that?
Yes, thanks, Stephanie. Look, interesting question on covenant EBITDA. I'll take a view internally, and we'll come back. And if that's something that we can do, and that's appropriate for us to do, then we'll do that. I hear the request, and I understand why you're asking it. In terms of being a small volume manufacturer and CO2 limits, we're good in terms of our derogation, we have a glide path with the EU, which is agreed and we're confident of achieving. Clearly, you can see what we're doing on engine strategy. We've talked about moving from V12s to V8s. So you can see that in the statement today, 70% of what we sell is -- are V8s. You've heard us talk about launch plans for the DBX. Initially, it launches as a V8. We've talked about the fact that it also then comes with a variety of different engine applications thereafter. You can imagine where they might be without necessarily being specific. And you've heard us talk historically about the work we're doing on developing other efficient powertrain systems. So we feel comfortable with where we are on the EU derogation, and we feel comfortable in our ability to achieve the glide path required.
And I finally can't help myself to ask one last question, and I promise I won't ask anymore. But on Brexit, is there any downtime for you this quarter related to Brexit? And could there be downtime in Q1 if it is actually an exit date of the end of January?
In short, no. Clearly, we're a small volume manufacturer. Our production times are an awful lot longer than those of perhaps traditional car manufacturers. That gives us flexibility and ability to respond in a more healthful way to Brexit. We don't anticipate any downtime, we're dealing with Brexit by managing stock and inventory, both in the factory and in end markets, that we think is the best strategy for coping with any disruption were there to be some.
[Operator Instructions] And the next question is from Adam Hull from MainFirst.
Two questions, please. One, on the D&A. Clearly, your CapEx plans aren't changed. But could you help us a little bit on what the D&A roughly, in the next couple of years or so, will look like. Clearly, it's up 33% year-to-date. That would be helpful. And then secondly, you're seeing, obviously, a slowdown to some degree in the U.S. Could you help us a bit more as to what your dealers are actually saying in the U.S.? Up to now, obviously, you've been saying that Europe, including the U.K., has been weak. Are we starting to see some question marks in the U.S.? What are your dealers saying? How are the order intake coming in? What's the pricing also maybe on the used side? Just help us a little bit on the U.S., which is clearly a pretty important market.
Yes. Thanks for those questions. In terms of D&A, clearly, D&A follows the same profile as car launches. As we bring cars to market, you would naturally expect the concurrent investment to be fed back into the P&L and D&A. That will continue. You can see clearly, the next step would be with the DBX, you should expect that. But we'll be more specific and more detailed on 2020 at the prelims next year. In terms of the U.S., I mean, I think the overarching point to make here is that, even accepting that this year, we've cut our forecast for sports cars, we were, in any case, approaching a level of maturity for those sports cars. Previously, it was around 7,000 units, and we're somewhat less than that. So you've seen the U.K. slow more quickly. I think all you're seeing now is maturity reach sports car markets. Hence, why the DBX is now an important car for us. What are dealers saying in the U.S.? I think I'd go back to the point I made moments ago, dealers are telling us we need to do more to market, particularly for the Vantage. The Vantage is selling brilliantly in the U.S. The U.S. could not be sequentially up quarter-on-quarter, year-on-year, model by model were it not for a really successful Vantage in that market. So where we get traction with the Vantage, it's doing well. But I think the one thing dealers are saying to us is we need to invest a little bit more in marketing to get the story out there to tell people how good these cars really are.
So clearly, your Vantage, as you say, is getting a lot of share in the U.S. in the segment. But how are the other segments? Do you feel those other segments -- sports car segments, yes, they're maturer for you. How are they? What's the pricing condition? What's the level of order intake? How is that developing? Is there a change in the last few months in the U.S.
Well, I mean, you can see the U.S. up 25%. And so if you took that to its conclusion, extrapolated, you'd see it continuing to grow. Do we expect that necessarily to continue at the same rate, not necessarily because, as I say, till we get DBX, that sports car market has started to mature. We said, and I'll refer you back to the statement, that we remain pleased with the DB11 and the DBS, that's as true in the U.S. as it is anywhere else in the -- on the globe -- in the globe.
And then maybe just finally on DBX. Just maybe give us a very broad feeling for what you think the sort of the normalized level of sales, split by the 3 main regions, Europe, U.S. and China, roughly?
So the DBX clearly is a really important car for China. We are public in saying that. It is as well for the U.S. That doesn't mean it won't do well in other markets. But I think, relatively speaking, you should expect the larger markets to be those 2. And of course, there's a reason we're unveiling it in Beijing and Los Angeles on the 20th of this month. I think we have time for one more question, operator.
So the final question for today is from [ Chris Elliss ] from [ Barings ].
I just wanted to be clear on the guidance for the full year in terms of adjusted EBITDA. So if I see consensus was posted at 200 million, should I be, on a year-to-date basis, taking the GBP 90 million adjusted EBITDA or the GBP 70 million reported, i.e., backing out what Q4 will be GBP 110 million based on consensus or GBP 130 million, just there's a few different EBITDA numbers around?
Okay. So just draw your attention to our IR website. On the IR website, the collated consensus from all the analysts who report on us is GBP 203 million of adjusted EBITDA for the full year.
Sure. Just to confirm what number were you using on a year-to-date basis? Is that based on like-for-like GBP 90 million or actually the reported GBP 70 million, from your perspective?
Adjusted EBITDA in the year-to-date 2019 is GBP 69.7 million.
Okay. So based on the consensus, we're implying GBP 130 million Q4?
I believe we are.Okay. Ladies and gentlemen, thank you for -- thank you, operator, sorry to talk over you. I'll just wrap up very briefly. Thank you for taking the time to join us on our Q3 results call today and for your questions and your further interest in Aston Martin Lagonda. I'm very much looking forward to updating you on our progress and the final quarter this year when we report our full year results on the 27th of February 2020. So thank you, and good morning.