Aston Martin has announced that its pre-tax income swung to profit during the first quarter of 2017 after an exceptionally strong increase in sales thanks to the new DB11.
IHS Markit Perspective:
- Significance: Aston Martin has announced that its pre-tax income swung to profit during the first quarter of 2017 on the back of exceptionally strong sales.
- Implications: This performance has stemmed from the introduction of the new DB11 and continued financial management.
- Outlook: Looking towards the rest of the year, the company has boosted its financial performance expectations. However, there is still a long way to go under its current plan.
Aston Martin has announced its financial results for the first quarter of 2017, showing a significant improvement in profitability on the back of greater sales revenues. According to a statement released by the brand, for the three months ending 31 March, it noted that its sales revenues have "more than doubled" to GBP188.3 million (USD244.1 million) from GBP92.6 million. It added that this come on the back of a more than 100% year on year (y/y) increase in retail sales, while wholesale demand has grown by around 75% y/y to 1,203 units underpinned by the United Kingdom and Europe, while in China its market share has increased.
Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) have risen "seven-fold" to GBP43 million, representing a margin of around 22.8% y/y. It has also noted a pre-tax profit of GBP5.9 million versus a loss during the first quarter of 2016 of GBP29.7 million, while profit after tax stands at GBP4.8 million.
Operating cash flow stood at GBP55.7 million.
On the announcement of its financial performance, president and chief executive officer (CEO) Dr Andy Palmer said, "The group has made a strong start to the year. We are delivering on our 'Second Century' transformation program and building sustainable profitability. Forthcoming models including the new Vantage and Vanquish will expand on our recent growth, underpinned by the financial resources and operational discipline of a true British success story in luxury car production."
Outlook and implications
After years of losses, the luxury sports car brand is starting to show signs of being on course to become a sustainable business from these recently released financial highlights. A large part of this improvement will have come on the back of the newly introduced DB11, the first model to be introduced as part of its latest business strategy, and replacing the DB9 which could trace its roots back to 2004. There were signs of this during its fourth-quarter 2016 results, particularly in terms of the order book for this model, which the company has suggested continues to bulge.
However, the improvements are not only down to this new model, but also more careful financial management within the business. The latest move of this type has been the completion of refinancing GBP550-million of senior secured notes that are due in 2022 and have an interest rate of 6.5% on the US dollar tranche and 5.75% on the UK sterling bonds. This was versus an interest rate of 10.25% on payment-in-kind (PIK) notes and 9.25% on its bonds. Mark Wilson, the chief financial officer (CFO) of Aston Martin noted, "The refinancing is expected to result in annual income statement interest savings of more than GBP10 million and strengthens our capital structure."
The stability that is offered by this will be important as it continues to replace and broaden its model range and undertake capital expenditure. As mentioned by Palmer, it has the replacements for the Vantage and the Vanquish due between 2017 and 2019, as well as the convertible DB11 Volante. These will hopefully offer the same benefits that the DB11 coupé has had to its sales figures. However, a further boost will come with the introduction of its highly anticipated crossover set to be built at the St Athan (United Kingdom) site which is currently under construction. We also look set to see the introduction of some Lagonda brand models in future and further sports car types as Aston Martin places Ferrari, Bentley and Lamborghini even more firmly in its sights. There also seems little let-up in its plans to introduce an electric vehicle (EV) eventually, despite the troubles faced by its Chinese partner LeEco. Indeed, Wilson was quoted by Automotive News Europe (ANE) as saying that Aston Martin is "in dialogue with them, we're working with them. They have undertaken their funding commitments so far so we will keep them at their word. They have absolutely contributed money into the partnership."
Looking forward to the rest of the year, Aston Martin has now increased its full-year forecast to reflect the boost in its financial performance. It now anticipates that its revenues will hit GBP800 million during 2017, while EBITDA is expected at or above GBP170 million. Wilson has also said that is "possible" that the company could meet a commitment to achieve a net profit this year which would be earlier than planned. Aston Martin has also said that its annual wholesale volumes are expected to rise by more than 30% y/y from the 3,687 units that it recorded in 2016. It remains to be seen whether it can achieve this improvement given that the DB11 will need to offset a likely weaker performance for its other models, in spite of attempts to stimulate demand with limited editions and bespoke work by its "Q by Aston Martin" business. Nevertheless, if it can maintain this upward trajectory of its financial performance, this could bring it closer to the point where it can seriously consider the initial public offering (IPO) that has been mooted of late, although Wilson has said, "As far as I'm aware at the moment those discussions are not happening,".
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