Aston Martin Lagonda (AML) could be headed for the breaker’s yard. On the day that Rolls-Royce Motor Cars announced its highest annual sales in the marque’s 116-year history, its UK luxury counterpart said that lower-than-expected wholesale volumes and an unfavourable product mix meant that cash profit would come in between £130m-£140m. That’s roughly a third down on market expectations, with the underlying margin slipping from 22.6 per cent to a range of 12.5-13.5 per cent.
The good news is that forward orders for its keenly anticipated DBX sports utility vehicle (SUV) have achieved the hurdle rate that enables the company to draw down an additional $100m (£76.9m) of April 2022 notes. The parlous financial state of Aston Martin is reflected in the coupon rate of 12 per cent – or 15 per cent for unsecured notes – half of which is payable in kind, presumably equity. But it is little wonder that lenders can put the squeeze on given that the automaker closed out 2019 with just £107m in cash and a minimum net debt multiple of 6.9 times adjusted profits.
The drawdown should see the group through to the end of the year, although debt financing obligations are set to soar – interest repayments outstripped net operating cash at the half-year mark. Shareholders will hope that the inventory-build witnessed through last year will translate into improved sales and cash flows if pre-orders for the SUV keep on improving. There was at least one encouraging sign from the latest update, as dealer inventories have started to decrease as retail sales increased by 12 per cent year on year.
The trouble is that the likes of Jaguar, Mercedes and Porsche all entered the SUV market some time ago and Aston Martin’s version won’t just walk off the forecourts based on reputation alone. Rolls-Royce’s chief executive, Torsten Müller-Ötvös, recognised the importance of keeping his brand “rare and exclusive”, but it is an overcrowded marketplace and other luxury marques have struggled to maintain their brand cache.
The group notes that “incremental fixed marketing spend to support retail campaigns, particularly in the US” has resulted in “lower cost savings than originally planned”. Then there are the capital expenditure requirements at the luxury end of the market – ongoing design and product refinement are required to compete in the marketplace.
