Aston Martin seeks to outpace spectre of unprofitability
An end-of-year communiqué from Aston Martin listed the British carmaker’s accomplishments in 2015.
February brought three new, limited-edition vehicles, including the Vulcan, which spits fire out of its exhausts. March involved a glimpse of an ambitious 4x4 at the Geneva motor show. October introduced the world to the DB10 — another special edition sports car featured in the latest James Bond film.
“All this is very interesting, and very sexy, and very shiny,” says Mark Wilson, chief financial officer and one of several newly installed managers. “But if we don’t secure the financial future of the business now, then it will all have been in vain.”
Aston, which has been in insolvency seven times in its 102-year history, is in turnround mode, striving for sustainable earnings. It last made a pre-tax profit, of £6.9m, in 2010.
If Aston’s first full year under Andy Palmer, chief executive, was about promises, 2016 is about starting to deliver on those pledges. In the coming months the Warwickshire-based manufacturer will unveil its first full production sports car in four years: the £140,000 DB11, successor to the DB9 grand tourer.
When that model goes on sale in the third quarter of 2016, it will mark the end of the first phase of Mr Palmer’s six-year business plan. In the second phase, Aston will renew its entire four-strong sports car range, having secured the necessary funding.
“It’s not a question of looking for external help any more,” he says. “It’s about management carrying out its duty diligently and delivering the cars on time, to cost.”
Standing in the way are two problems: Aston is inefficient and carries too much debt. “Clearly, we are geared up to the ears at the moment,” says Mr Wilson, formerly of McLaren and Lotus.
Aston’s debt load includes payment in kind notes totalling $165m, issued in March 2014 at an interest rate of 10.25 per cent. That was on top of £304m of senior secured notes issued in 2011, at 9.25 per cent. Last year it issued interesting-bearing preference shares and raised £200m.
A steep rise in financing costs contributed to a pre-tax loss of £72m for 2014, almost triple its 2013 deficit.
In October the company carried out a restructuring that cut 295 roles, most of them white collar. Today the company employs about 1,800 people.
Aston is also trying to streamline its engineering processes and eliminate what Mr Palmer calls “muda” — the Japanese term for waste.
That does not mean compromising the company’s famous craft production. Its Gaydon factory has only one robot — the “James Bonder”, which puts glue on the chassis. Doors, seats, even parcel shelves are built in-house to order.
Instead, the management team wants to inject a rigour that is common with larger manufacturers but has so far evaded little Aston.
Marek Reichman, chief designer, and Ian Minards, product development director, have been tasked with improving work processes. This could involve speeding up a car’s journey from design to manufacturing, or reducing the number of changes required in the development process.
Aston wants to work with suppliers to reduce costs and periodically review the bill of materials for each car. “It’s just good practice,” says Mr Wilson. “It’s not something Aston has ever done.”
At the same time as bringing about this new efficiency, the group is expanding. It has installed a second production line and a new body shop for the DB11. It is even eyeing a new factory for the planned DBX four-by-four.
This may sound ambitious, but Aston has hit its targets for adjusted earnings before interest, tax, depreciation and amortisation for three consecutive quarters, and hopes for 20 per cent increase in ebitda in 2016 — against a company goal of up to £70m for this year.
By 2018 it wants to be generating positive free cash flow and making pre-tax profits.
Then comes phase three of Mr Palmer’s turnround plan: brand extension in the mould of Porsche and Ferrari. This means turning Aston into a company that not only builds sports cars, but also manufactures 4x4s such as the flamboyant DBX.
And there is consistent talk of an initial public offering — particularly since Ferrari’s New York listing in October. “We like to think we’d get there,” says Mr Wilson. “It is exactly where we should be and where we deserve to be — if we get all of this right.”