The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
If I was Andy Palmer I guarantee you that I would not have allowed Reichman to do what he did. I do think AP had skills, but I think they appropriate for a main stream manufacturer, rather than a company like AML. My involvement with the brand/company is mainly historic and I was never an employee nor a director or shareholder. The reason I point to my experience with the brand is to support my views regarding styling and what the brand used to stand for and why people bought the cars. Branding is a way we all express our personality and even though this seems like something new, its not. people have always done it. After all that is why a brand is a brand. I just feel the brand has lost its way and whilst I would be comfortable if it reverted back to its original ethos, I fully appreciate that it has to compete in a modern world. Putting a positive spin on things I would say that the brand is in transition, a work in progress if you will. I would love to see the company reach great heights but at the moment that is hard to imagine. If Stroll had a strong relationship with the brand I would feel more optimistic about the future, but he is on a learning by doing curve. I spoke with a dealer this morning who says the redesigned front end for the Vantage should be in the showrooms in early 2021 and they wait to hear on the DBS. If the plan is to sort these models out, then I would expect a revision to the DBX sooner rather than later. As much as I am flattered by your Andy Palmer quip, alas I am not.
Dunnieboy - I have a long history with the company/brand, again I am not going to disclose the extent as this will identify me. I bought into the company in good faith. Holding the shares resulted in me paying close attention to the various manoeuvrings and I sense that this is not an honest sp. I have dealt with a lot of wealthy individuals and most, but not all, are not trustworthy. The issue here is that if Stroll gets the value of the company down, he can afford to buy it. With an honest share, even if there are large institutional blocks, a majority shareholder of Stroll's standing is not running the company. Most people in his position resent making money for other people. I have not made up my mind fully, but dumping Perez, without whom Stroll would not have bought Racing Point, poses a big question for me. A very big question. Dumping his son and bringing in Vettle (who I think is deliberately punishing Ferrari for not offering him a seat for next year) would have made sense alongside Perez, a points machine. This would raise the prize money the team would get.
In terms of shareholding I am in seven digits, that's enough. I am stuck with the share for the moment. If I am still in after the December vote, then we shall see.
If, as you seem to suggest that the vote is to approve the bond issue retrospectively, why is the bond being traded? I am just asking honest questions? I see people on here ball parking all sorts of numbers and wondering why the sp is stuck where it is. I am just using my knowledge and experience to consider all of those points. Obviously if the vote in December is for a consolidation, no effect on the going concern, followed by a further capital raise, which would have an effect on the going concern, then why not say so. Either there is something unpalatable in the mix, or they need someone who can draft a report better then they have. Who I am and what qualifications I hold will not be disclosed. In terms of shares, I have a significant number. I am just answering your question honestly....
Dunnieboy, I know what I am talking about. Wrongful trading is not fraudulent in any way, it just means there are consequences for the officers and so they have to both act as one (or resign) or they have to be sure of a positive outcome.
If the material concern was trading related, there would be no need to link the issue to a shareholder vote, which they indicate that can't control the outcome of. A consolidation would be a case of just moving the furniture around, and have no effect on the going concern....so what is it they are going to put before the shareholders. You are a smart focussed, I have seen your posts... what are they up to that they can't control in terms of vote that would result in a material uncertainty?
“Whilst the Group remains a strong financial position, the Directors have determined that additional liquidity and moreover an evident extension in maturity of its bond funding and revolving credit facility will be required to support the Group in achieving its medium to long term ambitions and allow it to navigate a severe and plausible downside scenario that the directors have modelled. The New Financing serves to achieve these aims however it is contingent on the outcome of a shareholder vote in early December which is outside the control of the Directors. Accordingly, as the Directors are obliged to do pursuant to the requirements if IAS 1 Presentation of Financial Statements, they have concluded that there exists a material uncertainty [my emphasis added] that casts significant doubt on the Group’s ability to continue as a going concern. “ Page 13 of the Q3 report issued 27.10.20.
The point I have been drawing attention to is that the material uncertainty is linked to the shareholder vote in December and not the bond issue.
3300, you an I know that we are not in league with each other and are providing honest input. We would love the sp to rise so no that we have a profit and we can enjoy being part of the Aston Martin story. people who attack what they don't like to see probably have an agenda all of their own. If the issues I am pointing out were seen by those manipulating the sp, of course they would rubbish the comments, but avoid dealing the the points I have raised in a fact based evidential way. The issues I have raised are all facts, not opinions. Where I have expressed opinion I have been clear, and that relates to conclusions relation to the facts. If someone can list the fact and provide a better conclusion, let's have it. Even down to the rubbishing of the interest calculation, lets have theirs.......
Dunniebiy, trading whilst insolvent is not illegal....fact. I have explained the responsibility of the directors during any period of wrongful trading. The fundamental uncertainty point was in the report on the last page...read it, page 13 at the end.
To anyone with a professional auditing qualification, bringing the going concern into question is a very serious matter. If Stroll was not trying to spook the position, the comments could have been modified in a number of ways. If the company had all of the cash you think you can estimate, so liquidity was strong, then why make the comments. The going concern is measured for the forthcoming 12 months and auditors require a budget and cashflow projection to support the financial statements being prepared on a going concern basis. For the directors to recognise a fundamental uncertainty regarding the going concern basis, then this uncertainty must exist within the coming 12 months from the balance sheet date...not some vague point in the future. Further, if the issue that drove the statement was either short term liquidity or liquidity to meet the debt repayments falling due in April 2022 and beyond, why link the going concern issue to both the bond issue and the vote in December?
If you thin the interest calculation is wrong...then let's have yours. Please explain why Stroll's second capital raising was when the share price was just under 80p, yet he offer the shares at 50p, but not as a rights issue, which tanked the price to 50p. As far as I can see these 50p shares were taken up as soon as they were offered. If he acting in an honest manner, they would have authorised the sale and collected as much as they could as close to the sp as possible, but they didn't. In terms of why don't I sell my shares, if the sp moves into a profit for me prior to the consolidation, that is exactly what I will do.
MB may be the target exit. Stroll does the heavy lifting, makes a big profit and Mb are the hero's. I can't see how shareholders would have legal recourse to anyone. Wolff publicly invested with his group circa £15m at 55p. Vettle, who knows. After consolidation Wolff and co would be a big block they can rely on. Not everything has to be in Yew Tree.
What can't be explained is the statement that the directors recognise a fundamental uncertainty in relation to the 'Going Concern', particularly as it is linked to the vote in December, so that it did not evaporate with a successful bond issue. As an ex-FCCA I can telly you that a qualification in respect of the going concern will spook any self respecting professional...it is extremely serious. The implication is this. If the business trades whilst insolvent, this is known as wrongful trading. From the time this occurs to the time that the company regains solvency, the directors become responsible to the full extent of their assets for the indebtedness incurred during that period. Next, why burry the good news of the successful bond issue. That should have been an RNS. If the sales of the DBX are good, why not say so. I don't believe the CFO overlooked these points. There is more to this than a reorganisation of debt and management. I agree with a number of the posters on the BB, the sp should be progressive at this point, yet is being held in a box as it was at 50p.
Dunnieboy - I understand those points and have given them consideration. My reading if the numbers is that they had £300m not £500m. I don't think Wolffe and co would lose out as they are part of the group he has assembled that will also control the votes. Many of the points you make could be achieved by allowing the share price to rise now, then consolidate to take it up further. I think that a consolidation is more likely to be related to a further dilution or a buyout, or more correctly stated, a management buy in. I hold a lot of shares in AML and as a result I feel somewhat uneasy about my exposure at the moment.
My concern, as I said on another thread, is the consolidation. If I look at the Balance Sheet numbers it seems to me that if you take a £1.6bn value, discount that to £1bn for the capitalised development costs, which have no realisable value, then the net result is about £1bn as a breakup value. This is, in effect a circa 53/54p share price. This matches the market cap with the NRV (net realisable value) I fully understand that this figure does not put any value on the brand, but then neither does the share price. If I was Stroll I would have given as much thought, if not more, to my exit as my entry. If you look at what he has done, he has used shareholders to fund losses and debt on his watch. the has restructured the debt piece and so the next move would be to consolidate the shares to he controls, both directly and indirectly, an ever larger block. I would then muffle good news, no law against that and then look at taking the company private. He might have enough cash or perhaps with a partner, make an offer based on a suppressed sp. His risk to the strategy will be a share price break out. If DBX numbers are good, he would want to sit on that information. At the moment knocking the sp down would look bad for him, but if there is a 1 for 10 offer and it then slipped to say £3 it would look ok in comparison the Ferrari share price, but a bargin for him to make an offer at say £3.5. He could then sell the enterprise to say MB or a hedge fund with a significant mark up. Whilst I am not saying this is what he is doing....it is just a word of caution and a possible explanation for the subdued sp.
Unfortunately, I agree with the Auto Express report. Aston Martin is a bit like a Vodka Martini - shaken, not stirred. It is a strange ****tail of things that have been woven into the fabric of the brand for the last 60 or 70 years. I discussed some of the characteristic with Kingsley Riding - Felce - Director at Works Service. They had carried out market research to try and understand in great depth why their customers bought an Aston Martin. There were all sorts of words thrown into the mix, such as success, respectability, aristocratic, rarity, exclusivity and so on. The lineage of the Aston Martin brand is not all that different to a Saville Row suit, in fact an MBA text on marketing would probably describe them a complimentary products. Many people have got the brand traits wrong and for my part I do wonder about Stroll. He is not steeped in the brand and he wants to build rear engined super cars, a long way from the high performance luxury cars they were building prior to Betz. Nothing wrong with innovation, you just need a new customer base...'risk' in a word. Difficult to see an MI6 agent driving a super car... so designs that are too radical might fracture that relationship. Walter Hayes, who I met, got it right, Betz wanted a 911 competitor, Palmer was out of his depth (with the brand), Stroll, jury is out as everything to date was already in the pipeline. Only my opinion :-)
Hi Nohas Ark - Your question re Tax. In order to have a liability as to tax, first the company has to generate profits. In the event that the company runs at a loss, this loss will be carried forward to future years and can/ will be offset against profits as and when they arise. The cost of borrowing, whether that be on an overdraft, asset financing, or in relation to your specific question, bond interest costs. In addition to the interest being part of the cost base for the tax comp, the cost of the offering can also be offset. The costs of the design and tooling for a new model will also form part of the tax comp by way of capital allowances. Some of these may be 100% in the first year, or subject to release over a longer period depending on the prevailing rates for various types of CapEx. Due to the complexity of the timing of off set of tax, CapEx and so forth, the two important measures to look at will be EBITDA and the cashflow statement. The cashflow statement has become an important feature in financial statements as it will provide information on net cash flows as well as disclosure of gross inflow and gross out flow. The out flows will include tax. The cash flow statement is an important tool for judging the liquidity horizon of a company.
I would just add a note of caution. The qualification to the report regarding the 'going concern' was a bit OTT in my opinion. The next point is that the removal of the qualification was said to be the bond issue and the passing of resolution/s in December. As far as I can see the bond issue would have been sufficient to remove the qualification as the 'going concern' test is based on 12 months, 18 if you are being very cautions and unless there the resolution is to do with further capital raising, nothing would turn on it from a going concern perspective. The final point is that they should have issued an RNS regarding the bond issue to say it was fully subscribed and they chose not to be instead rely on the ambiguous wording of the previous RNS. It seems to be they want to keep a lid on the sp. They announced the MB position, which drove the sp and then immediately put the brakes on with the reference to the going concern in the report. I remain very cautious.
The bond is USD 1.085bn as I recall. A 10.5% interest rate will be a cost of just over USD100m. The current exchange rate is about 1.3 so about £75m or so. Have in mind that the pre-brexit USD/GBP rate was about 1.5. If there is both a deal with the EU and Trump get in to finalise a US trade deal then this should add to GBP strength. If Biden gets in the mechanics are such that it is likely to be next summer for the US trade deal. The exchange rate will be a key variable and AML produce their accounts in GBP.
I think there is a concern that the opposite is the case. If the resolution they want to lay before the members in December is a consolidation, they might do a 3 for 1. This, based on todays sp would mean that the sp should then be circa £1.50. However, if the shares are relatively stable at 50p, they could take a hit at £1.50 as more money would be required to keep the price stable. A consolidation would also be a cheats way of achieving the 62.5p for the MB deal.
Sorry ran out of space. So a cash generation of about £60k per vehicle. So you would need to sell about As the debt is USD based, the coupon would be about £75m, depending on the exchange rate. They would need to sell 1,300, or there abouts to service the debt.
Hope that helps
Sorry for the late contribution to the question, I had some errands this morning.
Establishing the profit per unit is a trick exercise from the outside, in fact I would say impossible. However, I can provide some insight as to likely sums and also explain the accounting conventions that cause the estimate of profit to be so complex.
On large engineering and tooling projects such as the DBX the company will accumulate the costs to the point of the 'turn key' operation. A lot, but not all of the costs will be capitalised and this forms part of the tangible and intangible assets of the company. Where development costs are incurred via an independent third party, including software, this can be capitalised. The next issue is how much of this cost is then attributed to each vehicle as part of the cost of sales depends on a number of things including profit strategy. There are essentially two accounting conventions that the company could use, marginal or absorption costing. It is more likely than not that they will use a form of absorption accounting which will involve an estimate of how many cars they will produce in a year and at the end of the year or period there will be an adjustment for under or over absorption. How I have dealt with this in the past is to concentrate on the cash generation and the contribution that each unit generated on an EBITDA basis. If you can imagine, there are cash and non-cash costs that roll into the Net profit. For example the development costs will have already been funded so will not be a strain on future cash flows as such, whereas labour and materials will be a current drain on cash.
So to the estimating. From any retail price you care to identify there are likely to be sales taxes of one form or another to deduct. So in this country there is the 20% Vat and other on the road costs. In the US for example there will be a local and possibly a Federal sales tax. I will base my example on the UK as that is a bit easier. If the car is say £180k, net of Vat and other costs this will be about £145k very roughly, before the dealer margin. In the past dealer margins, including all retrospective volume discounts used to be about 17%, so with AML lets say it's 12.5%, so lets call it £20k per car. This will leave circa £125k for AML. This figure will give you the gross revenue per vehicle based on what ever volume you think is appropriate. Of the £125k I would suggest that they are targeting a 35% gross margin, but this would include what I used to call the Recovery Cost Rate. This being the fully loaded cost using absorption and the balance being a contribution to overhead and profit. As an absolute guess I would say that the likely production cost of labour and materials is probably somewhere in the region of £65k. I would then guess that 50% of the remainder will be the absorption factor leaving circa £30k as the contribution to overheads and profit. In terms of cash generation for overhead recovery and profit,
Now that MB have a world record of championships there is little or no marketing mileage left in the F1 team being MB. I understand that from next season they will be AMG. This is certainly a good point for Toto to make a change. I agree in principle that Aston Martin would be a good move for Lewis if AMG and AML had equal equipment. A world championship for AM would have a significant impact on sales, so F! marketing $$ would be better spent there. I also commented to someone the other day how the bottom seems to have dropped out of Lance Stroll's performance, so perhaps he knows he is for the chop. Vettle and Hamilton like each other and that would be an interesting team. My guess is that Lewis would want once more championship to be the most successful F1 driver ever.