London, 13 January 2020 -- Moody's Investors Service, ("Moody's") has today downgraded Aston
Martin Lagonda Global Holdings plc's (Aston Martin Lagonda,
company or AML) corporate family rating (CFR) to Caa1 from B3 and probability
of default rating (PDR) to Caa1-PD from B3-PD. Concurrently,
Moody's downgraded the instrument ratings of Aston Martin Capital
Holdings Limited's senior secured notes to Caa1 from B3. The outlook
remains negative.
"The downgrade reflects the weak profitability and low wholesale volumes
in 2019 and particularly towards the end of the year", says Tobias
Wagner, Vice President - Senior Analyst at Moody's.
"Cash flow for the second half of 2019 was also significantly below Moody's
expectations resulting in a lower starting point for liquidity as the
company prepares for the critical DBX production ramp up and another year
of significant investment spending."
RATINGS RATIONALE
The rating action reflects the weak performance for 2019 and in particular
the fourth quarter, outlined in the company's trading statement
from 7 January 2019. The weak performance in the fourth quarter,
which typically is the most critical for the company, resulted in
full year company-adjusted EBITDA falling -45% (mid-point)
to GBP130 -- 140 million from GBP247 million in 2018.
Total wholesale volumes dropped 8.8% and core wholesale
volumes 7% in 2019. As a result of the weaker performance
and the substantial increase in debt during 2019 to fund high investments
for mostly future model launches, Moody's metrics such as
Moody's-adjusted debt/EBITDA are weakening further,
estimated in negative territory for 2019 after the expenditure of capitalized
costs, while liquidity is materially lower as the company prepares
for the critical DBX production ramp up.
The low company-adjusted EBITDA in the fourth quarter of 2019 was
caused by a number of factors, including lower wholesale volumes
and within the volumes a model shift towards the lower-priced Vantage
model supported by retail financing efforts. Actual retail sales
continue to grow solidly at 12% for the year, but the lower
wholesale volumes reflect efforts to reduce dealer inventory in light
of weaker market demand at the lower end of AML's selling price
range and ahead of the critical DBX production ramp up (AML's first
SUV launched in November 2019). Higher marketing spending and the
rising sterling towards the end of 2019 also contributed to weaker profitability.
In context, the weak performance is in contrast to the good year
of growth in 2018 and the growth potential for 2020 on the back of the
DBX. Launched in November 2020 the company has already reached
1,800 DBX orders of which 1,200 are fully customer-specified
and Moody's understands that the production launch in the second
quarter of 2020 is on track. This also means that the company has
met the drawing conditions for the delayed draw notes providing it access
to the $100 million of delayed draw notes if the company chooses
to proceed.
Nevertheless, Moody's considers the company's liquidity
currently as weak taking into account the GBP107 million of cash available
as of year end 2019 and notwithstanding the access to the delayed draw
notes. This is partly driven by Moody's expectation that
the company may continue to invest heavily as it has done in recent years
to support future models although Moody's also believes that the
company has some flexibility around the phasing of spending and may now
choose to invest visibly less than the upper end of the guidance given
previously (up to GBP350 million). Some additional working
capital needs will also come with the ramp up of the DBX production in
2020. Accordingly, Moody's considers it likely that
further funding needs may arise under the currently outlined strategy
of the company and Moody's understands the company is currently
exploring further funding options.
Additionally, AML's rating remains constrained by (1) limited financial
strength compared to some direct peers that belong to larger European
car manufacturers; (2) efforts to service a broad range of GT,
luxury and hypercar segments and price points despite its comparably small
scale; (3) exposure to foreign exchange risk given its fixed cost
base in the UK compared to a sizeable share of revenue generated from
exports to Europe, the US and Asia though mitigated by hedging strategies
and sourcing outside of the UK; and (4) operational risks related
to the production of all models in two plants in the UK, which is
also exposing AML to Brexit-related risk and some uncertainty from
potential US tariffs. However, the ratings also reflect the
company's good growth in 2018, which should resume in 2020.
It also reflects the (1) strong brand name and pricing position in the
luxury cars segment; (2) good geographic diversification; (3)
degree of flexibility in its cost and investment structure; (4) continued
model renewals and launches expected in the next few years given its flexible
production through a common architecture and (5) technical partnerships,
which give AML access to high-performance powertrain technologies
and competitive e/e (electric/electronic) architecture.
Environmental considerations are relevant for auto manufacturer as tightening
of emissions standards and regulations across most major markets restrict
the ability to reduce certain investments. However, Moody's
also notes that Aston Martin Lagonda as a smaller, luxury-focused
producer is not exposed to the same severity to these risks as larger
mass manufacturers, for example regarding regulation. Social
considerations are also important, because changing consumer trends
can affect demand. Governance factors considered also include a
tolerance for high leverage and debt-funded expansion as well as
the challenge to credibility from the considerable discrepancy between
the guidance originally issued and actual results for 2019.
Rating Outlook
The negative outlook reflects the continued challenging overall market,
particularly at the lower end of the luxury market. It also reflects
the uncertainty regarding the company's performance and financial
metrics in 2020 and the currently elevated risk profile from the critical
nature of a successful DBX production ramp up and sales performance,
negative free cash flow (after capex, interest) and potentially
further funding needs. A stabilization of the outlook would likely
require a visibly improved liquidity and progress towards a more sustainable
free cash flow profile.
What Could Change The Rating Up/Down
A successful execution of the DBX launch alongside visible growth in scale,
profitability improvements and free cash flow improvements would create
positive pressure on the rating and outlook. This would also require
an improved liquidity profile, Moody's-adjusted debt/EBITDA
improving towards 7.0x on a sustained basis and Moody's-adjusted
EBITA margin in the mid-single digits. Conversely,
further negative pressure on the rating could come from a lack of sufficient
volume and profitability improvements, for example from weaker than
expected DBX sales, and a resulting ongoing high negative free cash
flow and high leverage levels. A lack of improvement in Aston Martin's
liquidity profile would also pressure the ratings and so could further
increases in debt.
The principal methodology used in these ratings was Automobile Manufacturer
Industry published in June 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
Based in Gaydon, UK, Aston Martin Lagonda is a car manufacturer
focused on the high luxury sports car segment. Aston Martin generated
revenue of GBP1.1 billion in 2018 from the sale of 6,441
cars. AML is a UK-listed business with a market capitalization
of ca. GBP1.0 billion as of 9 January 2020. Its major
shareholders include the Adeem/Primewagon Controlling Shareholder Group,
including a subsidiary of EFAD Group and companies controlled by Mr.
Najeeb Al Humaidhi and Mr. Razam Al-Roumi, with ca.
28% and the Investindustrial Controlling Shareholder Group,
an Italian private equity firm, with ca. 33%.
Daimler AG has also a 4.18% stake.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Tobias Wagner, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Peter Firth
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
