Aston Martin continues to pile on debt as it gears up to launch the DBX
The James Bond carmaker can now perhaps take a cue from its famous fiction owner on how to complete a challenging mission. The mission is to put its SUV, the DBX, on the road, and earning enough profit to repay the accruing amount of debt and interest in its balance sheet.
The company’s recent borrowing trajectory began when it debuted in October last year on London Stock Exchange. Aston Martin Lagonda floated at £19 per share, aiming to raise around £1,135.5 million. Since the IPO, the shares recorded lows as much as 371p, undermining the British manufacturer’s attempt to feature on the premium FTSE 100 list of publicly trading companies.
In a recent endeavor, the company raised $150 million by selling bonds to sail through the economic uncertainty in the UK, trade disputes with the US and successfully launch its new sports utility vehicle, as indicated by the chief executive, Andy Palmer. “We’re used to running this business in a very lean manner. The public markets make a merit of ensuring that there’s sufficient liquidity there. That is what has been burning us over the past 12 months,” he added.
The investors, aware of the deteriorating health of UK listed company, have demanded an interest rate of 12 percent, double of that of competitors such as Ferrari with a similar credit rating. This hints at the firm’s attempt to keep itself financially alive. “Two rounds of rescue finance within 12 months following an IPO may be unprecedented,” said the analysts at Bank of America Merrill Lynch to Financial Times.
An injection of capital was needed for operations and to invest in the product core as the company now plans to focus on the increasing number of high net worth individuals in Asia, especially China. Hence, the ability of Aston Martin Lagonda to pay back its investors and generate actual profits is largely contingent on DBX sales. On average the company is spending 30–35% of its revenue on capital expenditure, which is quite high.
Signs of financial stress were evident in 2017, when the British car brand revealed rising liabilities in the form of mainly short and long-term borrowings, which increased by 20 percent from 2016 to 2017, and accelerated further by 5 percent in the first half of 2018 to a total of £799.8 million as the launch approaches.
Investors better hold on tight to their seatbelts in this scenario of diminishing equity in progression since early 2019, as liabilities continue to rise. The share, which floated at £19, fell to 547p per cent on Wednesday, a 71 per cent hit.
The company saw an increase of more than 200 million pounds in its intangible assets since 2016, which was done through acquisitions. The manufacturer’s reliance on borrowing to pay bills and investments has punched a hole in the carmaker’s already worn out pocket, resulting in an increased dependency on DBX sales. At present, Aston group has the capacity to produce almost 6500 of DBX models in 2019, expecting a profit margin of 8 percent, a downgrade from what the expectations were few months ago. The SUV, being made at a facility in South Wales, will be priced at £158,000.
“DBX development is progressing well, with the global launch in Beijing on 20 November. We are delighted with the early reception the car has received from customers and initial orders are being placed at the confidential events,” said Palmer.
This perhaps is the end of fundraising for the Midlands-based company and we just wait for what the future holds. History does repeat itself, and Aston Martin might be able to generate high earnings to revive its finances as it has done the past several times when it went bust. Moreover, there’s always James Bond — four of Aston Martin’s cars will feature in an upcoming Bond movie in 2020 — boosting sales.