Aston Martin Lagonda Global Hld PLC Annual Financial Report (9725R)

TIDMAML

RNS Number : 9725R

Aston Martin Lagonda Global Hld PLC

11 March 2021

11 March 2021

Annual Financial Report

Aston Martin Lagonda Global Holdings plc (the "Company") announces that it has today published its Annual Report and Accounts for the financial year ended 31 December 2020 (the "2020 Annual Report") online and it can be viewed on the Company's website www.astonmartinlagonda.com/investors/annual-report.

In accordance with Listing Rule 9.6.1R, the 2020 Annual Report has been submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism . The 2020 Annual Report will be dispatched to shareholders in due course.

The date for the Company's Annual General Meeting (AGM) and the Notice of AGM will be published on the Company's website and distributed to shareholders in due course.

In compliance with Disclosure Guidance and Transparency Rule ("DTR") 6.3.5, the information in the Appendix below is extracted from the 2020 Annual Report and should be read in conjunction with the Company's Preliminary Announcement issued on 25 February 2021, which can also be viewed at www.astonmartinlagonda.com/investors/results-and-presentations. Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the 2020 Annual Report in full and page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2020 Annual Report.

For further information, please contact:

 
  Investors and Analysts 
  Charlotte Cowley,                       [phone] 
   Director of Investor Relations          [e-mail] 
                                        ----------------------------------- 
  Media 
   Kevin Watters,                           [phone] 
   Director of Communications               [e-mail] 
 
   Grace Barnie,                            [phone] 
   Corporate Communications                 [e-mail] 
   Manager 
                                        ----------------------------------- 
  Tulchan Communications 
   Harry Cameron and Simon Pilkington       [phone] 
                                        ----------------------------------- 
 
 
 
 

APPIX: ADDITIONAL INFORMATION REQUIRED BY DTR 6.3.5

AUDIT REPORTS

The Preliminary Announcement includes a condensed set of financial statements. Audited financial statements for the financial year ended 31 December 2020 are contained in the 2020 Annual Report and Accounts. The Independent Auditors' Report on the Group financial statements and the parent company financial statements is set out in full on pages 87 to 95 of the 2020 Annual Report. The audit report is unmodified and does not contain any statements under section 498(2) or section 498(3) of the Companies Act 2006.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The following information is extracted from page 85 of the 2020 Annual Report.

Each of the directors, whose names and functions are listed on pages 41 to 43 confirm that, to the best of their knowledge:

-- that the consolidated financial statements, prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and IFRSs adopted pursuant to Regulation (EC) 1606/2002 as it applies in the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

-- the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

-- that they consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

PRINCIPAL RISKS

The following information is extracted from pages 33 to 37 of the 2020 Annual Report.

The most significant changes to the Group's principal risks in the year were:

-- INSUFFICIENT LIQUIDITY - Risk reducing following the successful capital raises and refinancing of the Senior Secured Notes in the period.

-- COMPETITIVE POSITIONING - Risk reducing following the completion of the Strategic Cooperation Agreement with Mercedes-Benz AG and the successful launch of the DBX.

-- PROGRAMME DELIVERY - Risk reducing as a result of the successful commissioning of the St Athan facility and commencement of DBX production.

-- ACHIEVING TARGET COST REDUCTIONS - Added as a new principal risk. The Group's ability to achieve targeted cost reductions (e.g. material cost, fixed and variable marketing, fixed manufacturing) may be inhibited by the Group's low volume strategy to maintain exclusivity and luxury positioning.

-- MACRO-ECONOMIC AND POLITICAL INSTABILITY - Impact has reduced as the 2021 budget and business plan have been created after consideration of the recent macro-economic impacts of key factors such as Brexit and COVID-19.

-- SUPPLY CHAIN DISRUPTION - Risk reducing due to the measures the Group has deployed in response to managing its risk suppliers, critical suppliers and Brexit. These include planning for alternative ports of entry for imports and increasing inventory levels for critical parts.

The emergence of the COVID-19 pandemic in Q1 2020 had a significant impact on the business with the temporary closure of our dealerships and factories. In response to this the Company reassessed each of its principal risks in light of the pandemic and established a COVID-19 Task Force, comprising senior management from each function, to manage the specific risks associated with the pandemic. Key activities included undertaking COVID-19 specific risk assessments, promoting and facilitating safe and secure remote working, creating Return to Work Guidelines and deploying social distancing measures in accordance with government guidelines for our operational sites. This Task Force remains in place and continues to prioritise the safeguarding and wellbeing of our employees, contractors, suppliers, customers and their families. Furthermore, each of the principal risks has been re-assessed to specifically consider the impact of COVID-19.

OUR PRINCIPAL RISKS

Our risk management system is designed to identify a broad range of risks and uncertainties which could adversely impact the profitability or prospects of the Group. Our principal risks are those which could have the most significant effect on the achievement of our strategic objectives, our financial performance and our long-term sustainability.

The following pages set out the Group's principal risks,

how these risks are linked to our strategy and the primary mitigating actions implemented for each risk during the year ended 31 December 2020. Our principal risks change over time as some risks assume greater importance and others may become less significant.

We categorise principal risks within one of the following four areas: Strategic, Operational, Compliance and Financial, and link each risk to one or more of the key strategies that underpin our business plan.

PRINCIPAL RISK SUMMARY

Strategic Risks

 
 Macro-economic and political instability 
  Exposure to multiple political and economic factors could 
  impact customer demand or affect the markets in which we 
  operate. 
 Risk movement   Link to Strategy                  Risk tolerance 
  Down            Core product offering: three      Moderate 
                  pillar strategy 
                  Control volume growth and 
                  personalisation 
                  Develop Specials pipeline 
                  Enhance strategic partnerships 
                  Cost and investment control 
                --------------------------------  --------------- 
 Potential Causes 
   *    Global economic slowdown due to COVID-19. 
 
 
   *    Unfavourable movement in exchange rates. 
 
 
   *    Adverse economic global conditions could adversely 
        impact our dealer network or supply chain. 
 Mitigating activities 
   *    Operational and financial review of the business 
        undertaken to align to the new business plan. 
 
 
   *    Monitoring global market trends to target areas for 
        future growth. 
 
 
   *    Volume planning actions to optimise dealer network 
        stock levels. 
 
 
 Competitive positioning 
  Maintaining our competitiveness in the high luxury segment 
  car market is critical to achieving our strategic growth 
  objectives. 
 Risk movement   Link to Strategy                  Risk tolerance 
  Down            Core product offering: three      Low 
                  pillar strategy 
                  Control volume growth and 
                  personalisation 
                  Develop Specials pipeline 
                  Enhance strategic partnerships 
                --------------------------------  --------------- 
 Potential Causes 
   *    Failure to maintain leading design which customers 
        value. 
 
 
   *    Inability to produce cars that are competitive in 
        terms of performance, aesthetics and quality. 
 
 
   *    Competitor pricing activity resulting in the need to 
        increase retail and customer financing expenditure to 
        support retail sales. 
 Mitigating activities 
   *    Expanding product portfolio to produce incremental 
        new core models. 
 
 
   *    Maintain a regular pipeline of Special Editions and 
        offer fully bespoke customisation offer through the 
        'Q' division. 
 
 
   *    Strategic Cooperation Agreement with Mercedes-Benz AG 

        to provide access to advanced technologies. 
 
 
 Brand/Reputational damage 
  Our brand and reputation are critical in securing demand 
  for our vehicles and in developing additional revenue streams. 
 Risk movement    Link to Strategy                    Risk tolerance 
  No change        Core product offering: three        Low 
                   pillar strategy 
                   Control volume growth and 
                   personalisation 
                   Develop Specials pipeline 
                   Enhance strategic partnerships 
                   Cost and investment control 
                 ----------------------------------  --------------- 
 Potential Causes 
   *    Product recall or late delivery could impact customer 
        confidence and loyalty. 
 
 
   *    Dealer network may not be effective in raising, 
        maintaining and promoting brand awareness. 
 
 
   *    Inadequate dealer training in new products and 
        technologies could impair the customer experience. 
 Mitigating activities 
   *    Standardised embedded quality procedures (e.g. 
        Customer Perception Audit, Parts Approval Process) to 
        maintain focus on vehicle quality. 
 
 
   *    Customer satisfaction audits and assessments 
        performed and monitored by the Client Services Team. 
 
 
   *    Expanded dealer network and improved training to 
        ensure delivery of a luxury customer experience. 
 
 
 Technological advancement 
  It is essential to maintain pace with technological development 
  to meet evolving customer expectations and remain competitive. 
 Risk movement    Link to Strategy                     Risk tolerance 
  No change        Develop Specials pipeline            Low 
                   Enhance strategic partnerships 
                   Cost and investment control 
                 -----------------------------------  --------------- 
 Potential Causes 
   *    Reliance on third parties to support development of 
        new and emerging technologies. 
 
 
   *    Competitors may have better access to funding to 
        develop new technology faster and be first to market. 
 
 
   *    Changing and more stringent regulations may make 
        current technology obsolete and increase the risk of 
        future non-compliance. 
 Mitigating activities 
   *    Strategic arrangements with key partners, including 
        the Strategic Cooperation Agreement with 
        Mercedes-Benz AG, to provide powertrain, electrical 
        architecture and entertainment systems. 
 
 
   *    Commodity strategy plans developed. 
 
 
   *    Development of modular architecture "Carry Over - 
        Carry Across" approach for key systems and 
        components. 
 

Operational Risks

 
 Talent acquisition and retention 
  We may fail to retain, engage and develop a productive workforce 
  and to develop key talent. 
 Risk movement    Link to Strategy                    Risk tolerance 
  No change        Control volume growth and           Low - moderate 
                   personalisation 
                   Develop Specials pipeline 
                   Enhance strategic partnerships 
                 ----------------------------------  ----------------- 
 Potential Causes 
   *    Failure to build the right capabilities and 
        behaviours in our leadership team. 
 
 
   *    Key contractors leaving the business and the impact 
        of IR35 on our contractor population. 
 
 
   *    Failure to engage or equip our teams to deliver our 
        strategy or address key capability gaps. 
 Mitigating activities 
   *    Remuneration Committee oversight of senior leadership 
        remuneration to ensure it is aligned to the strategy 
        and appropriate for staff retention. 
 
 
   *    Regular review of talent and resource risks 
        leveraging succession plans and employee engagement 
        survey results. 
 
 
   *    Benchmarking of remuneration and bonus packages to 
        drive employee performance and behaviours. 
 
 
 Programme delivery 
  Failure to implement major programmes on time, within budget 
  and to the right technical specification could jeopardise 
  delivery of our strategy and have significant adverse financial 
  and reputational consequences. 
 Risk movement    Link to Strategy                     Risk tolerance 
  Down             Control volume growth and            Low 
                   personalisation 
                   Develop Specials pipeline 
                   Enhance strategic partnerships 
                   Cost and investment control 
                 -----------------------------------  --------------- 
 Potential Causes 
   *    Insufficient funds to support programme investment 
        requirements. 
 
 
   *    Inability to manage third-party delivery in line with 
        programme timelines and milestones. 
 
 
   *    COVID-19 related issues may impact our ability to 
        conduct testing or engineering development within 
        required timescales. 
 Mitigating activities 
   *    Deployment of an established Programme Delivery 
        Methodology (Mission 1.3) and regular Executive 
        Committee status reporting and oversight. 
 
 
   *    Restructure of the business including engineering and 
        project management functions. 
 
 
   *    Focus on increased levels of "Carry Over - Carry 
        Across" to leverage existing core architecture across 
        multiple applications to expedite delivery. 
 
 
 Achieving target cost reductions 
  The Group's size and low volume strategy may inhibit its 
  ability to deliver targeted cost reductions, or work within 
  budget constraints whilst delivering the planned vehicle 
  programme. 
 Risk movement    Link to Strategy                 Risk tolerance 
  New              Core product offering: three     Low 
                   pillar strategy 
                   Control volume growth and 
                   personalisation 
                   Develop Specials pipeline 
                   Cost and investment control 
                 -------------------------------  --------------- 
 Potential Causes 
   *    High levels of complexity across car lines can drive 
        increased engineering requirements with associated 
        increased resource and cash requirements. 
 
 
   *    Increasing material costs. 
 
 
   *    Inertia to new ways of working may inhibit our 
        ability to deliver against agreed targets and 
        budgets. 
 Mitigating activities 
   *    CFT transformation activity to agree a cost target 
        process with regular CEO led cost reviews. 
 
 
   *    Restructuring of the Engineering and Procurement 
        functions to align accountability and operational 
        procedures. 
 
 
   *    Establishment of bi-monthly cost and cash focused 
        Executive Committee meetings. 
 
 
 Cyber security and IT resilience 
  Breach of cyber security could result in a system outage, 
  impacting core operations and/or result in a major data 
  loss leading to reputational damage and financial loss. 
 Risk movement    Link to Strategy                 Risk tolerance 
  Down             Cost and investment control      Low 
                 -------------------------------  --------------- 
 Potential Causes 
   *    Cyber attack resulting in denial of service, loss of 
        data or other business disruption. 
 
 
   *    Legacy systems reaching end of life may no longer be 
        supported and become more susceptible to failure of 
        breach. 
 
 
   *    Insufficient investment in systems and resource may 
        result in control deficiencies or vulnerabilities not 
        being addressed in a timely manner. 
 Mitigating activities 
   *    Project initiated to implement a new ERP system to 
        transition away from end of life legacy systems and 
        drive efficiency within the IT infrastructure. 
 
 
   *    Enhanced IT general controls for access management, 
        perimeter security, remote access (e.g. multi-factor 
        authentication) and password management. 
 
 
   *    24/7 vulnerability monitoring using Darktrace and 
        security incident response procedures. 
 
 
 Supply chain disruption 
  Supply chain disruption could result in production stoppages, 
  delays, quality issues and/or increased costs. 
 Risk movement    Link to Strategy                   Risk tolerance 
  Down             Enhance strategic partnerships     Low 
                   Cost and investment control 
                 ---------------------------------  --------------- 
 Potential Causes 
   *    Suppliers may be unable to meet delivery schedules 
        due to being in financial distress. 
 
 
   *    COVID-19 enforced closures, or customs clearance 
        procedures impacted post Brexit, could result in 
        disruption to delivery schedules. 
 
 
   *    Deterioration in the Group's credit rating may lead 
        to supply restrictions or more stringent terms and 
        conditions. 
 Mitigating activities 
   *    Critical supply risk assessments performed to 
        identify where additional stock holding or 
        alternative sources of supply may be required. 
 
 
   *    QCDDM supplier performance metrics being developed to 
        manage under-performance within the supply base. 
 
 
   *    Supplier financial strength and performance 
        assessments undertaken prior to engagement. 
 
 
 Brexit uncertainty 
  Delays in customs processing and the interpretation and 
  implementation of the trade deal with the EU could impact 
  the Group's financial position, supply chain and people. 
 Risk movement    Link to Strategy                 Risk tolerance 
  Down             Develop Specials pipeline        Low 
                   Cost and investment control 
                 -------------------------------  --------------- 
 Potential Causes 
   *    Additional costs associated with increased customs 
        duty and tariffs. 
 
 
   *    Extended supply lead times leading to increased 
        working capital investment requirements. 
 
 

   *    Exchange and interest rate volatility impacting Group 
        revenues, profits and cash flows. 
 Mitigating activities 
   *    Establishment of Brexit Steering Committee with 
        regular reporting to the Executive Committee. 
 
 
   *    Consistent regular engagement by the Group with UK 
        and EU Government and Trade Bodies. 
 
 
   *    Steps taken to prepare the supply chain and dealer 
        network for various Brexit scenarios. 
 

Compliance Risks

 
 Compliance with laws and regulations 
  Non-compliance with local laws or regulations may damage 
  our corporate reputation and subject the Group to significant 
  financial penalties. 
 Risk movement    Link to Strategy                   Risk tolerance 
  Down             Core product offering: three       Zero 
                   pillar strategy 
                   Control volume growth and 
                   personalisation 
                   Develop Specials pipeline 
                   Enhance strategic partnerships 
                   Cost and investment control 
                 ---------------------------------  --------------- 
 Potential Causes 
   *    Non-compliance with emissions regulations could 
        inhibit our ability to trade in certain markets. 
 
 
   *    Non-compliance with labour, human rights and 
        environmental standards could result in financial 
        penalty and/or brand / reputational damage. 
 
 
   *    Rapidly evolving climate and environmental 
        regulations could result in areas of non-compliance 
        where not addressed in a timely manner. 
 Mitigating activities 
   *    Vehicle safety certification achieved for all markets 
        and "Small Volume" Derogation status for EU emissions 
        compliance. 
 
 
   *    Standards of Corporate Conduct define our activities 
        in relation to key compliance areas (e.g. 
        anti-bribery and corruption, whistleblowing, data 
        protection, equality and diversity, business ethics). 
 
 
   *    In-house legal and compliance team that manages 
        ongoing investigations. 
 
 
   *    Enhanced GDPR and IT General Controls. 
 

Financial Risks

 
 Insufficient liquidity 
  The Group may not be able to generate sufficient cash to 
  fund its capital expenditure and debt or sustain its operations. 
 Risk movement     Link to Strategy                    Risk tolerance 
  Down              Core product offering: three        Low 
                    pillar strategy 
                    Control volume growth and 
                    personalisation 
                    Develop Specials pipeline 
                    Enhance strategic partnerships 
                    Cost and investment control 
                  ----------------------------------  ---------------- 
 Potential Causes 
   *    Significant leverage levels may inhibit our ability 
        to raise additional capital. 
 
 
   *    COVID-19 impact could result in reduced demand and a 
        reduction in available cash to support the product 
        development plan. 
 
 
   *    Significant debt servicing requirements reduces cash 
        available to support other operational needs. 
 Mitigating activities 
   *    Raising of additional capital through equity issue 
        and refinancing activity. 
 
 
   *    Daily management review of cash balances and 
        establishment of bi-monthly Executive Committee 
        focusing on cash and cost performance. 
 
 
   *    Ongoing transformation activity to deliver targeted 
        cost savings and efficiencies. 
 
 
 Impairment of capitalised development costs 
  The value of capitalised development costs continues to 
  grow as we expand our product portfolio. 
 Risk movement     Link to Strategy                   Risk tolerance 
  No change         Cost and investment control        Zero 
                  ---------------------------------  ----------------- 
      Potential Causes 
        *    Vehicle sales volumes fall below lifecycle plans and 
             targets as a result of the impact of COVID-19 or 
             other macro-economic factors. 
 
 
        *    Vehicle pricing and contribution reduce to levels 
             which no longer support the carrying value of the 
             attributable capitalised costs. 
 
 
        *    Uncertainty of "Carry Over - Carry Across" 
             utilisation on future vehicle models and derivatives. 
 Mitigating activities 
   *    Capitalisation policy and procedures reviewed 
        annually. 
 
 
   *    Impairment reviews performed where triggering events 
        have been identified. 
 
 
   *    Regular vehicle line reviews undertaken to monitor 
        sales volume and contribution performance for all car 
        lines with any concerns communicated to finance for 
        consideration of potential impairment. 
 

RELATED PARTY TRANSACTIONS

The following information is extracted from pages 83, 141 and 142 of the 2020 Annual Report.

During the year ended 31 December 2020, the significant shareholder groups agreed to subscribe for shares in the Company as follows:

Number of Shares

 
 Significant Shareholder      June 2020    October 2020 
  Group                        Placing      Placing 
 Yew Tree Consortium          75,999,277   40,000,000 
 Adeem/PW shareholder         9,000,000    None 
  group(1) 
 Prestige/SEIG shareholder    23,662,788   N/A 
  group(2) 
 

1 The Adeem/PW shareholder group ceased to be a related party for the purposes of the Listing Rules during the year ended 31 December 2020.

2 The Prestige/SEIG shareholder group ceased to be a related party for the purposes of the Listing Rules during the year ended 31 December 2020.

Other related party transactions are detailed in note 31.

NOTE 31

Trans actions b e t ween Group undert akings, whi ch are rel ated parties, have been eliminated on consolidation and accordingly are not disclosed. The Group has ent ered into transactions, in the ordin ary course of business, with entities with significant influen ce over the Group. Transactions ent e r ed into, and trading b a l a nces outstanding at each year end with entities with significant influence o ver the Group are as follows:

 
                                                           Sal es         Purchases          Amounts   Amounts 
                                                            to rel         from relat         owed b    owed to 
                                                            ated           ed                 y         related 
                                                               party           p arty         r el a      party 
  R e l a ted pa rty - Gr                                       GBPm             GBPm        ted p a      GBP m 
  oup                                                                                            rty 
                                                                                                GBPm 
==============================  ===================  ===============  ===============  =============  ========= 
Entities with significant           31 D e c ember 
 influ e n ce o ver the Group        2020                      1.4               2.7               -        1.3 
Entities with significant           31 December 
 influence o ver the Group           2019                      1.1               4.0             0.2        0.6 
==============================  ===================  ===============  ===============  =============  ========= 
 

TRANSACTIO NS WITH D I RE CTO R S

During the year ended 31 D e c ember 2020, an a g reement was signed with a former director of the Group for the sa le of a vehicle at an expect ed discount of GBP0.3m. In addition to this, a former Director of the Group purchased a vehicle at a discount of less than GBP0.1m in line with the emplo y ee purchases policy then in effect.

In the year ended 31 December 2019 no cars were sold to any Dir ectors.

TERMS AND CO N DITIONS OF TRANSACTIO NS WITH RELATED PARTIES

Sales and purchases between r elat ed p arti es are made at norm al m a rket prices. Outstanding b a l ances with entities oth er than subsidi ari es are unsecured, interest free and cash settlem ent is expected within 60 days of invoice. Terms and conditions for transact ions with subsidiari es a re the sa m e, with the exception th at b alances are placed on intercompany accounts. The Group has not provid ed or ben efited from any guarantees for any related party rec eivabl es or p ayabl es.

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March 11, 2021 06:34 ET (11:34 GMT)