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RNS Number : 9199S
Aston Martin Lagonda Global Hld PLC
14 March 2019
 

14 March 2019

 

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 period ended 31 December 2018 (the "2018 Annual Report") online and it can be viewed on the Company's website www.astonmartinlagonda.com.

 

In accordance with Listing Rule 9.6.1R, the 2018 Annual Report has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.

 

The 2018 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 2018 Annual Report and should be read in conjunction with the Company's Preliminary Announcement issued on 28 February 2019, which can also be viewed at www.astonmartinlagonda.com. 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 2018 Annual Report in full and page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2018 Annual Report.

 

For further information, please contact:

 

Aston Martin Lagonda

 

Investors Relations:

Charlotte Cowley

+44 (0)7771 976764

 

 

 

Press Office:

Kevin Watters, Grace Barnie

+44 (0)1926 692 019

 

 

 

Teneo Blue Rubicon (public relations advisor to Aston Martin)

 

 

 

Tim Burt, Doug Campbell, Haya Herbert-Burns

+44 (0)20 7420 3189

 

APPENDIX: 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 2018 are contained in the 2018 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 149 to 157 of the 2018 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 148 of the 2018 Annual Report.

 

The directors consider that 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.

 

Each of the directors, whose names and functions are listed on pages 98 to 101 confirm that, to the best of their knowledge:

•     the financial statements, prepared in accordance with the applicable set of accounting standards, 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; and

•     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.

 

PRINCIPAL RISKS

The following information is extracted from pages 80 to 93 of the 2018 Annual Report.

 

OUR APPROACH TO RISK

The Board is ultimately responsible for oversight of our risk management and internal control systems and it recognises that effective enterprise risk management is essential to executing our strategy to deliver the Second Century Plan, achieving sustainable shareholder value, protecting the brand and ensuring good governance. This includes determining the nature and extent of the principal risks the Board is willing to take in achieving our strategic objectives (the Board's risk appetite), and challenging management's implementation of effective systems of risk identification, assessment, prioritisation and management. We operate a three lines of defence assurance model to manage the ongoing effectiveness of risk and control and to define the relationship between the various management and oversight functions.

 

The Audit and Risk Committee has been delegated the responsibility for monitoring the effectiveness of the Group's risk management and internal control systems. Ongoing review of these controls is provided through internal governance processes and the work of the Group functions, particularly the work of the Internal Audit and Risk Management Team and the Risk Management Committee. The annual Audit and Risk Committee calendar provides a framework for the ongoing review of these systems and controls by the Committee, particularly through reports provided by our Internal Audit and Risk Management team, the external auditors and opportunities to have "deep dives" to understand the key risks of the business.

 

Our Internal Audit and Risk Management team maintain the Group's Enterprise Risk Management Framework and System (ERMFS) and co-ordinate risk management activities across the Group. Significant activity was undertaken prior to the IPO to strengthen the Group control environment by embedding the ERMFS to ensure it was appropriate for a public company. We continue to enhance our risk management activity by introducing formal risk mitigation plans, more granular assessments of gross, net and target risk and management and independent Internal Audit assessments of the effectiveness of these plans (see Control Environment on page 115).

 

Through the ERMFS the following activities will form an integral part of our business and include: annual review and approval of the ERMFS and Risk Management Policy; identifying and assessing gross and net risks for potential impact and likelihood; maintaining corporate and departmental risk registers; undertaking top-down/bottom up risk assessments and designing and implementing risk mitigation plans. The risk mitigation plans will be independently validated on a rotational basis by our Internal Audit and Risk Management team led by the Director of Internal Audit and Risk Management, who reports administratively to the EVP and Chief Financial Officer with an independent reporting line to the Chair of the Audit and Risk Committee. The key governing bodies associated with promoting effective risk management within the Group, and their primary responsibilities for risk management, are shown in the diagram opposite.

 

BOARD OF DIRECTORS AND AUDIT AND RISK COMMITTEE

•     The Board is responsible for regular oversight of the Group's risk management and internal control systems, assessing the Group's principal risks and setting the Group's risk appetite.

•     Regularly monitor risk status through formal risk reporting, risk deep dive reviews and the commissioning of assurance reviews to independently validate the effectiveness of risk mitigation plans.

•     The Board has delegated oversight of the Enterprise Risk Management Framework and System to the Audit and Risk Committee which regularly monitors the principal risks and uncertainties along with management's strategies to mitigate them.

RISK MANAGEMENT COMMITTEE (MANAGEMENT COMMITTEE CHAIRED BY DIRECTOR OF INTERNAL AUDIT AND RISK MANAGEMENT)

•     Reviews external and internal environment for emerging risks.

•     Performs deep dive reviews of principal risks and challenges risk assessments and mitigation plans.

•     Holds risk owners accountable for implementing effective risk mitigation plans.

•     Meets every two months and reports key findings to the EVP and Chief Financial Officer. Updates are provided to the Audit and Risk Committee.

•     Cross-functional "Risk Champion" attendees, encompassing senior management from key departments (e.g. IT, Quality, Technology, Manufacturing, Finance, Legal, Supply Chain).

•     Identifies and assesses changes to risks and monitors the effectiveness of mitigation plans to reduce risk exposure to acceptable levels within our risk appetite.

•     Champions effective risk management and control across the Group.

INTERNAL AUDIT AND RISK MANAGEMENT TEAM

DEPARTMENTAL RISK CHAMPIONS AND RISK OWNERS

•     Centrally co-ordinates deployment of the "Enterprise Risk Management Framework and System".

•     Facilitates updates to the corporate and functional risk registers.

•     Provides resources and training to support risk management activities.

•     Prepares Board, Audit and Risk Committee and Risk Management Committee status updates.

•     Evaluates the design and operating effectiveness of risk mitigation activities.

•     Perform day-to-day risk management activities.

•     Identify and assess risk within their departments and implement actions to reduce risk exposure to an acceptable target level.

•     Assign owners to risks, maintain departmental risk registers and manage "Risk Mitigation Plans".

•     Responsible for establishing an appropriate risk management culture, and for implementing effective risk management and internal control within their department.

       

 

RISK APPETITE

The Board determines the amount of risk which is appropriate in the pursuit of the Group's strategic objectives, dependant on the type of risk. For example, in our pursuit of volume growth we are prepared to accept a moderate level of operational risk to firmly establish our position within the global luxury automotive market, whereas we have a lower risk appetite when considering compliance and financial risks. As a result, the Group's risk appetite will vary dependent on the type of risk and may change over time. In exploring risks and opportunities, we prioritise the interests and safety of our customers and employees and seek to protect the long-term value and reputation of the brand, while maximising commercial benefits to support responsible and sustained growth.

 

We assess the level of risk exposure against our associated risk appetite to ensure that we appropriately prioritise our resources to manage risks within our risk appetite. Initially we assess the gross exposure of identified risks, this being the risk exposure before considering the effect of any mitigating controls or actions. We then measure the net risk to determine the residual risk exposure using a scoring methodology which considers the likelihood and potential impact of the identified risk. Where the residual risk remains outside of the Board's risk tolerance additional actions are identified to further mitigate the risk down to an acceptable target level.

 

OUR PRINCIPAL RISKS

Our risk management system is designed to identify a broad range of risks and uncertainties which we believe could adversely impact the profitability or prospects of the Group. Our principal risks are those that we regard as the most material to the success of our Second Century Plan, 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 2018. Our principal risks may 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. Each principal risk is linked to one of these categories and may impact one or more of our strategic pillars.

 

Risk category

Risk description

Risk appetite

STRATEGIC RISKS

Risks which can directly affect the Second Century Plan or could significantly impact our business model or long-term market position and performance.

Low - Moderate

OPERATIONAL RISKS

Risks which affect business activities and operational continuity and resilience.

Low - Moderate

COMPLIANCE RISKS

Risks associated with non-compliance with laws and regulations which are relevant to the Group and the automotive industry.

Zero tolerance

FINANCIAL RISKS

Risks related to financing, liquidity, currency and financial reporting.

Low

 

 

 

STRATEGIC RISKS

 

MACRO-ECONOMIC AND POLITICAL INSTABILITY

 

The Group operates in many markets exposing us to changing economic, regulatory, social and political developments that may impact customer demand, profitability or our ability to sell within those markets.

Adverse macro-economic conditions or country-specific changes to the operating, regulatory or political environment may lead to an unfavourable business climate and significant tensions between major trading parties which could impact the Group's operations. This may include explicit trade protectionism, differing tax or regulatory regimes, changing public sentiment or reduced disposable incomes which could affect demand for our vehicles.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

All pillars.

•     Continued diversification into emerging markets (China, Asia Pacific, Middle East and Africa) while building on our growth in established markets (UK, US) to reduce over reliance on any one territory.

•     The Group's brand positioning within the high luxury automotive segment aimed at HNWIs may be less impacted by the economic cycle, and its operating model based on balancing demand and supply to promote strong prices helps to make the Group more resistant to adverse economic impacts.

•     Monitoring market trends globally to target areas for future growth and to ensure a product offer which reflects customer tastes and preferences.

•     Brand and customer activities and experiences to ensure strong brand recognition and customer relationships.

•     Lobbying, where appropriate, to proactively influence regulatory change which may affect the Group.

•     Making appropriate preparations for Brexit including the establishment of a Brexit steering committee to manage the risks associated with Brexit (see the Brexit principal risk set out on page 92).

•     Keeping strategic plans under review to adapt to changes in economic conditions.

RISK TOLERANCE

Moderate - recognising that external factors are difficult to mitigate as they are often outside our direct control.

EXAMPLES OF RISKS

•     A key component of the Group's growth strategy is the expansion of sales in the Asia Pacific and Middle East regions, particularly recognising the increasing number of high net worth individuals (HNWIs) in these markets. The extent to which economic growth in these emerging markets and within the luxury market as a whole will be sustained is unknown.

•     Increased protectionism in many global jurisdictions and Brexit could result in increased tariffs, pricing pressure and additional operating complexities.

•     Unfavourable movements in foreign exchange rates or commodity prices could adversely affect our ability to meet our strategic objectives.

 

 

 

INABILITY TO MAINTAIN FAVOURABLE COMPETITIVE POSITIONING

 

Maintaining our competitiveness in the high luxury segment car market is critical to achieving our strategic growth objectives.

The Group competes with a number of other manufacturers with strong brands and reputations and which may have access to greater financial resources. The high luxury segment is relatively small due to the price at which cars are sold and significant investment is required to introduce new models to the market, which relies on a sufficient level of demand to support the growing levels of production and competition.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

•     Strengthened global brand and sales power.

•     Inspiring customer-focused luxury products.

•     World-class value and lean processes.

•     Top-class quality.

•     Expanding our product portfolio with our Second Century Plan to produce seven new core models over seven years. This is aimed at increasing demand with a multi-segment model strategy based on clearly defined target customers for each model to reflect customer tastes and preferences.

•     Multi-pronged electric vehicle strategy with plans to introduce hybridised supercars and SUVs (under the Aston Martin marque) and all-electric SUVs and sedans (under the Lagonda marque).

•     Maintaining a regular pipeline of special editions and a fully bespoke customisation offer through the 'Q' division, to drive exclusivity and increase demand.

•     Continuous improvement in product performance, technology, quality and other car features.

•     Use of modular architecture and "carry over-carry across" principle for key systems and components to minimise engineering and tooling investment and time to market and improve overall quality.

•     "Beyond Lean"TM manufacturing techniques to improve efficiency and cost savings.

•     Connected car strategy to ensure we keep pace with the market demand for in-car technology and connectivity, autonomous capability and electromobility.

•     Strong brand positioning in the high luxury segment of the car market and strong secondary market values.

•     Expanded dealer network and improved dealer training to ensure luxury customer experience consistent with the brand.

•     "Built-in" quality processes to achieve customer satisfaction.

RISK TOLERANCE

Low - as we develop our product portfolio, particularly our SUV and Sedan vehicles, we need to ensure that we remain competitive to win customers across model segments.

EXAMPLES OF RISKS

•     Failure to maintain leading design which customers value.

•     Inability to produce cars that are competitive in terms of performance, aesthetics and quality and that meet customers' needs and tastes.

•     Inability to keep up with technological advancements (e.g. electrification).

•     Failure to meet regulatory requirements such as emissions restrictions.

•     Competitor brands with greater financial resources enabling them to invest in technology (see technology principal risk on page 86) and stronger negotiating power with the suppliers due to higher volumes.

 

 

 

BRAND/REPUTATIONAL DAMAGE ARISING FROM POOR QUALITY, LATE DELIVERY, PRODUCT RECALL OR INEFFECTIVE BRAND POSITIONING AND AWARENESS

 

 

Our brand and reputation are critical in securing demand for our vehicles and in developing additional revenue streams.

Damage to our brand or reputation for any reason could significantly impact our ability to deliver the volume growth required by the Second Century Plan.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

•     Strengthened global brand and sales power.

•     Top-class quality.

•     Inspiring customer-focused luxury products.

•     Clear brand vision and establishment of a consistent brand identity across platforms.

•     Selective licensing and other use of the brand assets within AML Partnerships.

•     Monthly Brand Steering Committee meetings attended by senior executives and regular marketing and communications reports highlighting brand activities.

•     Cross-functional project team established to deliver new model launches.

•     "Right first time" engineering approach and "Built-in" vehicle quality audit processes to improve quality.

•     Customer satisfaction feedback through customer audits and expansion of client services team to improve global customer support.

•     Quality remediation process in place where quality issues are managed through the Technical Review Group, Critical Concerns Review Group and the Recall Committee.

•     Expanded dealer network and improved dealer training to ensure luxury customer experience consistent with the brand.

RISK TOLERANCE

Low - the value of the brand has been built upon delivering exceptional luxury products to our customers. Any real or perceived quality or customer experience issues could significantly affect demand for our products.

EXAMPLES OF RISKS

•     Customer confidence and loyalty could be affected due to product recall, late delivery, quality defects or not meeting customer expectations and vehicle specifications.

•     Reliance on a franchised dealer network to raise and maintain brand awareness.

•     Inadequate training of our dealership network in new products and technologies as we expand our product portfolio could result in a poor customer experience.

 

INABILITY TO INCORPORATE AUTOMOTIVE TECHNOLOGICAL ADVANCEMENTS (E.G. ACTIVE SAFETY, CONNECTED CAR, ELECTRIFICATION, AUTONOMOUS DRIVING)

 

Inability to keep pace with changing customer requirements and expectations with the move towards more advanced technologies due to reliance on third parties for key components and availability of funds to invest internally on product development.

The Group's current liquidity position and funding structure may restrict the availability of funds to pursue potential acquisitions, invest in organic growth projects or exploit emerging business opportunities to maintain our competitiveness in relation to technological change. In particular, keeping abreast of the development of new technology (e.g. active safety, connected car, electrification, autonomous driving) in line with changes in trends and customer tastes.

The Group is currently reliant upon certain key suppliers maintaining their pace of technological development and making this available to the Group in a timely manner.

 

 

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

•     Inspiring customer-focused luxury products.

•     Strengthened global brand and sales power.

•     World-class value and lean processes.

•     Top-class quality.

•     Strategic partnerships with key partners enable the provision of engines, electrical architecture and entertainment systems as well as providing a more cost-effective platform to enhance our design and engineering capabilities.

•     Given their desirability, special models are often fully allocated prior to any significant capital commitment and achieve a higher margin. Customer deposits are required on allocation and typically allow special editions to be cash flow positive from design to the end of product life-cycle.

•     The Group exploits further opportunities by levering our brand and design expertise to create opportunities to leverage into other luxury goods.

•     Active management of the Group's liquidity and cash flow to prioritise use of funds to deliver the Second Century Plan.

•     Through our modular architecture "carry over-carry across" approach for key systems and components and "Beyond lean"TM method of manufacturing, the Group aims to maximise its efficiency, cost effectiveness and quality of operations.

•     The Group retains a high level of in-house powertrain expertise, in both conventional internal combustion engine technology and next-generation electric drivetrains, which enables the Group to assess the relative financial and operational merits of sourcing these from third parties or developing comparable engines in-house.

•     Customer-focused product development to ensure that innovation aligns with customer expectations.

•     Connected car strategy to ensure we keep pace with the market demand for in-car technology and connectivity, autonomous capability and electromobility.

•     Multi-pronged electric vehicle strategy with plans to introduce hybridised supercars and SUVs (under the Aston Martin marque) and all-electric SUVs and sedans (under the Lagonda marque).

RISK TOLERANCE

Low - technology requirements in the automotive industry are changing with increasing pace and the Group needs to anticipate these to remain competitive.

EXAMPLES OF RISKS

•     The Group may not have access to the latest technologies due to its reliance on third parties for key components.

•     Competitors may have better access to funding to develop new technology faster and be first to market.

•     Changing regulations may make current technology obsolete.

 

 

 

OPERATIONAL RISKS

 

FAILURE TO ATTRACT, DEVELOP AND RETAIN TOP TALENT

 

Inability to attract, motivate, develop and retain our people to perform to the best of their ability to meet our strategic objectives.

Our performance, operating results and future growth depend on our ability to attract, motivate and retain talent with the appropriate level of expertise to deliver our Second Century Plan.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

•     Passionate people and culture.

•     World-class value and lean processes.

•     Oversight by our Remuneration Committee to ensure that the remuneration packages for senior leadership roles are appropriate to retain key individuals and align with our strategy.

•     Succession planning for key roles and positions.

•     Regular review of talent and resource risks related to key roles/positions by the Board and Committees.

•     Annual bonus plans in place for management and staff to reward individual and corporate performance.

•     Annual benchmarking of remuneration levels across grades.

•     Investment in HR recruitment team to increase the capacity and efficiency of recruitment activity.

•     Track record of internal promotions, demonstrating availability for career progression within the Group.

•     Employee engagement survey and action plan.

•     Ongoing investment in our Apprenticeship Programme.

•     Introduction of our online Learning Management System to facilitate employees' personal development and skills acquisition.

•     Establishment of the Development Committee to focus on employee career development and progression.

RISK TOLERANCE

Low to Moderate - recognising the importance of having the right people and skills to deliver our strategy. We are reliant in certain areas on highly skilled technicians to maintain the attractiveness and quality of our vehicles.

EXAMPLES OF RISKS

•     Failure to engage or equip our teams to deliver our strategy or address key capability gaps (e.g. inability to meet recruitment targets at St Athan).

•     Failure to build the right capabilities and behaviours in our leadership population.

•     Failure to have appropriate succession planning in place should key positions become vacant through resignation, ill health or accident.

•     Loss of critical talent/ knowledge/ unmanageable levels of attrition due to a competitive local labour market.

 

INABILITY TO DELIVER MAJOR PROGRAMMES

 

Failure to implement major programmes on time, within budget and to the right technical specification could jeopardise delivery of the Second Century Plan and have significant adverse financial and reputational consequences.

Successful delivery of significant programmes (including the new manufacturing facility in St Athan and core (DBX) and special (Valkyrie) vehicle programmes) is fundamental to the achievement of the Group's strategic objectives.

 

 

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

•     Inspiring customer-focused luxury products.

•     World-class value and lean processes.

•     Strengthened global brand and sales power.

•     Deployment of an established stage and gate Programme Delivery Methodology to drive consistent governance and management across the programme portfolio.

•     Major programmes are subject to Executive Committee approval and oversight.

•     Dedicated discrete programme management teams are established to deliver each programme.

•     Regular programme and Operating Committee status reviews with escalation routes for issues to be managed.

•     Mandatory lessons learned sessions to ensure that subsequent programmes benefit from previous experience.

•     Technical and quality audits are performed at critical stages by independent parties.

•     ISO 9001 and 14001 certifications in relation to Quality and Environmental management systems.

•     Move to modular architecture strategy with increased focus on leveraging core architecture across multiple applications to reduce vehicle programme delivery times.

RISK TOLERANCE

Low - due to the significance of these projects in driving the required levels of volume growth and cash generation to support the Second Century Plan.

EXAMPLES OF RISKS

•     Failure to engage sufficient personnel with the correct programme management skills and capabilities to deliver programmes.

•     Failure to follow a standard programme methodology could result in required outcomes not being delivered.

•     Delayed new model or special project launch.

•     Inability to effectively control costs within programmes could undermine projected financial targets.

•     Late delivery of new models could damage our brand/reputation and potentially result in reduced sales volumes or pricing.

 

INADEQUATE PROTECTION AGAINST CYBER ATTACK RESULTING IN POTENTIAL LOSS OF DATA, SYSTEM AVAILABILITY OR OPERATIONAL DISRUPTION 

 

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.

The Group's technology environment is critical to its success. A robust control environment helps decrease the risks to core business operations and/or major data loss.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

•     World-class value and lean processes.

•     Strengthened global brand and sales power.

•     Established a cross-functional Cyber Security Steering group with Executive membership and President and Group CEO sponsorship.

•     Continued investment in the cyber security programme and completion of independent risk assessments to validate the strategy and identify capabilities required to achieve the appropriate levels of security.

•     24/7 monitoring using Darktrace and AlienVault supported by robust security incident response processes.

•     Independent Cyber Vulnerability Assessment completed in the year to identify and understand control gaps.

•     Internal controls in place to minimise employee error - password policies, regular communications regarding phishing emails.

•     Regular third-party penetration testing performed to validate the ongoing effectiveness of network controls.

•     GDPR compliance project undertaken to identify data sets, classify them and ensure effective controls in place to manage data access and use.

•     Firewalls, anti-virus and patch management controls.

•     Use of Bitlocker encryption enforced to protect data in transit and at rest.

•     Company policy mandates the use of MX Majenta for the exchange of sensitive information outside of the organisation, which allows us to ensure that the correct recipient has accessed the information and provides an audit trail of access.

RISK TOLERANCE

Low - protecting the brand and its reputation globally is at the heart of everything we do. We have a low tolerance and take a risk-averse approach, adopting a strategy to avoid or mitigate any reputational/brand risk arising from cyber threat.

EXAMPLES OF RISKS

•     Denial of service resulting in disruption of business activities.

•     An external hacker exploits a security vulnerability resulting in a loss of system control and/or major data loss.

·     A malicious insider abuses privileged access to gain entry to sensitive information and/or conduct unauthorised activities.

·     Malware results in a loss of system control causing business disruption and/or major data loss.

·     Fines due to failure to comply with the General Data Protection Regulations (GDPR).

 

POTENTIAL DISRUPTION TO THE SUPPLY CHAIN

 

Supply chain disruption could result in production stoppages, delays, quality issues and/or increased costs resulting in adverse operational and financial consequences for the Group.

Potential loss of key Tier 1 supplier or a single-source supplier, or deterioration in quality could seriously jeopardise production resulting in delayed or lost sales and brand/reputational damage. (See also the principal risk relating to Brexit).

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

•     Inspiring customer-focused luxury products.

•     Top-class quality.

•     World-class value and lean processes.

•     Commodity strategies established for core suppliers detailing alternative supply routes in the event of disruption to current supply.

•     Mapping our supply chain to provide real-time information about supplier performance.

•     Software tool enables us to load the vehicle BOM so it can automatically flag issues, risks and disruptions in the supply chain, and their potential impact.

•     Assessment of supplier financial strength and performance prior to contracting with them.

•     Stock levels continuously monitored, and all vendor tooling regularly accounted for and maintained on an asset register.

•     Independent reviews by the Procurement team of key supplier Business Continuity plans.

•     Establishment of the Supplier Quality Development team to actively manage supplier quality and performance.

•     Creation of Supply Chain Management team to aid with onboarding new suppliers.

•     "Supplier Champions" identified to actively manage at risk suppliers.

•     Identification of alternative suppliers where risk of sole supply is deemed too significant.

•     Appointment of new VP and Chief Purchasing and Supply Officer to lead the continuing optimisation of our supply chain and oversight of our planned Brexit mitigations.

RISK TOLERANCE

Low - as production is at capacity the business model cannot absorb any significant delays in production and/or sales.

EXAMPLES OF RISKS

•     Supplier may be unable to meet delivery schedules due to financial difficulties or the inability to meet increasing volume demand.

•     Third parties may withdraw their permission to use their components.

•     Reliance on the use of several smaller, bespoke suppliers for specific components.

•     Reliance on key suppliers (e.g. engines and electrical architecture from Daimler).

 

COMPLIANCE RISKS

 

POTENTIAL NON-COMPLIANCE WITH LAWS AND REGULATIONS

 

 

The Group's operations are subject to a broad spectrum of national and regional laws and regulations in the various jurisdictions in which we operate.

These include product safety, emissions, trademarks, competition, employee and customer health and safety, data, corporate governance, employment and tax. Changes to laws and regulations or a major compliance breach could have a material impact on the business. There are new regulatory requirements which the Group needs to comply with as a publicly listed company.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

•     World-class value and lean processes.

•     Inspiring customer-focused luxury products.

•     Strengthened global brand and sales power.

•     Secured "Small-volume" derogation status within the EU which establishes bespoke emissions targets.

•     Vehicle safety certification is obtained for all markets.

•     Reduction in average emissions across the product portfolio.

•     The HR and legal and compliance functions are responsible for ensuring that employees are aware of regulations relevant to their roles. We have strengthened our public company regulatory expertise through a number of recent hires.

•     Framework of policies that aim to drive best practice across our business. These include our Anti-Bribery and Corruption Policy and Data Protection Policy.

•     GDPR policies and procedures within the business and appointed a dedicated Data Protection Officer to monitor and drive GDPR compliance.

•     Assurance processes are in place to monitor compliance in key risk areas, with results being reported to our Audit and Risk Committee and Risk Management Committee.

•     Our culture and policies encourage employees to speak up and report any issues without fear of retribution via our Whistleblowing process.

•     In-house Legal and Compliance team that manages any ongoing regulatory investigations.

•     Third-party support is obtained in areas of new or emerging regulatory guidance to support the implementation of appropriate new processes and controls.

RISK TOLERANCE

Zero - the Board adopts a zero tolerance to noncompliance with laws and regulations as this could seriously impact the Group's ability to trade in certain markets and result in significant brand/reputational damage.

EXAMPLES OF RISKS

•     Regulatory non-compliance.

•     Non-compliance with emissions regulations could inhibit the Group's ability to trade in certain markets.

•     Failure by the Group or associated third parties to act in an ethical manner.

•     Non-compliance with labour, human rights and environmental standards across our own operations and extended supply chain could result in financial penalties, disruption in production and reputational damage to our business.

•     Tax is a complex area where laws and their interpretations are changing regularly leading to the risk of unexpected tax and financial loss exposures.

 

UNCERTAINTY SURROUNDING BREXIT

 

  

Various Brexit scenarios could impact the Group's financial position, supply chain and people.

The current uncertainty regarding the way the UK leaves the EU makes it very difficult to plan for, with multiple scenarios having to be considered and addressed.

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

•     All pillars.

•     Establishment of a cross-functional Brexit Committee with fortnightly status reporting to the Executive Committee.

•     Review of SMMT guidance regarding the key impacts of Brexit to the automotive industry.

•     Strong engagement with the UK Government and various industry bodies.

•     AEO accreditation is being obtained which would partially mitigate supply chain risks.

•     Steps taken to prepare our supply chain and sales network to mitigate Brexit impacts on the business.

•     Plans in place to manage alternative supply routes including, but not limited to, different ports of entry and methods of transport.

•     Strengthened our production purchasing function with the recent appointment of a VP and Chief Purchasing and Supply Officer who will also oversee the execution of planned Brexit mitigations.

RISK TOLERANCE

Low - although we have a low tolerance for risk caused by Brexit there is still uncertainty about the longterm impact.

EXAMPLES OF RISKS

•     Additional customs duty from the cessation of existing free trade agreements and VAT cash flow costs at the new UK trade border.

•     Extended supply lead times increasing working capital investment.

•     Uncertainty over the rights of EU nationals, which has increased the risk of losing talent.

•     Exchange and interest rate volatility impacting Group revenues, margins, profits and cash flow.

 

FINANCIAL RISKS

 

POTENTIAL IMPAIRMENT OF CAPITALISED DEVELOPMENT COSTS

 

 

The value of capitalised development costs continues to grow as we expand our product portfolio.

The carrying value of development costs in our balance sheet is dependent upon the future profitability of the vehicle platforms to which they are attributed. A significant reduction in vehicle lifecycle profitability could result in the need to impair the capitalised development intangible asset.

 

LINK TO STRATEGY

ACTIONS TAKEN BY MANAGEMENT

•     Robust financing and funding.

•     World-class value and lean processes.

•     Modular architecture platform application approach adopted for new model development to reduce cost of investment across the portfolio.

•     Strategic component development plan being deployed to reduce investment cost of new models.

•     Impairment reviews are performed where management considers there to have been a triggering event (e.g. a significant reduction in sales volumes, or vehicle pricing and margins for a model).

•     Regular vehicle line reviews to monitor sales volumes, average prices and margins. Any significant deterioration below plan is communicated to the Financial Reporting and Accounting team for consideration.

RISK TOLERANCE

Zero - we have a zero tolerance in relation to financial reporting risk.

EXAMPLES OF RISKS

•     Vehicle sales volumes reduce below lifecycle plans/ forecasts.

•     Vehicle pricing and margins reduce to levels which no longer support the carrying value of the attributable capitalised costs.

•     Uncertainty of carry over-carry across of components on future vehicle models.

 

RELATED PARTY TRANSACTIONS

The following information is extracted from pages 146 to 147 and 201 of the 2018 Annual Report.

 

The subsisting material transactions which the Company has entered into with related parties are the Underwriting and Sponsors Agreement and the Relationship Agreements each of which was entered into on 20 September 2018.

 

The Company (for itself and acting as agent for the Other Selling Shareholders), the Directors, the Selling Shareholders and the Banks entered into an Underwriting and Sponsors Agreement relating to the sale of shares in connection with the IPO offer among other matters. The Agreement provides for lock-up arrangements agreed to by the Company, the Selling Shareholders, the Other Selling Shareholders and the Directors.

 

The Relationship Agreements comply with the requirements of the Listing Rules, including LR 9.2.2ADR(2)(a), and LR 6.5.4R. In accordance with the requirements of Listing Rule 9.8.4R(14), the Board confirms that the Company has complied with its obligations under the Relationship Agreements, including in respect of the independence provisions and, so far as the Company is aware, each Controlling Shareholder Group has complied with the provisions of its respective Relationship Agreement (including the independence and non-compete provisions set out therein), at all times since 20 September 2018.  Further information on the Relationship Agreements is on page 105.

 

Other related party transactions are detailed in notes 2 and 32.

 

Transactions between Group undertakings, which are related parties, have been eliminated on consolidation and accordingly are not disclosed.

 

The Group has entered into transactions, in the ordinary course of business, with entities with significant influence over the Group and other related parties of the Group. Transactions entered into, and trading balances outstanding at each year end with entities with significant influence over the Group and other related parties of the Group are as follows:

 

 

Sales to related party

 

 

£m

Purchases from related party

 

£m

Amounts owed by related party

 

£m

Amounts owed to related party

 

£m

Related party - Group

 

 

 

 

Entities with significant influence over the Group

31 December 2018

1.4

2.4

-

1.1

Entities with significant influence over the Group

31 December 2017

2.0

4.3

-

0.6

 

During the year ended 31 December 2018 a payment of £9.5m (2017: £5.6m) was made to an existing shareholder (see note 2).

 

TRANSACTIONS WITH DIRECTORS

In the year ended 31 December 2018 one car was sold to a director, Dr Andrew Palmer, for £0.1m excluding value added tax (year ended 31 December 2017: one car for £0.1m excluding value added tax).

 

No amounts were outstanding at either year end.

 

TERMS AND CONDITIONS OF TRANSACTIONS WITH RELATED PARTIES (GROUP)

Sales and purchases between related parties are made at normal market prices. Outstanding balances with entities other than subsidiaries are unsecured, interest free and cash settlement is expected within 60 days of invoice. Terms and conditions for transactions with subsidiaries are the same, with the exception that balances are placed on intercompany accounts. The Group has not provided or benefited from any guarantees for any related party receivables or payables. The Group has not made any provision for impairment relating to amounts owed by related parties at either year end.

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
END
 
 
ACSSFIFDLFUSEED

Quick facts: Aston Martin Lagonda Global Holdings PLC

Price: 451.4

Market: LSE
Market Cap: £1.03 billion
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