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Aston Martin to sue Swiss car dealer over Valkyrie deposits

By Michele Maatouk

Date: Tuesday 22 Jun 2021

LONDON (ShareCast) - (Sharecast News) - Aston Martin said on Tuesday that it is suing Swiss car dealer Nebula Project and its board members for failing to pay some customer deposits for orders of the 2.5m Valkyrie sports car and that this will dent full-year profits by up to 15m.
After signing a deal with Aston Martin in 2016, Nebula took some deposits from customers to help finance the development of the car.

The luxury car maker also said it was terminating the dealership arrangements it had with AF Cars, a company operating Aston Martin St.Gallen in Switzerland and managed by the same board members as Nebula, after learning that vehicles had been sold in breach of dealership agreement terms.

"Both Aston Martin and its customers have been impacted by Nebula Project AG's and its board members' behaviour," it said. "Aston Martin is fully committed to supporting and working with those customers affected to ensure that they will still receive delivery of their Valkyrie programme vehicles as scheduled, prioritising customer relationships, despite the company not having received all the deposited funds."

The net financial impact of the legal proceedings is expected to be positive over time, Aston Martin said, as the financial impact of not having received all the deposited funds will be outweighed by the benefit from the termination of the Nebula agreement and associated potential royalty payments.

However, for the year ending 31 December 2021, it is expected to reduce both cashflow and earnings before interest, tax and depreciation by up to 15m, including a provision of up to 5m of trade debtors. The provision is expected to be booked in the second quarter and for the remaining impact on cash flow and EBITDA to arise primarily in Q4.

"Other than the short term negative financial impact of this issue, Aston Martin is on course to achieve its financial guidance for 2021 and remains confident in achieving its medium-term targets of circa 10,000 wholesales, c.2bn revenue and c.500m adjusted EBITDA by 2024/25," the company said.

At 0910 BST, the shares were down 2% at 1,895.50p.

Russ Mould, investment director at AJ Bell, said: "For a business that has generally disappointed since it joined the stock market in 2018, Aston Martin's chaotic journey now takes a new direction with a legal dispute. The upshot is that the car maker is severing ties with two Swiss dealerships, it has scrapped a royalty deal and it is no longer using third parties to take deposits for special vehicles.

"This causes a short-term hit to its earnings and cash flow which means Aston Martin once again disappoints on the financial front. But longer term there could be financial benefits if Aston Martin no longer hands out royalty payments for certain orders including the Valkyrie model made through one of the Swiss dealers, Nebula Project, which had helped to finance the development of the models.

"While investors may welcome Aston Martin taking decisive action to reclaim money that hasn't been paid to it on car sales, the royalty component is likely to be hard fought in the courts, particularly as Nebula Project had stepped in to help with the financing at a time when the car maker was going through a very bad patch financially.

"One can only speculate, but Nebula may well try and seek alternative compensation if it cannot earn royalties in the future, perhaps arguing that it played a crucial supporting role to help Aston Martin during one of its darkest hours."

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