oIn the first half of 2020,
oAs a result, its cash balance at the end of the second quarter of 2020 stood at £359 million, which was further increased in
oWe no longer consider the company to be vulnerable to a liquidity crisis within the next six to 12 months as part of our base case. That said, we still forecast significant negative free operating cash flow (FOCF) of around £300 million for 2020, because we expect sales to decline, despite the launch of the new SUV, the DBX.
oWe are raising our issuer rating on AML and our issue ratings on its debt to 'CCC'. The recovery rating is unchanged at '4'.
oThe negative outlook indicates that the economic uncertainty caused by the COVID-19 pandemic still affects the group. It has subdued sales and production rates, as well as continued high cash burn. We could lower the rating if we consider a default inevitable within six months.
The rights issue and share placements of around £688 million provided AML with a much-needed boost to its liquidity position. As a result, the
That said, we continue to forecast significant negative free operating cash flow of around £300 million in 2020. Economic conditions in AML's core markets remain tough, and it has to invest heavily in research and development (R&D) and maintain high capital expenditure (capex) to release its new models as planned. The DBX was launched in
AML's capex stood at £162 million for the first half of 2020, and the company expects to invest a further £100 million through the remainder of the year. AML also experienced high working capital cash outflows of £86 million, largely due to an outflow of £110 million related to payables. As a result, AML reported a cash burn of around £270 million in the first half of 2020. As of
Including the DBX, we forecast that AML's 2020 sales volume will reach around 3,800 vehicles, down around 35% year-on-year, but will recover by around 30% in 2021, to closer to 5,000 vehicles. We also expect the group's average selling price of its sports cars will be lower in 2020 than in the previous year, as cars are sold at a discount to reduce the group's sports car inventory levels. The average selling price should show a slight increase in 2021, helped by the launch of new models. Overall, revenue is therefore expected to fall by 40%-45% compared with 2019, and to increase by about 35%-40% in 2021.
APAC sales, especially in
oHealth and safety
The negative outlook indicates that the economic uncertainty caused by the COVID-19 pandemic still affects the group. Sales and production rates are subdued and cash burn in the first half of 2020 has remained high.
We could lower the rating on AML if we were to expect a near-term liquidity crunch for the group, or if we consider a default inevitable within six months. This could be the case if the recovery in sales is slower than forecast, or there is higher than expected R&D or capex. It could also follow further material outflows in working capital. Although we do not expect this, in light of the recent strong shareholder support, we could also lower the rating if we were to expect a distressed exchange offer.
We could revise the outlook to stable if AML's revenue were to recover strongly in the second half of 2020, or if its cash burn were lower than forecast, such that its liquidity position stabilized. Any upside would likely require supportive macroeconomic conditions.
Related Criteria
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oCriteria | Corporates | General: Corporate Methodology: Ratios And Adjustments,
oCriteria | Corporates | General: Recovery Rating Criteria For Speculative-Grade Corporate Issuers,
oCriteria | Corporates | Recovery: Methodology: Jurisdiction Ranking Assessments,
oCriteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers,
oCriteria | Corporates | Industrials: Key Credit Factors For The Auto And Commercial Vehicle Manufacturing Industry,
oGeneral Criteria: Country Risk Assessment Methodology And Assumptions,
oCriteria | Corporates | General: Corporate Methodology,
oGeneral Criteria: Methodology: Industry Risk,
oGeneral Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities,
oGeneral Criteria: Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings,
oGeneral Criteria: Use Of CreditWatch And Outlooks,
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