Operator: Results. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. For operator assistance throughout the call, please press star zero. Finally, I would like to advise all participants that this call is being recorded. Thank you. I would now like to welcome Doug Lafferty, CFO, to begin the conference. Doug, over to you.
Doug Lafferty: Thank you. Good morning, everyone. Thanks for joining us as usual for the Q3 call. I realize it is a busy morning for everyone, so I will keep the introductory comments brief before we open up to the Q&A. Overall, Q3 2026 year-to-date performance demonstrates continued progress against our strategic and financial objectives. We have delivered improved profitability, significantly reduced free cash outflow, strengthened liquidity, and remain on track to deliver our full-year guidance and outlook.
Doug Lafferty: In more detail, core retail demand continues to outpace wholesale volumes by over 20% year to date, demonstrating our ongoing focus on balancing production with underlying customer demand whilst maintaining a stable core order book. Year-to-date revenue increased 38% compared with the prior year period, supported primarily by the Valhalla Coupé deliveries, which has also driven a 25% improvement in total ASP.
Doug Lafferty: Alongside this, we have been working hard on executing the transformational efficiencies related to our derivative strategy and stock optimization, with a declining trend on dealer support also reflected in core and overall ASP. We continue to expect to see core ASP growth of low to mid single digit percentage on a year-over-year basis. The launch of the DBX GT expands our SUV range and broadens customer choice within the segment.
Doug Lafferty: We have also continued to develop our highly successful specials program through the launch of Valen in August, as well as today's unveil of a Valhalla Spider. Building on the success of the Coupé, which is now nearly sold out, Valhalla Spider is an exclusive proposition with a strong order book already taking deliveries into Q4 next year.
Doug Lafferty: Together, these programs demonstrate the strength of the brand and our ability to continue creating highly desirable ultra-luxury products across multiple segments that when combined, gives a strong platform for the future. This all translates to gross margin improvement, which is one of the clearest indicators of the progress we are making during 2026.
Doug Lafferty: Driven by the contribution from Valhalla Coupé together with the ongoing benefits of the transformation program, year-to-date gross margin has materially improved to 35%. Compared to the prior year period, adjusted EBITDA increased by GBP 125 million year to date, reflecting the stronger gross profit performance and growing operating leverage within the business. Adjusted EBIT also improved 22% year to date, despite a 48% increase in D&A linked to the Valhalla Coupé deliveries. We expect to see continued positive momentum across both adjusted EBITDA and adjusted EBIT in Q4.
Doug Lafferty: A key focus throughout 2026 has been on delivering a material improvement in free cash outflow, and year to date, this has nearly halved when compared to the same period in 2025. This improvement mostly reflects the stronger operating performance together with lower capital expenditure. Looking ahead to the end of the year, as I said back in July at the half-year results, I wouldn't expect our full-year free cash outflow to be a million miles away from where we were at the end of H1.
Doug Lafferty: As a result of July's financing, we entered the final quarter of the year with a total liquidity position of around GBP 320 million. This provides us with greater resilience in what remains a volatile operating environment, whilst also supporting the continued execution of our products and operational plans.
Doug Lafferty: From an outlook perspective and relying on the enhanced product mix and transformation delivery, we continue to expect to achieve material improvement in full year 2026 financial performance. Of course, the broader macroeconomic and geopolitical backdrop remains challenging. We continue to monitor developments relating to a wide range of issues. However, to date this year, we've managed these dynamics and limited or mitigated their direct impact on the business.
Doug Lafferty: Against this backdrop, our full year 2026 guidance remains unchanged, with wholesale volumes expected to be similar to last year on the core portfolio and also expecting to deliver the 500 Valhalla Coupé deliveries. We expect gross margin to increase into the high 30s percentage range, adjusted EBIT margin to improve towards breakeven, and critically, free cash outflow to materially improve as already demonstrated year to date. Thanks again for joining us, and I'll now hand back to the operator to open the line for some questions.
Operator: If you wish to ask a question, please press star followed by 1 on your telephone and wait for your name to be announced. That is star 1 if you wish to ask a question. Your first question comes from the line of Henning Cosman from Barclays. Your line is open.
Henning Cosman: Morning everyone. Morning, Doug. Thanks for taking the question. Have to start with Valhalla Spider, very exciting vehicle. What can you tell us about it? How many units? What is the price point? I think there is a little bit of confusion whether the units come on top of the Coupé or if they come out of the original indicated number of the 999. Perhaps you could clarify that, please. That is the first question.
Henning Cosman: Second question, on the just the overall setup with dealer inventory, variable marketing, ASP, where do we stand? I think you just updated us that the ASP increase year-over-year, you are now seeing it at a low to mid-single digit increase. Do you expect that to increase further, also in 2027, 2028? That is the second question.
Henning Cosman: Finally on free cash flow, appreciate you repeating the statement there, not a million miles away from H1 in terms of liquidity and free cash flow. Suppose, at face value, it would mean a reversal swing to positive territory, a liquidity increase in Q4 and positive free cash flow in a similar amount to the free cash outflow in Q3. I am just wondering if that is taking you too literally, or any further color you could add there for the Q4 development. Thank you very much.
Doug Lafferty: No worries. Morning, Henning. Yeah, look, on the Valhalla Spider, I think everybody is super excited by it. I have seen the launch video went out overnight, and I think everybody who has seen the car, certainly that I have heard has very positive things to say about it. So yeah, look, I think we are in a good place with that car. In terms of the total volume, I think we will end up doing slightly more than the 999 that we initially indicated when you combine the Spider and the Coupé.
Doug Lafferty: The Spider will represent around about one in four of those cars. So around about a quarter of the total will be the Spiders. The pricing will be around about 20% higher than the Coupé. That is not unusual for the difference between a Coupé and a roadster or Volante, and particularly from a specials point of view, it is normally around 20% higher.
Doug Lafferty: Personalization-wise, I think we would expect it to be broadly in line with what we have seen on the Valhalla Coupé, which has been around about 20%. So look, I think it positions us very nicely, going into next year. As I have said, the Coupé is all but sold out. The Spider has started with a very strong order book upon launch today. So we are in a good position with that, I think.
Doug Lafferty: On the ASP, yeah, look, I think ASP is trending in the right direction. I think we will probably end this year with a low to mid-single digit ASP improvement from a core perspective, versus 2025. Looking at next year, I would probably expect it to be about the same year-over-year. So 2027 a low to mid-single digit improvement on 2026.
Doug Lafferty: The driver for that to a certain extent is this reduction in dealer support that we have seen throughout the course of this year that is trending in the right direction. Q4 will be the lowest level of support on a per unit basis, and of course, we will try and make sure that we carry that trajectory into 2027. Core ASP is moving in the right direction.
Doug Lafferty: Obviously, total ASP is supported by the specials and will continue to be so in 2027 when you think that we will have the remaining Valhalla Coupés to deliver in the H1, the Valhalla Spiders start delivery in the H2, and we will probably deliver a shade over 50% of the total Spider volume in the H2 of 2027. We will also have the Valen delivery. So total ASP will be supported by the specials.
Doug Lafferty: On the cash flow, I guess unsurprisingly, I will not be drawn into specifics. But consistent with what I said in July, I think we will end up from a free cash flow perspective, at a very similar level to that that we saw in the H1. So yeah, look steady and obviously I would point to the fact that the last two Q4s, I think in 2024 and 2025 were modestly positive. So we hope that we can repeat that and end up somewhere very close to where we saw the free cash outflow level at H1.
Henning Cosman: Thanks, Doug. Just a clarification on the Valhalla Spider. Is that in any way different from how you would have expected originally? Were you hoping to sell 999 off the Coupé and then the Spider would have come on top? Is it somehow attributable to tougher market conditions that it is now inside, I think you said slightly more than 999. So I understand it is not completely on top. Is there anything more you can share around that?
Doug Lafferty: I think the plan for a while has been exactly this. We are comfortable with the plan on the Valhalla. We have invested heavily in a platform which we see working very well in the market. The Valhalla Coupés have been delivered very strongly positive customer response, expect the same from the Spider. We have got that platform within our portfolio for future use as well. So this is the combined, the initial run on the Valhallas. Yeah, it has been in line with our plans for some time.
Henning Cosman: Thanks, Doug. All the best.
Doug Lafferty: Thank you.
Operator: As a reminder, if you wish to ask a question, please press star followed by one on your telephone and wait for your name to be announced. That is star one to ask a question. Your next question comes from the line of Harry Martin from Bernstein. Your line is open.
Harry Martin: Hi. Morning, Doug. The first question I had, you have referenced it a couple of times, the uncertain macroeconomic environment. Clearly we can see the impact that you might be experiencing on raw materials and logistics. I was actually more interested in the demand side. So far this year, the K-shape economy seems to have held for premium luxury brands.
Harry Martin: But I am interested if you are tracking anything when it comes to order books, pricing, personalization rates, and any pockets where there is some orange flags, some signals of any weakness or if your core customer remains pretty strong so far. The second one, I actually have a question on China. It is a time when a lot of the automakers are scaling back ambitions.
Harry Martin: Maybe this is just reflective of me spending a bit too much time on your media channels, but I noticed you have opened a new dealership in Suzhou, launched the S range in Shanghai quite recently. Are there maybe some more ambitions for the China business, even in a declining market, where you think you can grow the business? Any reflections on that would be interesting. The final question, I thought I would ask for an update on how the conversations with some of your bondholders are going after they were taken a little bit by surprise over the summer with the refinancing. Thank you.
Doug Lafferty: Okay, no worries. On the macro, look, I think everybody knows it is a challenging environment. It is pretty complicated out there. But from our perspective, I think when I look at the business, certainly there are pockets where I think we see more strength and pockets where there is a little bit more uncertainty or weakness or stretch or challenge.
Doug Lafferty: I think from our perspective, the USA and the UK have remained pretty strong. Middle East obviously has been a difficult year, but we have managed to sort of redistribute any volume that we would have had going into that market elsewhere. We are managing to mitigate, as I said in my opening remarks, the impact of some of these things during the course of the year. There is a tipping point, no doubt, but at the moment we are on top of it. Order book is relatively stable.
Doug Lafferty: We have talked about order book in the past, probably for the past 12 to 18 months of being about 5 months on the core portfolio. That is not any sort of significant difference to the length of our order book as we sit here today. It is short of ideal still. You have heard Adrian talk for a while now about wanting that order book to be between 6 and 9 months, depending on the derivative that we are talking about in the core portfolio.
Doug Lafferty: There is still the appetite to improve it. But I do not think we are not seeing any material deviation from where the order book has been for the last number of months and potentially over the last year or 2 years. The retail demand is solid. The retails are running ahead of wholesales.
Doug Lafferty: We have got a sensible production plan in what is a complicated market, and we are doing the right things with the dealers in adjusting the inventory levels to the ones that we think are now appropriate, and we are on that journey, on that path. I think we are in a good place in that regard. But obviously cautious and on the lookout and all the usual sort of caveats that all of the external pressures do tend to apply.
Doug Lafferty: As it relates to China, look, I think China, we have rotated through quite a lot of dealers in China over the last 2 years. I think the total number of dealerships that we have in China, notwithstanding the fact that we have just opened a new one, is probably 40% down on where it was 2 years ago.
Doug Lafferty: I think we have quite consistently said that as painful as it has been losing the volume out of China, we have always seen an opportunity. I think to continue to position the brand and the product in the best possible way that we can in China, so that as and when that market returns, we can rise with the tide, I think is important to do so. We just need to be mindful of the quality, as we do everywhere, of the dealers that we have in place and make sure that we have got the right dealer partners in the right parts of the country, geography, to make sure that we take advantage of the opportunity as and when it arises.
Doug Lafferty: There is nothing sort of special or specific, I would say, to read into there, Harry, but keep reviewing the media channels because you would always get some good insight on the company and the brand and the products through those means. But China is, like we do with every other market, where there is opportunity to improve what we think we have got on the ground, we will take it. With regards to the bondholders, nothing really to say, Harry, at this stage. We are where we were.
Doug Lafferty: We outlined the reasons for the refinancing during our H1 results. I think you can see from the shape of the company, the liquidity is in a stronger place. That is what it was all about. It has provided us with resilience and flexibility and the means to go on and execute the plan that we are focused on delivering. Nothing more to say on that at this stage.
Harry Martin: Thank you very much.
Operator: Your next question comes to the line of Michael Tyndall from HSBC. Your line is open.
Michael Tyndall: Morning, gents. Mike from HSBC. Two questions, if I may. Just on the dealer destocking, I just want to understand how far through we are, because I think at Q2, the suggestion was that you are pretty much close to being done. There was still a little bit left. Are we now pretty much completely done, or is there still some more to go?
Michael Tyndall: That sort of leads into my second question, which is, when we have looked at previous Q4s, we have seen a significant uptick in activity, but the hangover from that is that we tended to have dealer inventory to resolve. Not saying the two are necessarily connected. What is different this year that can kind of reassure us that we are not going to have an inventory problem again in the H1 of next year? Thanks.
Doug Lafferty: Hi, Mike. Yeah, look, I think we are largely through it. There is always a bit of seasonality in Q4. I think next year, when we look at the shape of the plan, we are very focused on trying to make it as smooth as possible. I think when I look back at our volumes over the last however many quarters, the retail off-take has been pretty stable quarter by quarter, and that is where we are trying to get the wholesales into that kind of mantra as well. Yes, there will be an uptick in Q4, but the focus next year is to try and make sure that we stay in sync retails and wholesales as much as we possibly can, as quickly as we possibly can.
Doug Lafferty: I am not going to sit here and guarantee that Q1 is going to be looking the same as Q2, Q3, and Q4 next year, but probably between now and within four or five months' time, I think we will be in sync from a wholesale and retails perspective on a quarterly reporting basis, and also have the dealer inventory at the right level for a consistent.
Doug Lafferty: I think the summary, Mike, is we are nearly there. There is a little bit more work to do, hence the reason there is still some dealer support going in and getting the variable marketing down remains a focus. But we are not far from where we want to be, and we will have made a significant move in the right direction during the course of 2026.
Michael Tyndall: Got it. I'm going to show my ignorance here. The UK tariff allocation, where does that sit at the moment? When we think about 2027, how is that allocated to you thinking about your compatriot and what their plans are? They've been fairly busy, so I'm just wondering, how does that work for 2027?
Doug Lafferty: As far as I'm aware, it works in exactly the same way as it's worked in 2026, which is we do not have a specific allocation for ourselves. The UK has the ability to ship 100,000 cars into the US with a tariff of 10%. Anything above that is 27.5%. Every quarter, there's an allowance of 25,000 cars. So effectively, on 1 January 2027, slate starts clean, and Q1, there's 25,000 cars that can travel between the UK and the US at that rate.
Doug Lafferty: It's first come, first served. Any under delivery in Q1, so if the UK sold 22,500 cars to the US in Q1, then the 2,500 that you didn't deliver would be added to the Q3 quota. But as of 1 January each year, it starts a clean slate. So we start again with 100,000, and we start again with the 25,000 per quarter. We, and as far as I'm aware, no OEMs from the UK have a specific allocation within that number. It is first come, first served.
Michael Tyndall: Got it. Thank you.
Doug Lafferty: Yeah, no worries.
Operator: There are no further questions at this time, so I would like to hand back to Doug for closing comments.
Doug Lafferty: Thank you very much. We are focused very heavily on executing the plan, as you will have seen. I think we are making good, steady progress. We have some really exciting things coming. It is great to get the Valhalla Spider out there and launched. I am hoping that we will have very positive things to say about the progress that we have made in that regard when we speak again with the full year results. Thanks for your time this morning. I appreciate it is busy, and all the best to you. Thank you.
Operator: That does conclude our conference for today. Thank you for participating. You may now all disconnect.
