JLR to take £1.5-bn hit in Q4
One-time write-off to be 2nd biggest since FY19 for Tamo unit
Jaguar Land Rover (JLR) will take a one-time write off of £1.5 billion (including cash and noncash) in the March quarter as part of a restructuring exercise under the “Reimagine” strategy, the company’s management told investors.
This will be the second biggest write off by Tata Motors’ UK subsidiary as it seeks to change tack and turn profitable amid disruptions and heightening competition.
JLR had taken a write-off of £3.1 billion in the December quarter of FY19 due to a slowdown in China and Brexit uncertainties.
The company attributed the “exceptional one-time” non-cash write down of £1 billion to “higher previous spending and certain planned products that will not be completed.” It will also take a hit of another £0.5 billion (cash write off) on account of restructuring costs. JLR expects to offset this cost by a positive cash flow in FY22.
Tata Motors’ investors, who have been lapping up the stock on improving performance of the domestic business and JLR, said it’s an unexpected move. “It may be a one-off but on a capex of £2.5 billion per annum, a write-off of £1.5 billion is big and comes as a surprise,” said an analyst at a domestic brokerage.
Meanwhile, JLR seeks to get back firmly on the path of profitability amid the regulatory push by governments across the world for green technologies. Under the leadership of its newly-appointed chief executive Thierry Bollore, the company plans to fire on all cylinders – from pivoting away from the gas-guzzling combustion engines to electric and slashing its manufacturing capacity by a fourth to rationalising the number of platforms.
Meanwhile, it will prioritise profitability over market share and volumes and bring only those models that are margin accretive. “It will concentrate more on top-end models with focus on Range Rover, Defender and Discovery,” said an analyst who attended the meet.
The company will adopt a “more focused” product portfolio under “Reimagine” and reduce annual spending to about £2.5 billion, Ardian Mardell, chief financial officer (CFO), JLR, said in his presentation.
The owner of the luxury marquee brands is also looking to increase earnings before interest and tax (EBIT) margins from 4 per cent to more than 10 per cent by FY26. Of this, 300 basis points will come on the back of a refocus on its product portfolio. The remainder will be led by new vehicle architectures.
In the works is rationalisation of platforms with three new electric first plans, including Modular Longitudinal, Electrified Modular and Pure Battery Electric Vehicle platforms, said Bollore, in his presentation.
“Reimagine” will focus on increasing share of these profitable segments.
JLR expects to be cash flow positive by FY23 and start generating net cash by FY25. Meanwhile, it will realise the full benefits (£ 6 billion) of project charge by the end of the March quarter. JLR has managed to bring down the break-even volumes from 600,000 in FY19 to 400,000-450,000 units now. This move will help the company withstand cyclicality in sales and boost margins.