JLR to take a write off of 1.5 bn pounds in Q4 as part of a restructuring

This will be the second biggest hit for Tata Motors-owned firm since FY19

Jaguar Land Rover will take a one-time write off of 1.5 billion pounds (includes cash and non-cash) in the March quarter as part of a restructuring exercise under “Re-imagine” strategy, company’s management told investors on Friday. 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 pounds 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 pounds to “higher previous spending and certain planned products that will not be completed.” It will also take a hit of another 0.5 billion pounds (cash write-off) on account of the restructuring costs. JLR expects to offset this cost by a positive cash flow in FY22.

Meanwhile, it will prioritize profitability over market share and volumes and will bring only those models that are margin accretive. It would adopt a “more focused” product portfolio under “Reimagine” and reduce annual spending to about 2.5 billion pounds, Ardian Mardell, chief financial officer, JLR said in his presentation.

The owner of the luxury marquee brands is also looking to increase its earnings before interest and tax (Ebit) margins from 4 per cent to more than 10 per cent by FY26. Of this while 300 basis points will come on back of a refocus on its product portfolio, the remainder will be led by the new vehicle architectures.

In the works is rationalization of the architectures with three new electric first architectures including Modular Longitudinal Architecture, Electrified Modular Architecture and Pure Battery Electric Vehicle platforms, Thierry Bollore, chief executive officer, JLR said in his presentation. The Reimagine strategy crafted by him will focus on increasing the company's share in the most profitable segments.

JLR expects to be cashflow positive by FY23 and start generating net cash by FY25. Meanwhile it will realise the full benefits (6 billion pounds) of project charge by the end of March quarter. JLR has managed to bring down the whole sales break-even volumes from 600,000 in FY19 to 400,000 to 450,000 units now. The move will help the company withstand the cyclicality in sales and boost margins.

DRIVING CHANGE

JLR will focus on profitable segments

EBIT margins to jump to 10% by FY26 from the current 4%

It will be cash flow positive by FY23

Set to reduce manufacturing capacity by 25% over 5 years

Plans to rationalise number of platforms