JLR reports strong third quarter profits with best ever cash flow performance

Thierry Bolloré

Jaguar Land Rover has reported strong financial results for the three months to December 31, with improved pre-tax profits and its best-ever third quarter cash flow.

The luxury car make has manufacturing sites in Halewood, Merseyside, and Castle Bromwich and Solihull in the West Midlands.

Retail sales were 128,469 vehicles, up 13.1% on the second quarter, but still nine per cent lower than pre-COVID levels a year ago.

Sales in China were up 20% on the prior quarter and up 19.1% year-on-year. Most other regions were also up on the preceding quarter while down from the prior year third quarter. Sales of the new Land Rover Defender grew to 16,286 units, a 66% increase on the prior quarter.

Profit before tax was £439m, after £37m of exceptional charges, up £374m from the second quarter and £121m from a year ago.

The significant improvement reflects revenue of £6bn, up £1.6bn from quarter two while still lower than pre-COVID levels a year ago, with favourable sales mix, cost performance and partial reversal of prior-period reserves for emissions and residual values.

EBIT margin improved to 6.7%, a 400bps improvement year-on-year.

Profit and cash improvements from the Project Charge+ transformation programme in the quarter were £400m, including £200m of cost and £200m of investment efficiencies. Savings year-to-date total £2.2bn, and the company is well on track to deliver the £2.5bn target for the full year ending March 31, 2021.

Free cash flow in the third quarter was £562m, primarily reflecting the strong profit before tax and favourable working capital after £675m of investment spending. Cash and short-term investments increased to £4.5bn, including $1.35bn of five- and seven-year bonds issued in the quarter.

Total liquidity was £6.4bn including a £1.9bn undrawn revolving credit facility.

Adrian Mardell, JLR chief financial officer, said: “We are pleased to report these strong profits and record third quarter cash flows.

“It reflects our focus on prioritising profitable sales and delivering cost and cash improvements.

“While sales have not yet fully recovered to pre-COVID levels in most markets, it was pleasing to see China sales up year-on-year for the second quarter in a row and sales of the new Defender continuing to grow.”

JLR said it was encouraged by the Brexit trade deal agreed in December between the UK and the European Union.

This has avoided the risk of tariffs on automotive parts and finished vehicles, although there will still be increased customs administration requirements.

The approval of effective COVID-19 vaccines is also encouraging, with the promise of an eventual end to the pandemic.

While current infection rates and associated restrictions are a challenge, all of the company’s plants and the majority of retailers are open.

In markets where showrooms are closed by restrictions, in the UK in particular, sales are generally able to continue through remote solutions such as a ‘click and deliver’ basis.

In this environment, JLR continues to expect a gradual improvement in sales supported by new and refreshed vehicles incorporating the latest technologies.

Recent new products include the short wheelbase Land Rover Defender 90 and the Range Rover Velar, Land Rover Discovery, Jaguar F-PACE, E-PACE and XF.

Furthermore, electrification has now been extended to 12 of the 13 Jaguar Land Rover models.

Although COVID and other risks remain, the company said it continues to expect to generate strong profit margins (EBIT) and positive free cash flow in the fourth quarter and targets achieving positive free cash flow in subsequent years, to reduce net debt and increase financial resilience.

JLR chief executive, Thierry Bolloré, said: “I am encouraged by the improved financial performance in this first full quarter as CEO of Jaguar Land Rover.

“This performance is a credit to the outstanding efforts of the employees of Jaguar Land Rover to overcome many challenges this year and I would like to thank every one of our colleagues for their contribution, particularly those who are working safely in our plants and facilities.

“Looking ahead, these challenges continue, including the COVID pandemic and its impact on the global economy, the UK’s new trading relationship with the EU and the significant technological changes taking place in the automotive industry.

“In this environment, I’m working with my management team on plans to realise an exciting future for Jaguar Land Rover, which I look forward to sharing in due course.”