JLR sees pre-exceptional profits rise and cost savings accelerate

Thierry Bolloré

Luxury car manufacturer Jaguar Land Rover Automotive today reported strong underlying profitability and cash flow for the three months to March 31, 2021, its fourth quarter period – and solid results for the full year.

The business, which employs around 14,000 UK staff at sites including Halewood in Merseyside and Castle Bromwich and Solihull in the West Midlands, continued to recover following the onset of the COVID-19 pandemic and retail sales in the fourth quarter were 123,483 vehicles, up 12.4% year-on-year.

This was supported by a strong recovery in China, where sales grew 127% over Q4 last year, when the impact of COVID-19 peaked in that market.

Full year retails of 439,588 vehicles were still down 13.6%, although sales in China increased 23.4% year-on-year.

The award-winning new Land Rover Defender contributed significantly to retail sales, with 16,963 units sold in Q4 and 45,244 units for the full year.

Pre-tax profit before exceptional charges increased significantly to £534m in Q4 and £662m for the full year, reversing losses in the same periods a year ago which were impacted by the start of the pandemic.

The EBIT margin improved to 7.5% in Q4 and 2.6% for the full year, up 10.7 and 2.5 points, respectively, year-on-year. The improving performance mainly reflects recovering volumes, and favourable mix, cost performance – including lower marketing spend – and foreign exchange.

In February 2021 the company announced its new global strategy to Reimagine the future of modern luxury by design and deliver double-digit EBIT margins by fiscal year 2025/26.

As previously stated, this will entail £1.5bn of exceptional charges in the fourth quarter, including £952m of non-cash write downs of prior investments and £534m of restructuring charges expected to be paid in fiscal 2021/22.

After these exceptional charges, the company reported a pre-tax loss of £952m for the quarter and £861m for the full year.

Free cash flow of £729m was generated in Q4 to achieve positive free cash flow of £185m, after investment spending of £2.3bn, for the full year.

Cash flow for Q2 to Q4 totalled £1.8bn to more than offset the £1.6bn cash outflow in Q1 when Jaguar Land Rover’s plants were closed for two months due to COVID.

Adrian Mardell, JLR chief financial officer, said: “We are pleased to have been able to continue to generate improved cash flow and profitability in Q4, despite the ongoing challenges of COVID-19 on both retailers and the supply chain.

“It was particularly satisfying to achieve a 7.5% EBIT margin in Q4 and positive cash flow for the full year.

“The strengthened performance reflects the success of our efforts to improve quality of sales and the cost structure of the business, as well as a focus on driving cash flow through Project Charge+.”

Profit and cash improvements from Charge+ in the quarter totalled more than £332m, including £155m of cost efficiencies and a £177m reduction in investment spending.

This brings Charge+ savings to £2.5bn in fiscal 2020/21 and £6bn since the programme was launched in September 2018, substantially exceeding the initial targets set.

JLR ended the year with total cash and short term investments of £4.8bn, resulting in total liquidity of £6.7bn, including a £1.9bn undrawn revolving credit facility (RCF), which runs to July 2022. JLR has also completed an extension for £1.31bn of the RCF to March 2024.

During the year, JLR successfully launched its exciting new range of 21 Model Year vehicles, incorporating the very latest technologies.

Twelve of the company’s models now have an electrified option, contributing to 62% of sales, including eight plug-in hybrids, 11 mild hybrids and the all-electric Jaguar I-PACE.

The group said increasing COVID vaccination rates are encouraging for the ultimate recovery of the global economy and automotive industry from the effects of the pandemic.

However, cases are still high in many markets while supply chain issues, in particular for semi-conductors, have become more difficult to mitigate and are now impacting JLR’s production plans for Q1. The company said it is working closely with affected suppliers to resolve the issues and minimise the effect on customers.

For fiscal 2021/22, JLR expects sales to continue to recover.

The company is still targeting an EBIT margin of at least four per cent and break even free cash flow after around £2.5bn of investment and approximately £500m of restructuring costs that have already been accrued.

Chief executive, Thierry Bolloré, said: “In my first set of full year results as CEO of Jaguar Land Rover, I have been encouraged by the company’s resilience and strong recovery during a uniquely challenging year.

“Despite the pandemic, this year has also seen significant positive change culminating in February with the launch of our Reimagine strategy focused on reimagining our iconic British brands for a future of modern luxury by design.

“Our strategy is ambitious and it will make us more agile, efficient and sustainable.”

He added: “Although it is still early days, we have made significant progress in implementing it. This has reaffirmed my confidence that we have the right strategy, the right people and the right product plans to deliver against our targets.

“Jaguar Land Rover is well placed to emerge from the pandemic as a stronger and more resilient company that is able to navigate and capitalise on the opportunities ahead.”