Kenneth Gregor CFO, Jaguar Land Rover C. Ramakrishanan Group CFO, Tata Motors Bennett Birgbauer Treasurer, Jaguar Land Rover

Transcription

1 Attendance List: Kenneth Gregor CFO, Jaguar Land Rover C. Ramakrishanan Group CFO, Tata Motors Bennett Birgbauer Treasurer, Jaguar Land Rover Title of Meeting: Hosted By: Fiscal Quarter 4 Results Call Kenneth Gregor Ladies and gentlemen, good day, and welcome to the Jaguar Land Rover Fiscal 2016 Quarter 4 Results Conference Call. We have with us today Mr. Ken Gregor, Chief Financial Officer Jaguar Land Rover; Mr. C. Ramakrishnan, Chief Financial Officer of Tata Motors; and, Mr. Ben Birgbauer, Group Treasurer of Jaguar Land Rover. As a reminder, all participant lines will be in listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. (Operator instructions.) Please note that this conference is being recorded. I will now hand the conference over to Mr. Ken Gregor. Thank you and over to you, sir. K. Gregor Thank you. We ve got here the results for Jaguar Land Rover Fiscal Year 16 and Q4. I will run through the highlights of the presentation which hopefully you have in front of you from the website. And then, we ll have a bit of time for Q&A. I m turning to slide 7. The key message is a strong close to the year with record retail sales of about 522,000 units, up 13% year-on-year and a strong Q4 also driven by record sales of about 159,000 units, up 28% year-on-year. This resulted in record revenue of 22 billion for the full year and 6.6 billion in Q4. The EBITDA margin before one-time reserves and charges was 16.2% for the quarter and in the full-year it was 14.9%. So, they were down form the record equivalent figures in the same quarter last year and a year ago, but they were very solid figures in the quarter which finished off a good year for us. Profit before tax for the full year, after the net charges relating to Tianjin, was 1.56 billion and 577 million in Q4, which includes a further 58 million of receipts in relation to Tianjin, up from 396 million in Q4 of Fiscal The other highlight on this page is the very strong free cash flow in both Q4 and the full-year. We had a positive cash inflow 791 million after investment spending of 3.1 billion and before financing. That

2 left us with strong liquidity for the business overall comprising 4.6 billion of cash and the undrawn revolving credit facility of 1.9 billion. Profit after tax was 472 million for Q4, up 170 million compared to the same quarter a year ago, and that s perhaps about all the figures I was going to call out for now and I ll be happy to answer any questions you might have on those. On slide 8 we show the volumes for the full-year which were up in every region apart from China in the full-year, which is really being impacted by some of the earlier quarters, but strong growth, overall in the full-year; 13% on a global basis really driven by the US, the UK and Europe. On a model basis on Slide 9, Discovery Sport and the Jaguar XE were primarily driving our volume growth in Fiscal I ve included on Slide 10 a Q4 retail sales chart by region which was up 28%, year-on-year. I think the positive aspect coming through here is that every region was up, including China, up 19% which really closed off a strong second-half to the year for China after the softer sales we had in the first-half of the year. Slide 11 has a little bit more texture on some of the profit drivers. I talked about the EBITDA margin before and the one-time reserves and charges in Q4 which amounted to 166 million and those include the cost assessment for the recall in the US of potentially faulty air bags supplied by Takata, a provision for some doubtful debts and a write off of some previously capitalized investments so that s all within that figure. And, as I said, the EBITDA margins before those one-time reserves and charges were solid. In the past we have guided that our EBITDA margin could be somewhat lower in this fiscal year compared to the previous fiscal year because of a less favourable market and model mix, which has come to pass. We also had a favourable year-over-year operating foreign exchange impact, net of realized hedges, but that s more than offset by unfavourable revaluation of euro payables within EBITDA. PBT for the full year was impacted by the lower EBITDA but this was partially offset by lower revaluation of dollar debt and unrealized FX commodity hedges. From a business point of view, a real positive for the full year was the profits from the China joint-venture of 64 million that we are now seeing as well as the 36 million lower net finance expense. From a cash flow point of view on Slide 12, really strong flows in the year, which I must admit we were really pleased about and helped us to fully fund all of our investment spending this year and further improve our liquidity as a business. So, you see the 791 million I

3 referred to already and the quarter 4 figure of 1.4 billion which is really strong. We do experience seasonal effects which impact working capital driving a significant part of the positive cash flow in the year. I think what I find really pleasing is even if you were to ignore the working capital effects that we had in the year, you would still see positive cash flow both in the quarter and in the full-year. Liquidity remains strong as illustrated on slide 13 with our debt maturities nicely spread, as you all know. Then we thought we d take the opportunity, particularly as it was the full-year, to showcase a little bit of what drives our business at the end of the day, which is our products. I feel really positive about the whole suite of new products that we have launched and those we have coming in the near future, which we ve highlighted here. The Evoque Convertible has started its rollout in showrooms across Europe. The XF was launched last year and its market rollout was completed with launch in China in December. XE launched in the US this month and the F-PACE launched in April this year. I was in Beijing in April and we announced the long-wheelbase XF, specifically for the Chinese market, which launches in the second-half of 2016 and that s a really important product for the China joint venture so I m really quite excited about that. Slide 15 highlights some of the work that we re doing on autonomous vehicles which is clearly very important for the future as are our connected car technologies. Our new InMotion business is a small division that we ve launched to develop innovative solutions to overcome future travel and transport challenges. Slide 16 is a whole slide on what we re doing in terms of our environmental and C02 strategy which is clearly fundamental to our future success. We re very focused on light-weighting all of our products. I think you all know aluminium is at the heart of many of our vehicle platforms. Our engines also have a relatively high proportion of aluminium, which also helps with light-weighting. Powertrain right sizing is also a key part of our strategy and as you know, we ve launched our four-cylinder 2.0 litre diesel engine from our factory in Wolverhampton which will be followed by a four cylinder 2.0 litre petrol engine scheduled for production in the near future. Those give us the flexibility to cope with powertrain right sizing trends that we do see in the marketplace made possible by a highly configurable flexible common architecture. From an electrification point of view, we do have plans to introduce plug-in hybrids and battery-electric vehicles into our product range.

4 As a signal of intent, if you like, we did announce that we would be competing in the FIA Formula E Championship form August 2016, partly to create a test bed for future Jaguar Land Rover electrification technology. So, a really positive set of initiatives and strategies around our environmental profile. Looking forward, we continue to invest in expanding our product portfolio, technologies, and our manufacturing capacity - so no change to that strategy or our intent in this respect. We expect investment spending to be in the region of about 3.75 billion in fiscal 2017 and we do aim to continue to generate strong operating cash flow to fund that investment. As I said at this time last year, it is possible that free cash flow in the full-year could be negative in the near or medium-term, but I think you ll agree that our strong balance sheet, healthy cash resource and good access to financing as well as our strong operating cash flows, has proven our ability to fund our continued investment programme. We fully intend to continue to build on the recent successful product launches with the sales ramp up of the F-PACE, XE in the US, XF, and Evoque Convertible. I d also say that you should look out for new model launches which we re yet to announce. We expect all of these things to drive solid profitable growth for the business going forward. That was my last slide. So, really just a quick whistle-stop tour through the slides for Q4 and the full year. With that I d be very happy to take any questions you might have for me, C.R. and Ben. Thank you very much. We will now begin the question and answer session. (Operator instructions.) Your first question comes from the line of Jatin Chawla. Please proceed. J. Chawla Hi. Good evening. Just wanted to check on the FX impact in the quarter in terms of the key things that have impacted above the EBITDA line and below the EBITDA line? K. Gregor In the quarter or the full-year? J. Chawla In the quarter. K. Gregor For the quarter in EBITDA related to FX you have losses on realized currencies hedges of about 75 million and the unfavourable revaluation of current assets and liabilities of around 50 million. In the quarter below the EBITDA line you can see on the face of the income statement, we have unfavourable revaluation of US Dollar debt and unrealized currency hedges together of 66 million.

5 J. Chawla Anything on the commodity side? K. Gregor On the commodity side, the impact on PBT is about neutral in the quarter with losses on realised commodity hedges of about 20 million flowing through EBITDA and favourable revaluation of unrealised commodity hedges of around 20 million outside EBITDA. J. Chawla So, minus 20 above EBITDA and then plus 20 below EBITDA. K. Gregor Yes, within quarter 4. J. Chawla Sure. No worries. The second question relates to your volumes and the outlook for fiscal We saw a decline in volumes of the Range Rover and the Range Rover Sport in the month of April. Can you tell us what the trend is likely to be for the full-year? Are we likely to see a decline in those models, or are you still fairly confident that given the strength of the brands you can continue to show growth for these models going forward? K. Gregor In the short-term I think we can feel confident that we can continue to drive solid sales of both models if I think about the possibilities for 2016 and through We see strong economic growth in the UK, some economic growth in Europe, strong economic growth in the US, and although China s economic growth rate has slowed from what it was a few years ago we do expect to see solid economic growth in China also, albeit at a more normalised rate. I think that economic growth should enable the premium car segment to grow. On the back of that and our product plans we are positive about the potential for our business in fiscal You re always going to see individual month growth rates being perhaps a little different from the overall trend, so I think let s take it quarter-by-quarter as we go through the year. J. Chawla Sure. Just one last question on your China JV profitability. Clearly, sales volumes and production have increased which is positive considering that quarter-on-quarter an incremental 1,000 units has seen you more than doubled the JV income line, so, just wanted to get some of your thoughts on that. K. Gregor I think the short answer is I ve been very pleased by the development of the joint venture to have a profit in its first full-year of operation, especially given some of the challenges in the ramp up phase and the market situation that we were experiencing this time last year. I think some of the positives that drive it is the high product quality out of the factory. Also on the cost base of the joint venture, we ve worked really hard to make sure we have a competitive cost base and

6 the team are really focused on that. We ve got a strong team there, so I think it illustrates the potential of the joint venture. Going forward, the key is continue to launch relevant and exciting product for the Chinese marketplace. In that respect, we ve got the XF long-wheelbase coming in the second-half of this year and that gives us the potential to build the joint venture business further. So in short I was very pleased with the performance of the China Joint Venture over the last fiscal year. J. Chawla Thank you, and best of luck for a good FY 17. K. Gregor Thank you very much. Your next question comes from the line of Stephanie Vincent. Please proceed. S. Vincent Hi. Thank you very much for taking my questions. First, quite simply, on the one-time items outlined in Q4. How much of it was the provision for airbags and how much was for the doubtful debts? And on the airbag question, how much cash do you think, if any, we ll be outflowed in this coming fiscal year? My second question is on the Discovery Sport and Jag XE where you saw very good volume growth. Just wanting to know, either quantitatively, or qualitatively, just the mix versus the basic model price and how you re seeing that developed throughout this year. Then, finally, I guess it s always on investors minds with what s going on in the regulatory and the environmental space. Just wondering are any of your vehicles currently being investigated by any regulators in Europe or in the US, and where you are with this process. That s it for me. K. Gregor Thanks, Stephanie. Stephanie, sorry, your second question if you could clarify it, please. S. Vincent Sure. Just what you re seeing in terms of model mix for the Discovery Sport and the Jag XE, what you re seeing in terms of addons or extras that you think may weigh in throughout this year versus the basic model price. K. Gregor That s an interesting question. I think, let s see how the development goes. I m actually not aware of a waning of the derivative, what I call the derivative mix if you like, within the model mix. It s been pretty solid all through the year and I m expecting that to continue. We will see the launch of the XE in the US impacting the market mix a little.

7 On Discovery Sport, it s been really good. We actually find customers like the technology and the features in the cars and are often willing to spec those up when they make their purchase decision. So, hopefully, we can continue to drive that. On the regulatory side, really nothing to report. We re compliant with all of the rules and regulations within all of the markets in which we compete. I m not aware of any investigations or anything as such. Clearly, we pay very close attention to what s happened in the wellpublicized case last year involving VW, but I really don t have anything to add. On the charges, what I would say is it covers about 100,000 vehicles in the US, but I m not giving a split of the 166 million between the three things that I called out. S. Vincent Okay. My very last question, I promise, is on the Chinese joint venture. Did you receive any dividends from them this year and if so, how much were they? K. Gregor No. Simple question, but as I said before, that didn t stop me from being very positive on the development of that side of the business. S. Vincent Perfect. Thank you very much. K. Gregor Thank you, Stephanie. The next question comes from the line of Srinath Krishnan with Sundaram AMC. S. Krishnan Thank you for the opportunity. We read that the F-PACE has been benchmarked against the Porsche Macan and the reviews have been pretty positive. So, globally, Macan volumes are close to 80,000 units. Do you think with the order backlog that you have and positive reviews, you would be able to reach those volumes when you have such capacity? My second question is on Range Rover and Range Rover Sport, apologies but I wanted to understand with the aging of the product do you think there s some sort of slackness here and do you think you can maintain the volume of these products? Thank you. K. Gregor Great question. In terms of the F-PACE, yes we would have the capacity to do that sort of figure. But, as you know, we don t give specific sales forecast information, but we are really positive about the reviews we ve had. You re right, it s had great write ups. We re very positive about the showroom interest in the car and, therefore, we re positive about the opportunity for sales volume. We ll see how it

8 develops this year, but we re watching it very keenly, so clearly positive about that. On Range Rover and Range Rover Sport, I m positive about those products. With economic growth and the continued development of the car market in the US, the UK, Europe and growth in China, I think the opportunity for us to continue to build our volume is there. Yes, there is the possibility of some aging, but those are very strong products so I m pretty positive about the potential for them, to be honest. S. Krishnan Sure, but are there any variance mix that has been introduced the last couple of months where kind of a rundown of the existing models, we were told about an SVR? K. Gregor We have an SVR on Range Rover Sport and an SV Autobiography on Range Rover. To be honest, this is one of the reasons I m so positive about the product. Because although I m not going to talk about future product offerings, I think the SVR does highlight the possibility of what we ve been able to do with Range Rover products, the ability to add a derivative into the model line-up. S. Krishnan Thank you. K. Gregor Thank you. Not have huge volume when you look at it in the context of our overall business, but has very solid margins, brings excitement and another dimension to the Range Rover brand line up. That s been positive and we have the possibility of creating that sort of excitement around our products across our range which our special vehicles division is very focused on. Your next question comes from the line of Pramod Amthe [ph] with CIMB. P. Amthe Congratulations on a good set of numbers. I have two questions. One, is can you give some colour or break up of this 166 million which you is impacting EBITDA. K. Gregor The straight answer, sorry. No, we re not providing a breakdown of that at this time. P. Amthe Second is with regard to the China JV, can you give any details on the investment in Jaguar products during fiscal 2016 and what does the China balance sheet look like? What s the outlook for JLR s investment in the China JV?

9 K. Gregor In terms of the investment by Jaguar Land Rover in the joint venture, it s in the region of 300 million of equity that we ve injected into the joint venture and our partners, Chery, have invested the same sum. P. Amthe And, what s the outlook in terms of capex for next year in the China JV, should we assume incremental expenditure? K. Gregor It links a bit to the question earlier about dividends. I m expecting the joint venture in fiscal 2017 to be self-financing. Clearly there will need to be more investment to develop the facilities to accommodate the future models that we re planning on launching there, one of which I ve mentioned, but I m expecting the joint venture to fund that out of self-generated operating cash flow. So, to be clear, I m not expecting to make further equity contributions in fiscal P. Amthe Thanks, and all the best. K. Gregor Thank you. Your next question comes from the line of Theodorus Hadiwidjaja from JP Morgan Asset. Please proceed. T. Hadiwidjaja Thank you for the call. I have three questions. The first one is on the tax rate for the latest fiscal year, which seems to be lower. Can you talk about what drove the lower tax rate for this year? Secondly, in terms of the capex plan for the next fiscal year, you mentioned about 3.75 billion and that cash flow could be negative, do you have any thoughts in terms of your leverage target given capex was 3.1 billion this fiscal year which was only just about covered by EBITDA? The last one is on the JV in China, you mentioned about 300 million being invested by you and also Chery. Does the China JV have any debt? I guess those are the three questions I have. K. Gregor Okay. Sure, let me take them one by one. On the tax rate, there are a couple of factors that have helped lower the effective tax rate for the full-year to about 16% compared to 22% in fiscal One relates to a deferred tax credit, the adjustment is a result of future reductions in UK corporation tax that have now been enacted into legislation in the UK. So, UK corporation tax is reducing from 20% to 19%, and then to 18% and that gives rise to a deferred tax credit. There s also a deferred tax credit arising from tax deductions available under the UK s Patent box tax legislation. So, those things together have helped lower the effective tax rate in the quarter and the full-year.

10 In terms of leverage, I think as I said, I m looking to fund the investment this year largely out of operating cash flow. I think you ve seen our track record in the last few years. Whilst we ve thought that cash flow could be modestly negative, we ve actually managed to drive positive cash flow quarter-by-quarter, my intent this year is to seek to do the same so there s not a big story on leverage at this point in time. On the joint venture, to be honest, I don t have those figures at my fingertips of the balance sheet structure of the joint venture. But, from memory there s a similar amount of debt to equity in the JV. B. Birgbauer Ken, I ll just add to that very quickly. There is a circa 400 million debt facility that has been in place for some time but that s not fully drawn. The original plan was 1.1 billion of investment including the equity contribution from us and Chery as well as financing from that debt facility, but the debt facility I don t believe is fully drawn. K. Gregor Thanks, Ben. T. Hadiwidjaja Maybe just one follow-up question on the capex. The 3.1 billion that you mentioned, does that include the capex that you described earlier on the JV level in China. K. Gregor No. So, that doesn t include the capex within the JV. No, that relates to engineering and capex done by Jaguar Land Rover. It excludes what s done within the JV legal entity itself. T. Hadiwidjaja Okay. Is there any number on the capex on the JV that you can share? K. Gregor Not at this time, no. T. Hadiwidjaja Okay. Thank you. This concludes the question and answer session. I will now hand the call back to Mr. Ken Gregor for closing comments. K. Gregor Thank you for taking the time to join us for on the call today. We really appreciate it. I know some of you have a bank holiday today in various places so I really do appreciate you joining us. We will keep you updated on the business performance in future quarters. Thank you for your support of Jaguar Land Rover. [END OF CALL]