Tata Motors’ Jaguar Land Rover Automotive reported positive earnings before interest and tax (EBIT) and free cashflow in fiscal Q3 (ended 31 December 2021) as supply and wholesale volume improved.
“While production and sales remain significantly constrained by semiconductor shortages, the company continues to see strong demand for its products with global retail orders at record levels,” the automaker said in a statement.
Q3 wholesales rose 8% quarter on quarter to 69,182 units with production volume up 41% to 72,184.
Overall, however, sales “remain significantly constrained by chip shortages and low inventories” with retail sales in Q3 of 80,126 vehicles, down 13.6% quarter on quarter and 37.6% year on year.
The mix of electrified retail sales (BEV, PHEV and MHEV) increased to 69% in Q3 compared to 53% a year ago. While regional sales broadly followed total sales, model mix was stronger with wholesales of the Range Rover model family up 30% quarter on quarter.
Demand remains strong with a record order book of almost 155,000 vehicles, up 30,000 units from Q2 reflecting strong demand for the redesigned Range Rover with deliveries for the model to start later in Q4 FY22.
For Q3, revenue was GBP4.7bn, up 22% quarter on quarter. EBIT margin improved from Q2 to 1.4% and free cash flow improved to GBP164m, reflecting the increased wholesale volume, more favourable mix, pricing and FX, partially offset by a provision for “quality campaigns”.
JLR booked a GBP9m pre-tax loss in the quarter.
The automaker ended the quarter with total cash and short term investments of GBP4.5bn, after completion of a GBP625m five-year amortising loan 80% guaranteed by UK Export Finance and syndicated to 12 banks. It also has an undrawn revolving credit facility of GBP2bn through July 2022 (GBP1.5bn through March 2024).
CFO Adrian Mardell said: “It was encouraging to see a positive EBIT margin and cashflow, despite chip supply constraining wholesales to 69,000 units in the quarter. It demonstrates the progress we’ve made in reducing the breakeven point in the business through mix optimisation and cost efficiencies so we will be well placed as supply and sales volumes improve.”
JLR said its ‘Refocus transformation programme’ had delivered GBP1bn of value in the first three quarters of FY22 through digital initiatives, market performance, cost efficiency and investment. The programme was now expected to achieve GBP1.4bn of value in FY22, beating the original GBP1bn target.
Semiconductor supply improved somewhat during Q3 primarily reflecting recovery from specific situations in Q2 such as Covid outbreaks in southeast Asia as well as proactive engagement by the company. The semiconductor shortage was expected to continue through 2022 but also expected to gradually improve as capacity within the supply base increases. JLR was also “engaging with first-tier suppliers and directly with the chip manufacturers to secure supply longer-term”.
With this gradual expected improvement, the automaker expects Q4 profits to improve from Q3 with positive cashflow.
“Our medium- and longer-term financial targets under the Reimagine strategy, underpinned by the Refocus transformation programme, remain unchanged, including increasing EBIT margins to 10% or more by FY26,” JLR said.
CEO Thierry Bollore said: “Whilst semiconductor supplies have continued to constrain sales this quarter, we continue to see very strong demand for our products underlining the desirability of our vehicles. The global order book is at record levels and has grown an incredible 30,000 units for the new Range Rover before deliveries even start this quarter.
“We continue to execute our Reimagine strategy to realise the full potential of the business and create the next generation of the most desirable luxury vehicles for the most discerning of customers.”