Jaguar Land Rover posts huge financial loss

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Jaguar Land Rover posts huge financial loss

Post by RPR » Thu Feb 07, 2019 12:36 pm

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£3.4 BILLION LOSS for JLR

Post by PhilMabbots17 » Thu Feb 07, 2019 1:03 pm

Haven't read it yet, but just had a quiet bet with myself that the reasons will be Brexit, China and DD...

OK, now had a look. The P&L loss is actually going to be an unbelievable £3.4 Billion.
Half of the charge was due to the firm acknowledging that investments in machinery and plants were worth less than previously thought. The other half is understood to be effectively lowering th evalue of past investment in product development, in recognition it will not reclaim that with future sales.

It is likely a recognition that previous investment in technology to build diesel-engined cars – which has long made up the bulk of Jaguar Land Rover's sales – won't be recouped due to the slump in demand for the powertrain.
.

The Boston Consulting Group went in during the quarter to look over the books. Seems like the first thing they might have stumbled across is what auditors euphemistically refer to as "creative accounting". Those words "acknowledging" and "previously thought" hold the key - "acknowledged" by whom and "previously thought" for how long ...?
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Re: Jaguar Land Rover posts huge financial loss

Post by PhilMabbots17 » Fri Feb 08, 2019 12:50 pm

At one of the investor meetings last year I noticed a question from one of the banks about why they were capitalising 78% of the R&D spend, much higher than the automotive sector average, and up from previous quarters. The answer from Gregor and Balaji was they were happy with it and had no plans to change. Why benefits does it bring? Capitalising R&D allows a company to show higher profitability in the near term by taking cost items out of Profit and Loss and putting them on the Balance Sheet as theoretical assets. Then the money is written off in future years as the money flows in from anticipated future sales. But to cover the impact on cash-flow (which cannot be hidden) requires increased borrowing in the form of bonds, more recently in the case of JLR, syndicated off-shore loans when the bond offerings become harder to sell.

This process can mislead investors about the true profitability of a business and it is highly risky if the future product strategy isn't aligned with market developments. It is therefore supposed to come under close scrutiny by accounting auditors to ensure that the practice complies with GAAP rules for accurate accounting. What JLR has just done is disclose the fact that, based on where it is today, £3.1 billon of previously declared profit wasn't actually there. The business press is onto it, this from Bloomberg.

The Wheels Have Come Off at Jaguar Land Rover
https://www.bloomberg.com/opinion/artic ... land-rover

JLR’s writedown signals that previous spending splurges won’t deliver the hoped for financial returns.If that’s the case, then it’s reasonable for shareholders and bondholders to question whether the new investments will either. After all, the person in charge of capital allocation – chief executive Ralf Speth – hasn’t changed.

Soon after Tata acquired Jaguar and Rover in 2008, the British business embarked on a massive spending spree. It has invested more than 20 billion pounds in plants, technology and developing new models since 2011. For a while, Speth’s efforts to make the brands more diverse and upscale appeared to be working wonders; revenues surged as customers lapped up expensive Chelsea tractors like the Range Rover.

JLR capitalized about 80 percent of its research and product development spending, a much higher figure than most other European carmakers (although similar to Aston Martin). That’s one reason why reported profits tended to be far higher than cash flow – often a warning of trouble ahead. Now, the writedown has closed some of that gap, but at the expense of wiping out most of the last three years’ net profit.
The stock market has already adjusted the Tata stock price to value the business at $7.7 billion.
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Re: Jaguar Land Rover posts huge financial loss

Post by PhilMabbots17 » Sat Feb 09, 2019 12:25 pm

Following the write-off of £3.1 billion worth of capitalised R&D JLR's 2026 bond debt is now selling for 77% of the coupon giving a theoretical return, including yields, of 8.9% per annum for 7 years. Unfortunately, this debt is categorised by analysts as junk bonds and has been for some time. Loss making and cash flow negative, JLR quickky needs to find alternative sources of cash, as the article explains.

Business Standard
Jaguar Land Rover, reeling from a $4 billion writedown, a slump in China sales and uncertainty around Brexit, said conditions aren’t right for it to borrow from the bond market and that it’s seeking alternative funding.

The luxury automaker needs to raise $1 billion within 14 months to replace maturing bonds, while feeding an investment program for electric cars that’s burning through cash. To support its needs, JLR could increase a receivables facility or turn to other bank financing, with further options including leasing assets and tapping export credit, Treasurer Ben Birgbauer said in an interview.
The credit default swap rate on JLR debt was 582 basis points n November 2018, it is now over 800.
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Buy Now: JLR needs cash

Post by PhilMabbots17 » Mon Feb 18, 2019 8:08 am

Jaguar Land Rover Is Headed for a Cash Crash
Bloomberg 17-Feb-2019

Jaguar Land Rover suffered a $4 billion loss this month. Credit investors need to start worrying about what’s coming next. The fourth-quarter loss announced by the Tata Motors Ltd.-owned company earlier this month was driven by a 3.1 billion pound ($3.9 billion) impairment charge. Though that’s non-cash, already-elevated yields on some of the U.K. unit’s bonds spiked:

Bloomberg1.PNG

JLR hasn't been able to ride the global high-yield bond rally. It’s not hard to see why. Half of the value of the writedown – some 1.55 billion pounds – comes out of tangible assets, which now won’t generate the value the company previously thought due to weak market conditions in China, technology disruptions, and rising debt costs. The rest is on intangibles, representing money that’s already flowed out of the business. Of the cash spent on products and investments (a measure the company uses to assess investment in future technologies and growth), a big chunk relates to expenditure on intangibles such as technology and intellectual property.

The pertinent question is why management waited so long to write down these investments. Its annual report last year noted that there was a “risk of an impairment due to optimistic expectations of future sales volumes and/or gross margins.” It also said there was a chance that “changing technology plans (e.g. electrification) and industry trends (e.g. reducing diesel sales) are not properly considered in the impairment calculations.”

So why is it only now that these expenses were judged to be too high? Did no one kick the tires on what the returns would be, or consider whether they should have been writing down these assets faster? With so little detail, it’s hard to know whether the impairments just taken should now be considered conservative, or aggressive. The charge should also be a warning for Jaguar Land Rover’s increasingly precarious cash and liquidity position. The company’s liquidity – all its cash plus a 1.94 billion pound revolving credit facility due in 2022 – has deteriorated dramatically in the past two years, dropping to around 4.4 billion pounds. Meanwhile its total debt has continued to rise, to 4.7 billion pounds as of Dec. 31.

While its persistently negative free cash flows have improved from the depths of the first fiscal half, S&P Global Ratings estimates that its measure of free operating cash will continue to be significantly in the red for two years. If the cash burn matches the average 670 million pounds a quarter seen since March 2017, JLR may struggle to make it through another year.

Meanwhile, debt to Ebitda is rising, and Jaguar Land Rover’s implied equity value, based on a sum-of-the-parts analysis of Tata Motors, is shrinking.

Bloomberg2.PNG

The company continues to spend billions of pounds on investment and hundreds of millions more in dividends to its parent, despite deepening operational woes that we’ve written about here and here. Worryingly, operating cash flow is falling relative to capital expenditure, making it harder to pay for investments without dipping into debt. If the company’s attempts to deliver on its cost-cutting program continue failing to deliver and sales don’t improve, further spending on tangible assets will be the only credible way to improve cash flows – but Jaguar Land Rover is already backed too far into that particular corner.

Free cash flow remains in the red, at a negative 361 million pounds in the December quarter. Management has attributed that to the pace of its technology investments, but given the weak return on previous expenditures investors are entitled to ask whether future spending could do any better.

One option out there is financial support from Tata Motors. But the Indian business doesn’t look strong enough for the task, with an improvement in its commercial vehicle unit already slowing. Such a bailout would be hard to administer without damaging a business that has only just emerged from Jaguar Land Rover’s shadow. Another is that 1.9 billion pound undrawn revolving credit facility – but the moment Jaguar Land Rover taps its loan of last resort, investors will take it as a sign of a severe cash crunch.

Bloomberg3.PNG

Management hasn’t been shy to tap debt markets, but investors there are demanding an increasingly high price. While global junk bonds have rallied this year, Jaguar Land Rover’s 4.5 percent bonds due 2026 have moved in the opposite direction. If it goes back to the market for more cash, it’s hard to see how a business with deteriorating liquidity and few other options could sell paper for less than 8 percent, the current yield on the 2026 notes.

In China, Jaguar Land Rover continues to perform far worse than its luxury peers, as we’ve written. Its underwhelming turnaround plan has only realized about a fifth of its 2.5 billion pounds savings target. Investors should hope management stops the cash from bleeding as fast as it has been spending.
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Tata in discussions to sell JLR

Post by PhilMabbots17 » Fri Mar 01, 2019 1:15 pm

Economic Times of India.

Tata Motors mulls selling stake in JLR: Sources
The deliberations are at a early stage and discussions may not necessarily lead to a transaction.
NEW DELHI: Tata MotorsNSE is said to be exploring various options for its British luxury subsidiary Jaguar and Land Rover (JLR) ranging from selling minority stake sale to forming a joint venture.

For this, the automaker is holding preliminary talks with potential advisors. Tatas may prefer to keep a control of JLR, Bloomberg reported. Tata Motors owns 100 per cent of Jaguar Land Rover. .. continued.
However, the story was immediately, and predictably, denied by Tata.
(Reuters) - Tata Motors Ltd on Friday denied media reports that it was exploring options for its ailing luxury car unit Jaguar Land Rover Automotive Plc. Two media reports said the company was considering options including a minority stake sale in the JLR unit or finding a venture partner that would jointly develop vehicles and lower costs.

The reports of a potential stake sale drove Tata Motors shares up as much as 3.7 percent to 184 rupees. The stock pared some of the gains and ended up 1.6 percent. “There is no truth to the rumours that Tata Motors is looking to divest its stake in JLR,” a Tata Motors spokesperson told Reuters.

Tata Motors posted its biggest-ever quarterly loss in Indian corporate history of about $4 billion last month, hurt by slumping China sales. The company also warned the Jaguar Land Rover (JLR) unit, which brings in most of its revenue, would swing to an operating loss in the year to March versus an earlier projection for breakeven, given weak sales at the luxury British carmaker.

The company may prefer to keep control of JLR, and rather seek fresh equity from investors, BloombergQuint said citing a Bloomberg report. The discussions are at an early stage and Tata Motors has held preliminary talks with potential advisers, ET Now reported.
Edited.....

The story has been carried independently in The Business Standard with more detail and different angles.
https://www.business-standard.com/artic ... 592_1.html
Tata Group, India’s biggest conglomerate, is exploring strategic options for its Jaguar Land Rover Automotive Plc unit including a potential stake sale in the struggling luxury carmaker, people familiar with the matter said.

Tata is considering alternatives ranging from a minority stake sale to finding a venture partner that would jointly develop vehicles and lower costs, said the people, who asked not to be identified because the discussions are private. The company is holding early-stage talks with potential advisers, and the deliberations may not lead to any transaction, they said.
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LR Badge worth $6.2 billion

Post by PhilMabbots17 » Fri Mar 01, 2019 6:39 pm

As Tata actively seeks a financial partner to share the recent cost of JLR ownership they might take some comfort from the fact that the Land Rover badge alone was worth over $6.2 billion in 2018 according to Interbrand, placing it 78th in the world league table of revenue magnets. This afternoon, Tata Motors' total value was $8.7 billion as shares edged up on the rumours to $12.81 in New York.

Bloomberg was one of the first with the story at 08:55 this morning:
Tata Explores Options for Struggling Jaguar Land Rover

Tata Group is exploring strategic options for its Jaguar Land Rover Automotive Plc unit including a potential stake sale in the struggling luxury carmaker, people familiar with the matter said.

India’s biggest conglomerate is considering alternatives ranging from a minority stake sale to finding a venture partner that would jointly develop vehicles and lower costs, said the people, who asked not to be identified because the discussions are private. The company is holding early-stage talks with potential advisers, and the deliberations may not lead to any transaction, they said.

Just over a decade after purchasing the Jaguar and Land Rover brands, the business has turned from crown jewel to burden, culminating in the biggest corporate loss in Indian history just last month when Tata drastically slashed the value of the asset. Jaguar Land Rover has been hit hard by slumping sales in China, the shift away from combustion and diesel engines, and the brand’s strong historic links to the U.K., where concern over a disruptive Brexit has weighed on demand and prompted some brands to move production.
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Re: Jaguar Land Rover posts huge financial loss

Post by Badgerface » Sat Mar 02, 2019 7:53 am

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Jaguar to split and be sold off?

Post by PhilMabbots17 » Sat Mar 02, 2019 9:43 am

Yes, the "hundreds of millions" in "huge investment" story was on the Brexit Bullshit Circus 10 o'clock episode. They appear to have been the carrier for the original UK leak because it appeared on the BBC website during the afternoon. So two conflicting leaks on the same day obviously intended for different audiences? How odd...

I think these stories are two spins of the same coin. Give-away words linking it all together are "British excellence", "electric cars", "fresh investment" and "joint venture". It probablt signals that they are about to split off Jaguar and sell part of it to a new equity partner interested in developing EV technology. There's definitely a positive way of looking at that - particularly if you are an Indian investor looking for exit strategies.

Jalopnik: JLR's Owner Wants Someone Else to Help Fix The Business

https://jalopnik.com/jaguar-land-rovers ... 1832994805
It also doesn’t help that the Jaguar side of Jaguar Land Rover still has a lineup full of aging sedans, and while both of its crossovers—the E-Pace and F-Pace—have been a sales hit, F-Pace sales have also declined in recent months. On the Land Rover side, the Range Rover Coupe, an expensive project with a limited market even in the best of times, was cut before it could make it to production.

On top of all of these problems, JLR is trying to solve its diesel crisis with further development of an electric vehicle lineup that began with the Jaguar I-Pace. That costs a lot of money, too.
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Bonds rally to 90 cents on sell-off rumours

Post by PhilMabbots17 » Sun Mar 03, 2019 2:11 am

There has already been a favourable response from the investor community as the 2026 4.5% JLR bonds climbed rapidly from 75% to 90% of the coupon on the news that Tata could be about to bring in another equity partner. Economic Times blames JLR problems on management "hubris".

https://economictimes.indiatimes.com/ma ... 228714.cms
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