Jaguar Land Rover Profit Jumps as China Leads Recovery

(Bloomberg) — Jaguar Land Rover reported a 38% rise in quarterly profit as pent-up demand aided a recovery in markets led by China.

Profit before tax rose to 439 million pounds ($602 million) in the three months ended Dec. 31, the British carmaker said in a statement Friday. JLR expects to generate strong profit margins and positive free cash flow through March and expects to reduce net debt.

While JLR was encouraged by the Brexit trade deal that largely spared cars and parts from tariffs, there will still be increased customs administration requirements, the luxury carmaker said. While quarterly sales fell in the U.K., retail deliveries in China jumped 19% from a year ago.

JLR’s parent, Tata Motors Ltd., reported net income of 29.1 billion rupees ($399 million), more than doubling analysts’ average estimate. The Mumbai-based company’s shares had been on a tear this month, reflecting investor optimism that improving demand and sharp cost cuts will boost efforts to reduce its massive debt pile.

In its earnings presentation, JLR confirmed it failed to comply with Europe’s tougher carbon-dioxide emissions rules last year. The company fell short of its target by a smaller margin than expected three months ago, so it reduced its provision for a fine to 35 million pounds. It also purchased a total of about 28 million pounds of regulatory credits to comply with standards in China and the U.S.

JLR hasn’t seen any material impact on production even as there has been a degree of border friction following the end of the transition period for the U.K. and European Union, Tata Motors Chief Financial Officer P. Balaji told reporters in a briefing.

The company is working to find sources for battery components in the U.K. and the EU to replace parts that are currently sourced from China to meet the so-called rules of origin. Electric and hybrid models were cut some slack in the Brexit trade deal, with the accord allowing a greater proportion of vehicle content to come from outside the U.K. or EU until 2024.

JLR, now led by former Renault SA chief Thierry Bollore, outlined plans to cut costs by 2.5 billion pounds last year.

Contact editor Yang Ge (geyang@caixin.com)

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