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Jaguar Land Rover Working Capital Details

Jaguar Land Rover was on track to make at least £2.5 billion of investment, working capital and profit improvements by March 2020 through its adopted charge transformation programme. The company has already delivered the first tranche of funds amounting £1.25 billion, with £150 million of cost efficiencies, £400 million of working capital improvements and £ 700 million of investment savings to be achieved by March 2019.  

However things changed after outbreak of pandemic COVID-19 as things turned very bad for manufacturing sector and led to closure of plants. This derailed the plans and led to lot of stress on the balance sheet. However the production has improved dramatically after caliberated opening of lockdown.

JLR's negative working capital profile means that a sudden fall in sales will cause a rapid decline in receipts, while the payables will remain due for 2-3 months. The shutdown of production facilities due to COVID- 19 will limit an excess increase in inventory and reduce receivables, but the company is anticipating a significant cash outflow from working capital developments in the next few months as a result of much lower payables that expected.

Working Capital is weighing heavily on Liquidity of the company: Eventhough JLR has limited debt maturities the company expects liquidity to be significantly constrained by working capital outflows in 1QFY21 due to complete stoppage of  production and a drastic redution in sales in Q1. However, teanticipation that JLR will be able to cover these cash outflows from its cash balance without drawing its RCF.

The rating agency  Fitch forecasts JLR will have available cash of £1.8 billion and availability under its committed RCF of £1.9 billion at end-June 2020.

The second quarter was however better with Free cash flow was positive £463 million ( £ 2.0 billion better than Q1 FY21 and £ 506 million better than Q2 last year )after £ 531 million of investment spending and £ 528 million of working capital inflows as a result of the production restart and sales recovery from the prior quarter.