Tata Motors Limited
Q4 2018 Earnings Call Transcript

Published: 24 May 2018

[Operator:]

Ladies and gentlemen, good day and welcome to Tata Motors Earnings Call hosted by HSBC. As a reminder, all participant lines will be in the listen-only mode. And 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 now hand the conference over to Mr. Yogesh Aggarwal, from HSBC. Thank you, and over to you, sir.

[Yogesh Aggarwal:]

Thank you, Stanford. Good evening everyone on the call. On behalf of HSBC Securities, I welcome you all for the Tata Motors Q4 FY18 Results Conference Call. I’m also very glad to welcome the entire Tata Motors management team on the call. Today we have with us, Mr. N. Chandra, Chairman Tata Group; Mr. Guenter Butschek, MD and CEO, Tata Motors; Dr. Ralf Speth, CEO JLR; Mr. P B Balaji, Group CFO, Tata Motors; and Mr. Ken Gregor, CFO, JLR and other members of the Investor Relations team. I would now hand over to Mr. Balaji to take it forward.

[P B Balaji:]

Yes. Thank you, Yogesh. Sorry, firstly, before we get started, apologies for this slightly delayed start. We had a bit of a traffic issue coming from the media press conference to hear. So, apologies; we’ll try and catch up on time. Standard safe harbor statement. The only thing I’ll draw your attention to in this safe harbor statement is a definition of underlying EBITDA. We’ll talk about it as we go forward. And the other is on the reported EBITDA. You will notice that product development charges are also consistently now being charged into the P&L across the entire Company. So, two call outs on this one. Moving onto the top development for the quarter, I think an exciting quarter for us, both in JLR as well as in Tata Motors. The key highlights come out I-PACE is now available to order, E-PACE is introduced in the China JV. And locally here in India, the Nexon AMT has been launched to some very good reviews. And our other developments, well, the two things that really stand out for me from JLR side, the Velar winning the World Car Design of the Year and of course Waymo partnership, which we’ll talk about subsequently later. As far as the Tata Motors sign is concerned, both these products you saw in the Auto Expo, exciting new products coming in, on the passenger vehicle side as well as the first rigid 6-axle truck coming on the CV as well. So, excitement continues there. Going to the market conditions. China and India continue to shine for us while there are challenging market conditions elsewhere, particularly draw your attention to the UK situation where between Brexit, diesel uncertainty, UK taxation as well as market cyclicality, we do see stress in the UK and we are -- as we look ahead, we are going to cover it as well. But, strong performance in -- as far as markets are concerned, both in India and as well as in China. Europe is slightly better than what it was before. So, last time, it was a red; we are not calling it amber. And U.S. continues to have its challenges there. So, I’m happy, in this situation, the Group has delivered profitable growth in these challenging conditions. To give a quick sense of numbers. Volume up 18%, revenue up 18%. It is one thing which I’m really keen to call out is, if you recollect last time in analyst call, we talked about future as a key thematic where we said we’ll review our assets, we’ll review our investments, we’ll review our policies, and then accordingly take the decisions and update as and when it happens. So, we are now taken a hard call on our product development cost capitalization policy, which I’ll cover slightly later. But because of that change that we are going to introduce from 1 April onwards, we have taken a review of all projects that we don’t intend to take forward at this situation and taken a one-off charge. And that is the reason while you see that number there, it’s almost Rs. 2,000 crores for this quarter and that is contributing to the PBT number, the way it stands and the same thing on the higher number as far as underlying EBIT. If you remove for these one-offs, underlying EBIT is actually -- at 6.6% is down 90 bps, fundamentally coming out of depreciation and amortization with two clear messages. As far as for Tata Motors standalone is concerned, the number has actually moved by plus 460 bps and JLR down 200 bps. And as far as cash is concerned, good quarter for cash with about Rs. 8,900 crores of cash coming through, both in JLR and TML, generating positive FCF. Just a split of this 18%, 10% of this 18% came from volume, 1% from price and translation, basically pound to rupee landing up about 7 odd percent. So, 11% of intrinsic volumes coming net of translation and almost 3% of this particular 18% growth came from JLR, and 8% came from Tata Motors. So, the Tata Motors standalone contributing quite substantially to the overall growth number as well. Splitting, going down to the EBIT number. The underlying EBIT was down 90 bps. On an absolute level, JLR declined by about 762 crores and TML more than made up that entire number. So, at an overall level, TML standalone’s absolute profits are actually starting to move the overall EBIT needle. And on a percentage level, while underlying EBIT was down 3.8% because of JLR, Tata Motors standalone about 2.4% up and all the others have the numbers moving through there. And if you look at JLR, also the fundamental issues coming out of primarily higher DNA costs and higher incentives coming up in parts of the world. And as far as Tata Motors is concerned, it’s a complete across the board delivery, be it mix, be it realization, savings, ImpACT projects, operating leverage, the whole work. At a full-year level, volumes are up 11%, revenues up 9% and PBT at Rs. 11,000 odd crores, up 20% due to exceptional pension credits fundamentally in Q1 this year talked about offset by Fit for Future exceptional charges. And this net credit of Rs. 1,500 crores is between the 2,500 number. And on a full year, FCF was outflow of Rs. 7,300 crores. If you recollect, last year, last quarter, cumulative JLR outflow was about 2 billion and improved it to about minus 1 billion at this point in time but it did mean that there’s an overall FCF outflow. And probably most hearteningly Tata Motors standalone after five years has actually generated free cash flows on a full-year basis, which is great news. A little bit of time spend on Fit for Future because I understand there’ll be a lot of questions on this front. Two things we looked at. One was the PDC capitalization policy, which if you recollect, when I met with most of you, you did raise this point as a key point that you would like us to take a look at. Happy to report back that we’ve taken a very hard look at this. We’ve spent significant amount of time reviewing our policy, benchmarking with others, and what we believe is the right level to capitalize in an industry that is actually getting significant disruptions that are underway. So, therefore, we have now looked at this, and now we’ve introduced a new capitalization gateway in our product approval process on affordability, which means even though if there’s a business case that is valid, we’ll take it forward only if it meets the affordability gateway. And therefore these changes will now come from FY19 onwards and EBIT will be impacted as you’ve seen the deck below, on our table below, which brings our overall capitalization down to about 70% for JLR and roughly about 60 odd percent for the commercial vehicles business, in fact will be much lower than that we expect and the passenger vehicle at about 60 odd percent. The EBIT impact of this is about 100 bps for JLR, and broadly about 30 - 130 -- roughly about 70 odd bps for Tata Motors overall. Now, the question that arises is that, are we comfortable at this level of capitalization? We absolutely are, because we believe that the stage of product development that we are in and the kind of technology that we’re currently taking on, we’ve actually taken the capitalization at that point in time, where we believe we start to make commitments for the future, which are going to make -- which are going to now change the nature of this expenditure. So, we’re very comfortable with it, signed off with the auditors as well as with the Audit Committee today and that’s the reason this change has happened. Because of this policy having now starting on 1st of April, we immediately reflected on what is the implication of this on our current projects, current assets that are there, and therefore we had to take a charge on that, on that one. So, therefore basis future affordability view is what you see there be it JLR, be it TML and overall conso [ph] level, we have actually taken additional charges, some of it are exceptional in nature because these projects are not going to be taken forward at all, and some of it are just asset write-offs that we had to take because these are restructuring projects that we have also taken to save cash. So, the thematic that I’d like you to keep in mind is that we’re really going to be very careful on the kind of cash that we’re going to spend. And wherever we can optimize cash, we’re planning to do that. And if it means that the P&L so be it. Second area, first was policies, second was assets. Now, we talked about investments. And on the investments we are now taking a hard look at the subsidiaries of Tata Motors in India and looked at what was that strategic roadmap, what was the role, why do we think we will win competitively in the future and on that basis now taken some very calls. All of you are already aware that the defense business, the sale is in progress. We’re now holding for sale of stake in Tata Technologies as well as Tata Hitachi as well as some of the small shareholding that we have in other companies like Tata Steel et cetera. Those are all held for sale. We’re winding up our Spain business, which is already in final stages as well as Tata Precision in Singapore business has been wound up. We’re also bringing all likes and core capabilities together. For example, we have various design capabilities and various companies that would be Trilix, be it TMETC, those are all coming together under one umbrella. And of course we are very clear that we will now continue to invest as far as Tata Motors Finance is concerned. We will maintain control as far as Tata Motors Finance is concerned. But clearly there is no intention to say that it should always hold at 100%. That is also clear. As far as others are concerned, the strategic review is underway. And these will be updated in due course. Now, moving on to the review of the various cylinders of Tata Motors engine. One thing we are trying bring together is clarity on what is the Tata Motors Group about. And we are seeing it as a 6-cylinder engine where JLR, CJLR are two strong cylinders that you are aware of. The CV business and PV business are two additional cylinders, a very clear call out on Tata Motors Finance. And of course the net debt and subsidiaries of all other miscellaneous stuff along with the net debt we are putting it all together in the sixth bucket. And this is our intention that each of these six cylinders needs to fire to ensure that it delivers consistent, competitive and cash accretive growth which is the call out. So, with this, let me hand over to Ken, who will walk us through the JLR and the CJLR piece and Ralf will take us through the strategy, the key piece for the JLR piece. With this, over to Ken.

[Ken Gregor:]

Very good. Thank you, Balaji. Right. So, looking at slide 13 here, just talking about our Q4 results and also what that refers for the full year. In Q4, revenue of £7.6 billion which gave us a profit before tax of £364 million and the headline EBIT margin of 5.5%. Couple of points to note on that. The volume was up in retail terms, 173,000 units and the 162,000 was up -- the wholesales were up 3,500 units, led by the introduction of the Velar as well as year-on-year the new Discovery. Within the EBIT of 5.5%, we did have the impact of higher depreciation and amortization. Just building on what Balaji said, that’s also included roundabout £100 million of writes off for certain engineering charges. And without those, the EBIT margin would have been closer to 7% for the quarter. That takes us to the full-year revenue of £26 billion on the back of 614,000 units of retail sales, driving profit before tax £1.5 billion and an EBIT margin of just under 4%. And just to note that EBIT margin excludes the exceptional pension credits of £437 million that we had in Q1 that is included in the PBT. And if we hadn’t surpassed the engineering charges in Q4, the EBIT margin would have been just about 4%. Just looking at how the volume developments came and taking into account Q4 and the impact from the full-year, basically we had strong growth in China, up 20% year-on-year, so very much back on the front in that region, which is good to see. On the other hand, we did see the impact of people uncertainty from a number of reasons in the UK and also impacting into Europe and we saw sales overall down in both those regions as a consequence, but on the other hand, U.S. and our overseas markets up in the region of 3% to 5%. Turning to the next page by model. We saw our new models doing well and really pleased to see Velar in a part year do 46,000 units in the last fiscal year. E-PACE where we just had a couple of months worth of sales, we saw 9,000 units, so that was also positive. We saw Discovery continuing to build to 46,000 units. And it’s to say all those models are still ramping up together with Range Rover and Range Rover Sport where we’ve given them a really fantastic refresh including plug-in hybrid options for those vehicles and we hope to see the benefits of that refresh and those electrified options in FY19. In terms of profitability development in the quarter. The profit overall was down compared to the same quarter a year-ago. We did see the continuation of higher levels of incentive spending, reflecting competitive environment that we faced during the quarter. We also have the continued growth of the depreciation and amortization particularly of course as we introduce the new models that we hope to get the benefits of in forthcoming years, we see the depreciation and amortization kick in and that’s a significant reason for the profit being down. We saw net of FX and revaluation of commodity hedges produce year-on-year a net £50 million reduction. And then overall, the one-off and onetime effects were net negative £64 million including that £97 million impact of writes off of engineering charges took us to the £364 million PBT for the quarter. And then, in terms of where that took us for the full year, on slide 17. £1.5 billion on the right hand side to see the benefits of the higher volume but we do see then on the full year the basically one extra point of revenue of higher variable marketing and truly reflecting those more competitive market conditions in various regions. We’re very focused on driving our costs to offset some of these headwinds and we see the benefits of that in lower material cost and other contribution costs being positive, favorable £190 million, but you do also then see the full year impact of higher depreciation and amortization together with some higher marketing costs in order to drive the volume development in the year. Overall, foreign exchange commodity reval actually in the full year was positive. And the net of the pension credit together with the engineering charges offsetting that and also the benefits of an accounting policy change we made for China local market incentives where we moved to an accrual basis. Net of all those impacts gave us £262 million favorable compared to the prior year. Just moving on then to slide 18. In terms of cash flow, we had a strong quarter for cash flow in Q4 with £949 million cash inflow, which was really good to see. Of course, we had a cash flow for the first three quarters. So, that took the full year to a £1 billion cash outflow as is shown on the bridge between profits and cash. And what you can see there is a £4.2 billion of investment being mostly funded by those operating cash flows. Moving to slide 19 that provides a breakdown of that £4.2 billion of investments. And of course, we do continue to plan to invest in new models, like the Velar, like the E-PACE, like the Jaguar I-PACE that’s coming this year, the technology in the electrification that we need in order to be at the forefront at the electrification wave that’s coming and also remain competitive in the marketplace. And also of course when we introduce new models, we need the capacity to build it. So, we’re also investing in our factory in Slovakia. All of those things together driving the investments of £4.2 billion split for the R&D split and the traditional CapEx you see on the page. An update in terms of dividend policy, also to provide some clarity for investors, including bond investors in Jaguar Land Rover. Over the last few years, we’ve paid an annual dividend to Tata Motors of £150 million a year. For this year, we declared dividend payable to Tata Motors of £225 million. That represents 20% of the after-tax profit for the year and that we plan to pay that in June of this year. Going forward, we plan to target payout ratio of 25% profit after tax, which benchmarks well with industry peers, and with that of course being subject to liquidity, tax, legal and other considerations which the Board needs to judge each year. Quick, turning to second cylinder, CJLR, just going to slide 22 here. We have another positive year for and quarter for CJLR with revenue continuing to grow and solid profitability. I’ll just note that the profitability is benefiting from a similar change in terms of the accrual -- changing to an accrual methodology for accounting for local market incentives; that’s benefiting the quarter and benefiting the full year here. So, you need to understand that here, but underlying that’s a very solid result for CJLR. Slide 23 has therefore a little bit volume development around 88,000 units in FY18, a significant step forward from the prior year, up 35% with new model introduction benefiting from the introduction of the XF long wheelbase and a part year of the XE long wheelbase as well as continuing to build on the local Discovery Sport. So, really good to see the developments of the volume there and all of that helping to support the spend, turning to the share of profit in both the quarter and the full year, including of course that impact of the currency and local incentives. And with that, I’d hand to Ralf to really talk about the future and our strategy going forward.

[Dr. Ralf Speth:]

Ken, thanks. Overall, I guess, Ken has shown you already the performance of Jaguar Land Rover but also has given you a certain outlook about the vehicles which we are going to launch or roll out in the years to come. I can clearly highlight page, ‘18 and ‘19 we have a clear strategy. We exactly know where we are. We have a clear defined purpose of our Company based on clear value that you see in the business blueprint. And I guess, the business model is one you know anyhow. So, I don’t want to elaborate on that. Next page, you see the clear structure of the metrics of our overall product portfolio. We have at the end of the day now 14 different nameplates. We have grown from to 8 to 14 nameplates within the years under the leadership of Tata. And Jaguar is divided in three pillars, luxury with all the sedans from XJ down to XE; the sports car, it’s a convertible platform to grow and clear, the special operations vehicles; and the lifestyle vehicles which are called PACE. And we’re very proud to highlight that it’s not only let’s say a quantitative rollout, but also a qualitative improvement in terms of quality. We have improved quality very much. And we have won the F-PACE Winner World Car of the Year and World Design of the Year with the F-PACE. And just some weeks ago again in U.S. we did win with the Ranger Rover Velar as World Car Design of the Year. So, a very, very good, let’s say proof that we’ve really delivered outstanding products with this kind of very special design and engineering integrity. And you can also see that the first pillar of the Land Rover side is still empty. You can be assured that we are working on the icon because we’re celebrating this year also the 70th anniversary of Land Rover. And it started with a Land Rover. This vehicle is an icon and we will bring it back in market. So, overall, our strategy is absolutely fixed. We know exactly what we are doing. We know what it’s going to have. But also from a technology point of view you can also that we have, really I’m speaking also for this year the growth in volume and you see some reasons why behind. And we can go to the next page to also say we also know what’s going on. Let’s just go back to page 28 where we can see that we’re going to change really from the internal combustion engine environment to the eighth environment with autonomous, connected and electrified vehicles. We clearly highlighted already that from 2020 onwards, the customers got the choice and the customer can decide about the degree of electrification in his vehicle, then we will deliver on mild hybrid, plug-in hybrids but also quite clear battery electric vehicles. Overall, in this kind of context, we have seen also that we just now delivered the Range Rover. And within the huge change and the refreshment of the Range Rover and Range Rover Sport, we offer now also addition derivatives as plug-in hybrids and it’s quite clear that we are rolling out the electrified vehicles. In that context, if we you to page 29, you see that very first premium battery electric vehicle from the premium OEM, which is from a technology point of view latest technology. We have many patents in the complete drive train starting with motors, and which delivers a very, very good performance. If you have got a little bit time, please go to YouTube to see a little bit of competition in between the one or the other cars. And it’s sensational. We’re going to see by the not only the normal acceleration 0 to 60 miles per hour or 0 to 100, but also in terms of elasticity in terms of 30 to 120 or 60 to 140, we’re outperforming. And we delivered a very, very good product with a completely new design language, a completely new technology which delivers you space, [ph] at a very compact vehicle with an interior -- from the outside from the exterior, but with the interior, which is spacier than six [ph] class above. Next thing, Waymo. I guess, everything is highlighted and you probably read all the news about Waymo. But, really proud that we together with Waymo are also at the forefront of technology going into autonomous drive, and then also delivering 20,000 vehicles with the latest technology, which gives us even more data, even more experience to accelerate the rollout of these technologies. So, what else do we have? Now, at the very moment, we have to do really everything simultaneously, as I mentioned. And we see geopolitical issues, especially in Europe and the UK. UK not only has got Brexit but also has at the moment tax issue because UK is taxing latest technology and we see that the market is going down by nearly 15%. And as you know, the UK is our home market. So, we feel it first, despite the fact that we’re internationally very well present. We see quite clear new vehicles coming out; we see a proliferation of brands in the new work and the kind of consolidation in the industrial side. But overall, we are quite optimistic that with our premium, very advanced vehicles we can continue our profitable sustainable growth. The long-term EBIT target, which you see there is also let’s say an element and out of the PD capitalization change, which is going to happen. Maybe we can discuss about it in if you are tied in, later. So, overall, I guess we know exactly our strategy. We’re confident that our strategy is going to work. We’re working in principal on three topics. First, the refinement of the current portfolio with internal combustion engines and by the way the diesel is a very good motor still today and will be also in the future; secondly on all these kinds of new technologies; and thirdly, we’re preparing at the very moment our Company for further growth level. And that’s a very, very interesting let’s say time we are living in but, it’s also we as a one team, one Jaguar Land Rover team with two iconic brand will make it happen.

[P B Balaji:]

Thanks, Ralph. We can move on to the next section which is on Tata Motors. If you notice that I have combined the two cylinders that we have three and four that is going forward from next quarter onwards, we will give you separate numbers on CV and PV as well. But for the time being, we will start with overall of our business. The revenue is up for this quarter about 45% and underlying EBIT is up 460 bps, which means very clearly that Turnaround has delivered the positive free cash flows for the full year after five years. The reported EBITDA was 6%, but our underlying EBITDA at 7.4% was up to 290 bps, while underlying EBIT is up almost 460 bps. PBT, while it looks negative at minus Rs. 474 crores has actually been impacted by Fit for Future exceptional additional charges which we’ve talked about earlier of Rs. 1,236 crores, which means this quarter is a PBT positive quarter and so it is for the entire year where we will also be -- a positive PBT for these one-off charges that we have taken. And it is translating into positive free cash flow that you see down the road. And of course growth wise, the continued strong growth of 32 odd percent for the full year, despite a very, very weak start in Q1 of this year of FY18. On the PBT numbers, the PBT is actually higher by Rs. 313 crores and underlying EBIT margin is up 460 bps. What I’m really reassured by and I’m quite happy to report is despite [indiscernible] we delivered a positive 40 odd bps improvement between volume, net pricing and commodity impact, we think we are pricing and delivering value ahead of the commodity inflation and a huge fixed cost leverage of almost 7.1% that is coming through, which is translating into almost 460 bps improvement in the underlying EBIT. On a full year basis, the story is very similar where fixed cost leverage is about 500 bps, and all the projects that you see, if you adjust for the exercise is a 100 bps improvement in overall contribution margins that you see with every lever actually firing the you would like to see. So, underlying EBIT improvement is almost 400 bps because of that. On a cash flow basis, full year cash flows were positive Rs. 1,300 crores which is the first time in the last five years. And what is reassuring is the cash profit after tax of almost Rs. 4,000 crores is funding almost entirely the investment that is not just working capital leverage that you are seeing on this number. On investment, overall about 6% of revenue is what we have invested, of which we have expensed out about Rs. 780 crores and capitalized including BS VI investments of close to about Rs. 1,300 crores. And total investment spending is about Rs. 3,500 crores that you see in this revenue. Sitting specifically on CV, if you recollect, we have called winning decisively as you’ve seen as far as CV is concerned. We delivered a volume growth of 34%, revenue growth of 40%. First time a share increase, I would probably say 45 -- categorize it as arresting the share of our market share bleed, a 70 bps improvement that we see, which is great news. And then, of course, we had -- portfolio gaps that we had earlier, but most of it is now plugged and the plan is now to start creating the gaps from our side. And of course, we will continue to work on enhancing the customer experience and also the leverage the superior SCR technology that we have. And we’re still not fully out of the woods as far as some of our supply chain bottlenecks are concerned. So, therefore, actually the numbers that you see are after the supply chain bottlenecks that we have. So, we still -- we need to work on that. And as far as cost reductions are concerned, the game has just begun and therefore we’ll continue to drive aggressive cost reductions into our profitability. Talking about PV, it’s slightly different. We’d love to win sustainably here by getting basics right, but very happy to see a volume growth of 35% and a revenue growth of 49% with market shares improving, second year in a row. And we exited this year at about 6.8% market share, which is great news. And just to keep in mind, this is happening despite almost 50,000 vehicles being lost in the car segment, which means all the new products are the ones that are firing and also helping us in terms of contribution margin and we’re seeing sequential improvement in contribution margins, which we’ll talk about in the next quarter as well. But of course, focus areas remain again that we have started product development and user experience needs to continue to improve, network expansion is a job that still needs to be done, and of course number one priority for the business is rigorous cost reduction to deliver an early breakeven, is a clear follow-up. Yes. With this let me hand you over to Guenter to talk about how we’re shifting gears with Turnaround 2.0.

[Guenter Butschek:]

Before I am going to talk about shifting gears towards Turnaround 2.0, to the date most frequently asked question was what has effectively happened in the last fiscal year to actually get to the financial performance improvement as just introduced and commented by Balaji. About beginning of July, end of June, beginning of July, after very difficult start into the fiscal year ‘17, ‘18 we decided to shift gears from transformation as a good launch in 2016 to Turnaround as we call it today, 1.0. 1.0 what has actually delivered the success, it was a single minded focus on execution along three pillars of the Turnaround. The first one was sales enhancement with a strong focus on commercial vehicles, domestic with the entry of new products and a stronger market activation; secondly the rigorous cost reduction in order to drive profitability where the lion share of the bottom line improvement has come from what we call the ImpACT project, I am going to elaborate on it a little bit on one of the coming pictures; and the third one was leveraging production and supply chain efficiency that means eliminate the supply constraints, and figure the pinpoint of timely opportunities to consolidate the supplier base in order to get more robust suppliers for the future. As already indicated, we have decided for the fiscal year ‘18, ‘19 to shift gears again, by introducing Turnaround 2.0, which is stringent consideration of our lessons learned from the last fiscal year, but with the aspiration to invest the Turnaround mentality into DNA and to the daily way of thinking and working at Tata Motors and to actually add to the scope, to the focus on top to the commercial vehicles where we are going to continue with the same aspirational targets and with the same approach to also add passenger vehicles. Balaji mentioned it already on PV, with an aim to win sustainably with the approach on Turnaround 2.0. And on page 43, we have summarized what we call first green shoots. I would call it the trust and confidence in our ability to demonstrate a strong turnaround in the passenger vehicle business as well. We have seen a very strong response on the new products. With the TIGOR EV, we have made a strong entry into the e-mobility space. We’re leading the e-mobility space in India. We have seen very positive feedback in the market on our Impact 2.0 design, which has given us a very strong identity for the brand and a good feedback by the customers giving higher preference and getting under consideration. Most important to us was that we’ve been in the past to the largest extent in terms of sales share a commercial fleet vehicle provider. We have managed to transition towards 87% of our total sales to private customers, and we’ve also been able to change the age structures of the consumer profile in age as well as in disposable income, which gives us the confidence that we have really arrived in the Indian passenger vehicle private customer market on which we can effectively build our further growth story. This is certainly supported by the success which we have made or the progress which we have made on JDI, on the J.D. Power CSI, where we have become rank number two, together with the largest player in the Indian market and where the perception in terms of after sales also significantly changed where we enjoy more positive confidence in the brand than in the past. And with all the cost reduction efforts triggered by last year’s Turnaround, we’ve seen a good improvement of our contribution margins on which we’re going to build the further growth story towards a sustainable financial performance for the passenger vehicle business As mentioned, of all the improvements in PV and CV and across the two business units was largely in the cost reduction side our improvement by the ImpACT projects in which as look into the key thrust areas in PV, it’s a state of activities on design to cost, higher capacity utilization, common architecture & modularization that’s already highlighted and documented by the two vehicles presented the Auto Expo in Delhi. It’s about advanced new product launches and leveraging the electric vehicle opportunity. On CV, it was all about improving on the product and contribution margin, a strong and very stringent introduction of modularity in order to build economies of scale and to get on the modularity to a largest breadth with our product offerings, improving on warranty and focus on spares and after sale services. On the common side, for both of the business units, distribution logistics, manufacturing footprint in line with higher capacity utilization, integrated S&OP planning and also become much more stringent and to along the horizon for the planning all of our suppliers. And I mentioned to the very strategic supplier base, acceleration time to market and elaborating business opportunities in the digital space. Further details in this regard will be shared at the Investor Day because we have some more details to be shared before we exit today’s con call. I hand back to Balaji.

[P B Balaji:]

To further align this pretty exciting Turnaround 2.0 plan to delivery and reward for the delivery. The Board and rumination committee today has decided to approve a proposal to provide ESOPs to key talent. It was a very big call for the Company. And objectives are very clear, drive long-term focus on competitive, consistent, cash accretive growth; ring fence critical talent on during the turnaround phase; match employee payoffs to the long-term gestation period of key initiatives, long gestation projects like new product development or Turnaround 2.0, therefore we need to ensure payoffs are aligned to that and those drive short-term thinking; and also drive owner’s mindset and collaboration amongst all employees. So very, very clearly calling on what are the enablers to deliver the Turnaround 2.0. And just to give you a bit of a flavor of this proposed scheme. Firstly, this needs to be approved by the shareholders in the AGM that we put for approval at the AGM. These ESOPs are proposed to be grafted on Q2 2019 based on the average 90-day average price covering delivery over three performance periods, performance period from ‘19-’21 at Q1 ‘21, ‘20-’22 at ‘22 and what has been given below. Criteria, so this has basically covered key talent in TML domestic, roughly about 200 odd people is what we’re looking at. The criteria will be a cumulative delivery over the performance period for the following three key metrics, market share gain, EBIT margin improvement, free cash flow as a percentage of revenue, all of the domestic business. And this will be equity settled with Tata Motor shares by issuing fresh shares to employees. So, the more details of the scheme will be there in the AGM notice that we’ll be sending out and more than happy to if you required a separate clarification required, we’re more than happy to provide on this one. That is on the ESOPs. Moving on to fifth cylinder at Tata Motors Finance, something that we haven’t talked too much about but something it is absolutely the right thing to do, is a very strong broad-based rebound that we see in Tata Motors Finance. Its AUM has improved by almost 24% this year, market share up 300 odd bps for the year, and probably the most heartening to see is gross NPA has gone from 18% last year down to 4% and the business actually generates an ROE of 17%. And the AUM is about Rs. 28,000 crores including some which are part of the often -- we mange in book in business but that’s a very small portion of [indiscernible]. So, a very good performance. Going to the next slide, if I see historically how this is more and we just picked up to the last four year. AUM, the market share has now picked up dramatically from 21% to 25% this year; ROE is up to 17% and the GNPA is something that from a 26% peak is down to about 4% now and its net NPAs are around 3%. It’s our intention to take this down even further as year progresses. So, something that is very, very crucial for us. And the last cylinder, which is all the net debt and the other subsidiary. We already talked about future investment decisions that we’ve taken, but this is where it all comes together. At this point in time, liquidity is adequate and maturities are well spread out. And we don’t see any concern on this one. But, we will be talking about how we’re intending to monetize some of our noncore assets. We’re aware of the defense deal that we’ve done, where we have done two things there. One, we have slump selling the defense business within Tata Motors to TASL that is Tata Advanced Systems Limited. And along with that we are also doing a share sale of our subsidiary called TAL to Tata Advanced Systems Limited. Both of these are basically to ensure that we’re able to deliver scale from a business which is -- and requiring specialized focus. And from a Tata Motors perspective, as far as the defense business is concerned, we have an upfront consideration of Rs. 100 crores, earn-out of about 3% on future revenues, close to about 15 odd years, up to Rs. 1,750 crores max. And as far as from TAL side is concerned, we will generate an enterprise value of consideration in the season of Rs. 25 crores. So that’s our intention. As we look at the assets that are held for disposal, we are able to populate the deal further, generate the cash and reduce the amount of debt that we have been sitting on. That is the plan. So, going to the outlook which is one that we are looking for. As far as the demand is concerned global markets are likely to remain challenging. Uncertainties in UK and Europe arising from diesel and Brexit are likely to continue. We see cyclically weaker markets in the U.S. with slight impact; and of course China is likely to remain strong. Coming closer home to India,. I think, we are optimistic on the demand environment in India. Higher infrastructure spending as well as enforcement of overloading rules are likely to give us better demand as well as GDP growth. The concern remains on inflation and interest rises because of inflation. So, that is something that remains the cause for concern. But on a net basis, we are optimistic on the demand in India. Commodity costs, we expect to remain -- to be higher as we go forward. And investment needs also likely to remain high at this juncture, coming basically from ACES related work that Ralph talked about as well local in India, the BS VI migration that needs to be done and of course new products investments that we need to continue to make. So, this is a context. In this context what’s the response as far as JLR is concerned? We continue to invest almost about close to about $4.5 billion in new products, technology and capacity to long-term, sustainable profitable growth. We also expect higher sales growth with improved profitability in FY19 compared to FY18. And we expect this performance to improve gradually as the year progresses. We are also planning our EBIT delivery in the range of 4% to 7% in the period between FY19 to FY21, and this is after the PBT policy changes that we referred to earlier, and 7% to 9% over the long-term, which means the long-term the EBIT guidance that we have given, pre-PDC policy will be fold. We’re just giving as a stepping stone of how we intend to achieve there in terms of time provider. And as far as Tata Motors standalone is concerned, we will continue to drive all round performance improvement through Turnaround 2.0, while also investing in future growth. We are planning for a 3% to 5% EBIT post PDC policy changes again between FY19 and FY21, 5% to 7% over long-term. And ESOPs that we’ve talked about earlier will also be reflecting this kind of step-up that we need to do in our delivery. And of course, Fit for Future portfolio decisions will have to be completed and we will have to ensure releasing cash and coming into releasing the debt levels as well -- net debt level. So, therefore on summary level, as Group, we are committed to competitive, consistent, and cash accretive growth over the medium to long-term. And our approach will remains launching existing new models, driving cost efficiencies, and of course operating leverage with affordable investment spend. That’s where we intend to drive this particular strategy. With this, let me hand it back to Yogesh for the Q&A session.

[Operator:]

Thank you very much, sir. Ladies and gentlemen, we will begin the question-and-answer session. [Operator Instructions] The first question is from the line of Kapil Singh from Nomura. Please go ahead.

[Kapil Singh:]

First, I had a question firstly on the Fit for Future charges. Just want to understand, in case of JLR, they have been taken in which line item and in case of Tata Motors standalone which lines items they have been taken?

[P B Balaji:]

Other expenses is where you’ll see it in the JLR side.

[Kapil Singh:]

Yes.

[P B Balaji:]

Yes. And Tata Motors, it’s in two levels, one is at an exceptional item is also there. Just to help you why we’re doing this, JLR follows IFRS. IFRS is stringent on what goes in exceptional. Ind-AS gives you optionality of creating a policy on what goes into exceptional on that basis. All products or categories that we are not intending to continue further have all been taken in exceptional for Tata Motors. But what we’ve done is to ensure complete clarity, both of them have been combined together to ensure that you’re able to see the underlying EBIT number, and underlying EBITDA. So, there’s no confusion from an accounting standpoint as to what exactly has got treated. And we’re also netting off if you recollect in the -- if you see my press release, we’ve talked about the pension credits also being netted off in the total number. So, we’re being absolutely clear about the final number.

[Kapil Singh:]

But the presentation says that changes from FY19, but you’ve taken the charges in Q4 as well. So, are you taking it from Q4 onwards, and should we expect more to come in -- more exceptional charges to come, how should we think about it?

[P B Balaji:]

Great question. I think, the policy is changing from FY19 onwards, which is the PDC, product development capitalization policy. And the policy says very clearly that going forward, affordability becomes an important criteria going forward, which means on March 31st, I need to be checking my current projects, is there anything that I’m going to afford going forward, which I need to take a charge off. So, therefore, we were taking the difficult decision of actually wherever we don’t intend to fund in our strategy plan going forward. Those projects are being done [ph] because the policy is about capitalization, this is a policy about -- this is a intervention on saying, if that is the policy going forward, I need to impair stuff that do not -- we don’t intend to fund going forward. That is one kind of charges we’ve taken. Second -- and this will basically save us cash flows going forward, because we’ll not be funding it. And we also believe these are projects that we are removing, our projects are on the lower end of the return spectrum that we have. Second set of interventions we’ve made and this is particularly true in Tata Motors is assets have been restructured, where we believe it is better to reuse this asset in a different place compared to the current place. For example at a paint shop, which we’re now moving it way from one particular location to another location, that means I write off all the installation charges here, at the same time I save on cash as far as the other area -- other place that it is going to is concerned. So, therefore, it is again a difficult decision because it’s easy to capitalize it and keep it but you end up wasting cash. So, you would notice we’re being very, very choiceful in terms of spending cash in the right place to generate the maximum returns, because we’re acutely aware that there’s a lot of demand for CapEx.

[Kapil Singh:]

And second question is on JLR volumes. So, I am referring to slide number 27, what -- it’s a interesting slide, which gives a color of where you’re expecting growth from. So, what it shows is that apart from the production, on the slide, other models you are expecting a decline. So, is this a right understanding that apart from these models, other models will see a decline? And related to that, if you can also give some color on what are the kind of say waiting periods or overall volume growth that you’re looking at, particularly in case of JLR, Range Rover and Range Rover Sport as well, what kind of -- will it be a substantial growth after refresh or will it be a little bit of growth that you’re expecting after the refresh when we have full year of these models?

[P B Balaji:]

Ken, would you like to take this question?

[Ken Gregor:]

Sure. I think, in terms of do I see all other models down, I’d say not necessarily. This graph is more about schematic perhaps in order -- intended in order to drive the understanding that given that we’ve got a full year of Velar, full year of E-PACE, a full year, XE long wheelbase in the joint venture, I’d say, it’s obviously going to be a part year launch this year and the full year of ‘18 [ph] model year Range Rover, and Range Rover Sport, but those things should be expected to drive growth. And then, within other models we could be expected to see pluses and minuses, normal ageing that sort of effect, depending market-by-market exactly what happens, there’s a bit more of a schematic in terms of the overall growth. So, we don’t plan to give volume forecast, but the intent very much in FY19 is to build on all the fantastic cars and SUVs that our customers love and have been awarded and we launched last year, and we’ve got the opportunity to take a step forward this year.

[Kapil Singh:]

So, can you give -- okay if you don’t want to give specific volume guidance, I understand that but in terms of waiting periods or order book on some of these products, I-PACE or some of the other ones, how are you seeing that? And secondly Range Rover and Range Rover Sport after the refresh are you expecting a substantial growth, especially with the hybrid variants.

[Dr. Ralf Speth:]

Yes. I wasn’t -- I think if I try to talk about waiting periods, they vary market by market, vehicle by vehicle, I could be here a while. All I’d say is we’re really pleased with the development of the Velar, having done 46,000 units since we launched it last July and 9,000 units of E-PACE since last November. And we’ve got customer deliveries expecting to start in the summer on I-PACE and we do have an order bank building there. But I think perhaps I don’t want to get into the detail model by model, market by market.

[P B Balaji:]

But we can say, we really have an order bank. So, if you sign quickly, then we can deliver.

[Kapil Singh:]

Okay. Any comment on Range Rover or Range Rover Sport?

[Dr. Ralf Speth:]

Really pleased with the developments and the consumer reaction to the plug-in hybrids in particular actually that it’s going to be very interesting to see how consumers react to that and what the additional performance as well as the fuel efficiency that the plug-in hybrids offer, so yes.

[Kapil Singh:]

What I’m trying to understand, are you expecting substantially growth in these models?

[P B Balaji:]

Kapil, can I suggest we move on to the next question? I think, the answer is a fair bit. Can we move on to next question? I am just conscious the queue is building up significantly. Come back to your question again. Apologies for this.

[Operator:]

[Operator Instructions] The next question is from the line of Pramod Kumar from Goldman Sachs. Please go ahead.

[Pramod Kumar:]

Thanks a lot for the opportunity and complements for some of the bold calls, what you have done on the capitalization side. My first -- before I get on to the question, just one clarification on your EBIT guidance. Does it include the China joint venture contribution, the share of profits in China or is it before the share of profits from China?

[P B Balaji:]

Consistent to what have we been following so far, no change as far as that treatment is concerned.

[Pramod Kumar:]

So if memory is right…

[Ken Gregor:]

Short answer is. It concludes the joint venture contribution, as Balaji said, with prior treatment.

[Pramod Kumar:]

Thanks a lot for that. And the first question is basically on the China import duty revision. And if you can just provide some color on that as to how big was China in FY18 in terms of imports, exports out of UK to China of your overall revenues and also how are you thinking about the reduction in the import duty? Do you expect it will be kind of passed on fully to the consumer and resulting in some bit of the additional demand or is there a thought that some of the companies -- or the market demand may let you retain some of the benefit to the P&L? So that will be the first question.

[Ken Gregor:]

Should I take that Balaji.

[P B Balaji:]

Absolutely, Ken.

[Ken Gregor:]

We really welcome the import duty change that’s been announced from in China from yesterday from 25% import duty down to 15% import duty. Obviously, we announced yesterday, you could expect that we’ve been doing some planning and obviously very careful thinking about what we plan to do, but I’m not going to announce that here right now. The first place we’ll announce that will be in the market in China. But, overall, I’m positive about the development customers in China should see and benefit from the opportunity of lower prices. I think it’s positive for trade and the development of free-trade to see import duties come down in China. And I think overall it’s -- I think the Chinese government is to be congratulated for what’s quite a farsighted and good development for the overall industry in China.

[Pramod Kumar:]

Okay. Then, we will wait for market announcement. The second question pertains to the India business. This quarter, even adjusting for the one-offs, exceptional charges what you’ve taken, the margin seems to have kind of come down from the December quarter, despite meaningful buildup in volumes and the mix actually seeing some bit of improvement. So, if you can just help us understand, was there any additional headwinds which are additional chargers which are more particular to the year-end quarter or is it more of a recurring performance and going forward one should expect or kind of focus on current basis -- current quarter levels?

[P B Balaji:]

Three comments on this one. One is there were a few additional charges that are there, too small to call out on an individual level. Therefore, we are not in a position to call them one-offs and therefore we just left it there. Two, commodity increases, you did see in Q4 and therefore pricing has gone from April onwards, you’ve seen the price increases in CV et cetera. Three, keep in mind that the mix in fact in terms of an overall console level with PV going higher sometimes does create a bit of a drag on us, but we have committed that as PV also start improving profitability, will take it. So, therefore that is the reason why we have actually put out there a clear plan on what we intend to do with respect to profitability going year-on-year basis. So, I would urge you to look at full year number for these kind of things rather in-quarter, quarter-to-quarter kind of movement on this one.

[Operator:]

Thank you. The next question is from the line of Binay Singh from Morgan Stanley. Please go ahead.

[Binay Singh:]

Hi, team. Thanks for the opportunity. And thanks for a very detailed presentation and for most of the questions. I had three questions relating to accounting practices only. Firstly on the China change in policy and that’s now being to approval, I can understand that it will impact positively quarterly profitability. But why it will make impact positively for the full year profits? That’s my first question.

[P B Balaji:]

The fact that move from cash accounting as to when it was received to accrual accounting will automatically mean we’re entitled to that number. We’re not sure that there is absolute surety the money will come. Therefore, we will have to move to accrual accounting on that, that is what we have done once we got clarity on that. And that is valid for Q4 as well as the full year number, for full year itself this number would be there, both would there. And in-quarter number, we’ll be adding to the full year number as well.

[Binay Singh:]

Okay. So, the number is an incentive that you have already received in this quarter?

[P B Balaji:]

The clarity on that was achieved and therefore on this basis we have taken an accrual which will mean it hit both Q4 as well as full year number.

[Binay Singh:]

Okay. Okay. And secondly, when you talk about slide number nine, existing and additional in Fit for Future, could you explain these two, what is existing and what is additional on the asset side on slide nine?

[P B Balaji:]

Can you just repeat the question? I lost you on the…

[Binay Singh:]

Yes. On slide number nine where we are talking about Fit for Future.

[P B Balaji:]

Yes.

[Binay Singh:]

Under assets we’re talking about additional charge and exceptional charge. You’re breaking down Rs. 877 crores into two parts.

[P B Balaji:]

That’s right.

[Binay Singh:]

What is the difference between additional and exceptional?

[P B Balaji:]

Yes. Only difference is accounting standard wise, when there is a very clear call out basis policy, what is that is exceptional that goes in there. In the case of JLR, the fundamental exceptional that you see sitting for this year is a pension credit. And as far as last year is concerned, we have Tianjin credit also sitting there. That was an exceptional item on JLR there for a full year basis. And this is something -- and there are also product stoppages that we have put on there are also treated as exceptional. As far as TML is concerned, bulk of those exceptional items are projects that are not being taken forward, so consistent in the -- consolidated level to call this throughout. With respect to what JLR and IFRS accounting, different accounting standard to the Indian accounting standard. For them, the one-off that they call out, the 96 million odd that are there, the whole total is sitting at 877. Yes, but in contract forced to split the two together. So, that is just a nature of the accounting standard. My request is if you look at the total, take a look at the fact that we’ve split out clearly what is JLR, what is TML and the fact that we’re giving you underlying number independent of this. I request not to get too locked in into splitting hairs on this one, it’s just the way the accounting standards work. We’re working with three accounting standards here, IFRS for JLR, IGAAP for Tata Motors Finance and Ind-AS. for Tata Motors. So, it does create a bit of idiosyncrasy. We’re trying to level best to keep it nice and simple for people to understand this.

[Binay Singh:]

That’s a good advice to follow. And then, the last question is on the JLR dividend policy. Generally, in the past, the Company has guided about future cash flows. There is always a statement that you make that we expect to have positive cash flow in the coming years. Wherein this presentation, we’re seeing a guidance on dividend. So, how do we read that change? And in fact, the dividend for JLR is actually going out, whereas one would imagine that volumes slowing down, JLR actually -- may not be actually positive every year. So, is this sort of an endorsement that you have very strong confidence in JLR having strong FCF in the coming year, thus you’re raising the dividend payout ratio?

[P B Balaji:]

Let me go pull back a bit. I think, first of all, dividends do not impact FCF at all. Cash flow from operations less CapEx, less taxes for FCF. So, therefore dividends do not impact it. And as far as the dividend itself is paid, it is after the profits are made, which means PAT is already there, and 25% of PAT is what is there, 75% of PAT is available there for reinvesting, so that is a second part of it. And third, we intrinsically want to be -- if you look at the net debt position as far as JLR is concerned, it’s a very healthy position. Yes, we would want to make it stronger, no debate about it. And therefore, this 25% that we’re coming to seeing from next year onwards brings us into the lower end of the auto OEMs’ dividend payout ratio. So, therefore it is after a lot of careful consideration that the Board of JLR has agreed to do that.

[Binay Singh:]

Right. I understood. Basically, I was trying to think that JLR probably should be preserving cash if there’s a lot of CapEx coming in and this policy sort of points out that JLR will be paying out more…

[P B Balaji:]

No, no, no, just be careful there. We have explicitly called out next year the CapEx of JLR is likely to be about 4.5 billion. And at the same time, we’re making difficult choices. The write-off that has been taken in JLR has not been a pleasant decision for any of us because we’d love to invest in model, but we also that cash accretive growth is another one equally important metric as well. So, therefore, dividend has got nothing to do with free cash flows. Free cash flows positivity is anyway needed for a business, independent of what the dividend payout is.

[Binay Singh:]

Dividend would have helped JLR in building the balance sheet…

[P B Balaji:]

Yes. But, there’s a very strong balance sheet that we have there.

[Operator:]

Thank you. The next question is from the line of Jamshed Dadabhoy from Citigroup. Please go ahead.

[Jamshed Dadabhoy:]

Three quick questions. Could you give us a sense of what your incentives are as a percent of sales, for JLR this quarter?

[P B Balaji:]

Ken, do we share this information?

[Ken Gregor:]

We share a sort of general view of the incentive spending, which varies -- what I want to say it varies by model, by market, but overall was 6% of revenue for the overall business in Q4. It’s actually on the slide 16.

[Jamshed Dadabhoy:]

So, it’s trended down slightly from the 6.5 or so that was, a quarter ago, yes?

[Ken Gregor:]

What you get also by the way quarter-to-quarter, it obviously varies depending on market seasonality factors. So, I’d prefer to look at the year-on-year, in which case you see it’s actually fairly flat. And as I said for the full year, I think, it’s fair to point out that it was almost 0.1 higher than the same quarter through as a full year growth. There’re seasonal factors in there with the UK markets and Chinese New Year as well as general trends.

[Jamshed Dadabhoy:]

Second question, this 877 crores which is the exceptional Fit for Future charge. Just to be clear, this is under IFRS accounting, this is all sitting above JLR EBITDA line, yes?

[P B Balaji:]

That is correct and that’s the reason we have called out underlying EBITDA for JLR, underlying EBIT as well in JLR.

[Jamshed Dadabhoy:]

And last question in this 4% to 7% kind of margin -- EBIT margin guidance which is there for JLR, this is on the constant currency, yes?

[Ken Gregor:]

Yes, it’s in pound sterling. That’s right.

[Jamshed Dadabhoy:]

And that constant currency, what is the sort of exchange rate that you all have assumed? Because given how GBP is fluctuating against USD, it makes it kind of tough for us to sort of fathom. What sort of exchange rate are you all targeting?

[P B Balaji:]

Ken, would you want to take that?

[Ken Gregor:]

Yes. It’s a really good question and this also makes it somewhat relatively more challenging for us to manage the business with for example the pound being as recently as two weeks ago being over 1.40 to the dollar and then today being 1.33 to the dollar. Overall, we look at, we think about fair values for our long range planning. And the fair value pound to dollar perhaps is in the 1.45 region, fair value pound to the euro perhaps and 1.20 region. Renminbi is difficult to call, it’s fair to say. But we plan the business of fair value rates, which are presently sterling is perhaps a little bit weaker than but not hugely.

[Jamshed Dadabhoy:]

Okay. So, this is done targeting like 1.45 and 1.20? And how much self help is there in the business from a cost cutting perspective? You all have said that market conditions are little soft in the U.S., challenging in Brexit and yet you’ve got decent EBIT margin sort of expectation. Assuming -- how much can you cut and how much fixed cost can you remove from the business, assuming volumes sort of grow in mid-single-digit kind of framework for the next couple of years, like how much self help can you extract?

[P B Balaji:]

One area we will talk about a slightly more detail when you’re there for the investor day, because this requires -- we can actually spend a fair amount of time talking about our various interventions, cost interventions that we have in mind. So, my suggestion is give us that time needed to explain it better. So, we have given you the areas in the slides that Ralph talked to. But I think we can give far better clarity on that and the individual members can talk about it when you’re there in the Coventry in a week -- a month from now.

[Operator:]

[Operator Instructions] The next question is from the line of Robin Zhu from Bernstein. Please go ahead.

[Robin Zhu:]

Two quick questions, please. One is, could you give us an update on the shares and the volumes in the UK and Europe? And related to that what’s the time line that you guys are expecting in terms of having the plug-in hybrid rollout across more than just the Range Rover across the small cars, the CO2 emissions? [Ph] Second question, you’re guiding 4.5 billion of investment spending in FY19, how does management think about the need to balance cash accretive growth versus you need to investment in CO2, EVs, autonomous that you’re currently working? And if you could provide some thoughts on when you think investment needs might peak, whether it’s this year, whether it’s a few years in the future?

[Dr. Ralf Speth:]

Ken, you take it? Should I take it?

[P B Balaji:]

I will start, Ralf, and perhaps you are free to fill in if I don’t cover all of it. On the cash flow, yes, the investments in FY19, we do see as we said roundabout 4.5 billion, which could mean that cash flow in FY19 will be negative. That is why we have strong liquidity to manage our way through the investments that we’re making and the requirements continue to invest in all of those technologies. Beyond that obviously, we’re only giving guidance on the investments in one year. And I think exactly how it depends -- how it goes thereafter will depend on decisions that we’ve yet to take. But obviously, we’re committed to continuing to the electrification of all of our models which you asked about. And the slide that talks to it is just -- you asked about the timing of it. And I think, the slide, although we wouldn’t want to talk about specific introduction dates for specifics models, slide 28 was intended to give you a shape of how we see the development in terms of 2017. And then obviously through 2018 we launch the Range Rover, Range Rover Sport plug-in hybrid, the I-PACE being launched in 2018. And you can see there that through 2018 through 2019 where we see mild hybrids and plug-in hybrids over some other of our models and then seep from 2020 mild hybrids, plug-in hybrids that variants available across our range. So, we prefer not to give specific, Robin, introduction timings of specific models really for competitive reasons to keep our powder dry in the marketplace. To obviously help you as investors in business understand the overall direction of which we are aiming, this is very clear, electrification is our future and therefore we plan to continue to invest in it.

[Dr. Ralf Speth:]

Maybe, I can add, Robin, one issue. Ken is right about one rollout, but you also asked when will the rollout open the area? First of all, we cannot really predict the future or forecast institute give us totally different numbers of electrification for and each different technology. The most known one probably is this 80-20 for electric cars in 2025. What that means is 80% still will be general combustion engines, but you also can have 60-40 ratios for other ones. In addition, if you open and see today’s news about government in the UK, they want to now get rid of also MHEVs. And so, we really don’t know what kind -- what process and also the governments are going to question in the near future. Therefore we also have to talk our rollout plans according the governmental requirements.

[Robin Zhu:]

Could I just follow up on the diesel…

[Dr. Ralf Speth:]

Sorry?

[Robin Zhu:]

Could I follow-up on the diesel [indiscernible]

[Dr. Ralf Speth:]

Diesel at the moment is going down in Europe but also quite clearly in the UK; in the UK, quite drastically within between 35% and 40% month-over-month. We are flexible in our production. We really can manage. But overall that creates a kind of buyer hesitation and that means at the end of the day the complete market is going down in the UK. I really would like to highlight because also you asked about this ratio in between, normal internal combustion engines and electrified ones. We have to make sure that everybody knows that internal combustion engines will be in the market for many years to come and that all the diesel engines are very, very good engines by the way in terms of all facts and figures. We have to make sure that we come back to the scientific facts and figures and get a little bit get rid about the emotional factors, the emotional discussion points.

[Robin Zhu:]

Okay. Actually, sorry, just one very quick one follow-up if I may. The Range Rover, Range Rover Sport, do you think these -- I mean, these are very few [ph] models for you. Do you think we’re looking at the normal sort of seven-year cycle or is it going to be like the last generation was went longer?

[Dr. Ralf Speth:]

By the way, Range Rover and the Range Rover Sport don’t have any normal cycle right from the beginning. And it’s normal and not a fashion good for an investment. Therefore, it has different cycles.

[Operator:]

Thank you. The next question is from the line of Sonal Gupta from UBS Securities. Please go ahead.

[Sonal Gupta:]

Hi. Thanks for the presentation. I have lots of questions, but I’ll restrict them for the Investor Day. Just a couple of questions from my side right now. On the JLR side, in terms of the volume growth you’ve changed, like you’ve pointed out to amber for Europe. So, given that we’ve continued to see a drastic decline in diesel share, I just want to understand your thoughts around Europe in particular. I mean, why it’s gone from red to amber. Are you seeing that the diesel negative is sort of peaking out? And then, again related to volumes, while you pointed out that you have these new models which are coming in which for the full year effect is yet to come in, but if you look at Q4, you had a negative retail growth of 4%, despite these new models being there. Velar was there for the full quarter, E-PACE was largely there and in spite that we’ve seen volumes decline. So, do we -- I mean, can we really be hopeful of a positive volume growth for FY19, given that effect was already there in Q4, and we still saw volume decline?

[P B Balaji:]

Ken, would you want to take that?

[Ken Gregor:]

Yes, for sure. In terms of the amber for your -- I think, what we’re balancing on that slide is really the sense of what’s happening more broadly in the economy as well as the car market as well as how we see things for our developments. And the UK economy and car market overall perhaps has got quite a number of risks surrounded with Brexit being well documented, also from our point of view diesel uncertainty, also from our point of view tax related and government-related issues around diesel. On the Europe, actually the overall economic backdrop in Europe is perhaps somewhat stronger and therefore the -- that perhaps provides a little bit of counterbalance to what we also are experiencing though, which is consumer uncertainty on diesel also. So, it’s not underplaying those issues, it’s just how we came to determine it being amber. In terms of the development of volume in Q4, what you saw in Q4, yes, overall, the retail volumes were down. That’s partly because we did see in the prior year Q4 very strong, abnormally strong UK volume development, which came ahead of a tax change in Q4 of last year. And hence we saw Q4 volumes in the UK down 21% in our Q4 and that was part of the reason our volumes were down. European volumes were also down in Q4, it’s fair to say, as a result of some of diesel uncertainty. But, China volumes were up 11%, overseas was up 9% and the U.S. was 4%. And so, clearly, while there’s continuing uncertainty per that geographic slide that gives a sense of how we see things in terms of the UK continuing to have economic uncertainty, diesel uncertainty, some diesel uncertainty still in Europe, U.S. economically actually continuing to do fairly well. China never without its pluses and minuses but overall developing relatively well, and with these interesting developments of the duty change, that’s just been announced. I think for Jaguar Land Rovers, plus we have these some uncertainties around the world from a global point of view. What we do have is we do have the benefit of models that we’ve only just introduced in the form of a full year of E-PACE or full year of Velar. We do have the Range Rover, Range Rover Sport we’ve been talking about with ‘18 model year refreshes, which is quite significant enhancement, really giving customers new technologies and reason for thinking to invest in their next Range Rover and Range Rover Sport as well as having I-PACE in the marketplace during the summer. So, I think all of those things do give us the opportunity to step forward during the year. Clearly, there are uncertainties region-by-region, market-by-market that we continue to work through. That’s for sure. That’s our life, our challenge, if you like.

[Sonal Gupta:]

And just my second question is on Tata Motors Finance. I mean, you highlighted the strong reduction in gross NPA. I mean, if I calculate it, it’s gone from like 4,000 crores or to 11,000 crores. So, what’s been the main driver? Is this just write-offs or have you been able to recover what is the driver of the reduction in gross NPA?

[P B Balaji:]

We’ve also increased profits, 290 crores profits that we’ve reported, but it’s not write-offs, a lot of it is collections, focused collections and processes that are disciplined, choosing seeing the kind of places that we’re actually going to lend money to. So, it’s been a comprehensive piece of work. So, what we intend to do to give more color to this is the Tata Motors Finance will almost session for about an hour on the Investor Day on June 5th, so you can definitely appreciate all the efforts that have been taking. So it’s something that they’ve been very hard on over the last two years. And I think this year, they’ve really come to the party in terms of delivering numbers and I’m only seeing them improving -- going from strength to strength from now onwards.

[Operator:]

Ladies and gentlemen, we will take the last question from the line of Sahil Kedia from Bank of America. Please go ahead.

[Sahil Kedia:]

Thank you for this opportunity. Two questions here. You’ve said that the Slovakia plant is going to start production at the end of the year. How should we think about this considering that the volume growth outlook is actually pretty weak at this stage? How is it going to set up in terms of the cost-reduction? Number one. Number two, in the FX strategy page, you said that there is 200 million of a positive gain on a year-on-year basis with FX losses actually coming down. But there is a 190 million offset charge. Can you tell me what that is? Because it seems that on an EBITDA level, despite the fact that the ForEx losses have come down, it doesn’t look like it has added anything to EBITDA. Can you please clarify these two for me?

[Ken Gregor:]

I will try. Let me try with the FX first and I’ll focus on the full year. The year-over-year impact of FX net of the commodities was 206 million. In terms of the elements that make that up, what we had in the full-year was a non-recurrence of negative FX revaluation in the region of £180 million hat we have had in the year to March ‘17 and we have a positive revaluation of foreign exchange in balance sheet in FY18. And those effects were split across both working capital impact that are reported in the EBITDA and non-working capital, in other words, revaluation of dollar debt and few other balances that are outside of EBITDA. So, it is somewhat complicated. And those effects are also being offset by a net change in our revaluation of -- commodity revaluation. In terms of Slovakia, I think probably, I would say watch the space in terms of announcements on Slovakia. But, let me just talk about the overall economic impacts. Slovakia does have a really positive effect for us as a relatively lower cost manufacturing location compared to the UK, and it therefore offers the opportunity for a lower labor cost in the manufacturing facility and also access to supply base that is in general terms further east in Europe than we presently have in UK and that offers the opportunity of cost reductions for the models that we will produce there. So, we look forward to that -- the development for the business in future years.

[Sahil Kedia:]

One follow-up question if I may. On the China policy, it seems that the auto component import cost has also come down. Does that also benefit Chery JV in terms of localization levels and so on and so forth?

[Ken Gregor:]

In principal, yes, you’re right that the duty change has come down also for imported materials, although the size of the reduction is a fair a bit smaller. It certainly depends on the sort of commodity but it’s in the region 1% or 2% duty rates. Yes, in principal, there are parts of the vehicles. Some of commodities in the vehicle that we produce in China are imported into China. So, for that proportion, they would enjoy lower duty. But the majority of the car that we build in China is sourced in China. So, therefore, it’s a relatively smaller effect in principal.

[Sahil Kedia:]

Could you share with us what the board localization in China would be? I know, it’s impossible to do it on a product by product basis but a sum rule or an average localization for the China plant?

[Ken Gregor:]

Yes. In principal in the region of two-thirds of the material of the car, plus-minus it depends on the model of when it was localized, is sourced in China and by value of the car.

[Operator:]

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

[P B Balaji:]

Yes. So, firstly, I think thanks for everybody for being here and taking his call. It’s been very useful for us to spend time with you to explain where the things have taken us. A lot of moving parts in the numbers, so therefore this is time well-spent in doing it. So, thanks a lot and look forward to catching you on a one-on-one as we go forward, and more importantly look forward to seeing you in the Investor Day 5th of June for Tata Motors in Mumbai and 22nd of June for JLR in the UK. So, see you there. Thank you. And see you later.

[Operator:]

Thank you very much, sir. Ladies and gentlemen, on behalf of Tata Motors and HSBC that concludes this conference. Thank you for joining us. And you may now disconnect your line.