Thursday, June 12, 2014

Driven Personalities - Adrian Hallmark

The big product news from Jaguar at the 2014 Geneva Salon was the teaser shot of the new XE sedan, and a few small tidbits of detail about new engines, and whispers of a launch price for XE of around £29,000 (AUD$52,000).

Fortunately, however, I was able to corner Jaguar Land Rover’s Global Strategy Director, Adrian Hallmark, who until recently held the position of Jaguar Global Brand Director, to discuss more deeply some aspects of the Jaguar business, and his responses will warm the hearts of Jaguar enthusiasts, owners, finance analysts and the media.
Adrian Hallmark, Geneva 2014

I had the great pleasure of working with Adrian Hallmark at Bentley Motors, when he was the Member of the Board for Sales & Marketing, and I was PR Director for Bentley Motors North America.
Bentley Boy Adrian Hallmark at Le Mans 2002
He is not only one of the brightest ‘car guys’ around, but he is a gifted marketer, and a wise strategist.
Adrian Hallmark, IAA Frankfurt 2001

As well as working at Porsche and Bentley, he went on to hold a number of senior positions in the Volkswagen Group, and joined Jaguar Land Rover in 2010

I asked Adrian to detail the key business metrics which underscore his immense confidence in Jaguar’s future:

JC:      Tata Group acquired Jaguar Land Rover in 2008 for just USD$2.3 billion (about half of what Ford paid for the companies originally), but within a couple of years Tata was faced with refinancing the borrowings, plus big interest charges, for the acquisition – which caused analysts to question the wisdom of buying the companies. How seriously did this stretch Tata’s finances?

AMH: The timing of the acquisition coincided with the Lehman’s crash and subsequent Global Recession. Like most companies, the impact of the rapid and global drop in revenues created huge pressures to re-finance businesses in a credit squeezed environment. Despite these challenges, a combination of JLR management effort in restructuring, and refinancing by the Tata Group, ensured the survival of the business, and created the foundation of the business that you see today

JC:      Has Tata ‘loaded’ JLR’s balance sheet with the borrowings and interest charges? This is common practice with large scale acquisitions and often makes the payback very difficult.

AMH: Quite the contrary. We have highly competitive gearing thanks to the combination of restructuring, and subsequent solid internal Free Cash Flows from the JLR business. We have become a self-funding unit with no onerous burden in respect of debt, specifically half the level of some of our competitors in percentage terms

JC:      Since the refinancing Tata Group has again invested heavily in product research, clinics, design studies, facilities, new products and upgrading current product features – roughly how much has Tata spent on these activities?

AMH: As I mentioned, the investment is not Tata now, but comes from our own profits. With a keen eye on bringing to customers still more innovative products, we invest over-proportionally in a landscape where the industry norm is 11% of revenue. We are the biggest automotive R&D investor in the UK, where all of our vehicles are designed and engineered. .

JC:      Have Jaguar sales repaid this financial gamble? Where does Jaguar now stand in respect of the purchase price for the company, investments and spending on future models?

AMH: Jaguar is in the middle of the growth plan with the first stage complete. Sales in the FY13/14 grew by over 40% to be the fastest growing global premium brand. The launch of new more affordable products into new bigger segments will be the real breakthrough for the brand and you will start to see this from next year.

Jaguar XE test mule

JC:      The new XE announced here in Geneva will use an all-aluminium platform, body and suspension and launch with brand new engines. This is a huge investment in one model. How does Jaguar now fund its investments, with borrowings from Tata Group?

AMH: As mentioned, all funding comes from JLR resources, free cash flows, and conservative borrowing levels.

JC:      What provides the most confidence to you for the business going ahead? Do you consider Jaguar is now operating in a manner which gives it economic stability now, and in the immediate future?

AMH: Over the next three years when all new models are activated, Jaguar will be in a position to compete in the biggest premium segments on a global basis, with competitive high technology and affordable products. This is the formula which will be the foundation for growth and sustainability. Across the company, we plan 50 new product actions over the next five years. With British engineering creativity coupled with world-class designers from the Royal College of Art, we will have more opportunities to give customers experiences they love, for life.

JC:      In 2013 Jaguar increased overall sales by 34%, reaching 58,000 units sold, and you have been quoted as saying that Jaguar will double its annual sales within the next two or three years, plus increase participation in more segments. This exponential growth promises to be impressive, but under Ford ownership the forecasts of 120,000 sales a year were never likely to be achieved. What is it that says Jaguar can reach the sales you’re projecting?

AMH: In the FY to end of March we achieved over 80000, so from a year ago without major launches, we have already halved that gap. With exciting new products like the Jaguar XE, we believe we can appeal to an even greater consumer base.
Jaguar XF Sportbrake (Geneva 2014)

JC:      Does this suggest that all Jaguar’s future investments, marketing and advertising costs, dealer development and research will be funded from entirely within the company? That sounds very ambitious?

AMH: Yes, and yes, but it is manageable as described

JC:      Under Ford ownership Jaguar never looked like turning a profit? Will the success you are talking about mean that Jaguar may even contribute returns to its parent, Tata Group?

AMH:  I believe the company is in the most exciting period of its history. Jaguar Land Rover is investing around £3.5 billion into product creation this fiscal year, across both iconic brands, and with those 50 new product actions coming up soon, you can look forward to seeing much more excitement in the years ahead.

Jaguar XE test mule

JC:      As this post was being published senior financial commentators and brokers in India were recommending 'buy' orders for Tata Motors. They see growth coming in the second half of 2014, and even though they say that the domestic operations of Tata Motors is facing headwinds, they believe it will perform well in the medium term. No doubt thanks to significantly increased sales for all JLR models!
Jaguar F-type coupe

Some pundits in London even suggest that Jaguar Land Rover's continuing excellent financial performance and JLR's contribution to the Tata bottom line could see 'JLR funding Tata's growth!' What a reversal from a few years ago when it was Tata's investment that dragged JLR off the floor!

(NOTE: In the interests of accuracy and for fear of misquoting Adrian out of context, I have not edited this interview. You will notice some repetition in the questions, but I was fixated on clarifying how Jaguar is funding itself)

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