Tata Motors Ltd (TTM) 2018 Q4 法說會逐字稿

Ladies and gentlemen, good day, and welcome to Tata Motors earnings conference call hosted by HSBC. (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.

Thank you, Stanford. Good evening, everyone, on the call. On behalf of HSBC Securities, I welcome you all for the Tata Motors Q4 FY '18 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.

Yes, thanks a lot, Yogesh. Sorry, firstly, before I get started, apologies for this slightly delayed start. We had a bit of a traffic issue coming from the media press conference to here. 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 the 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 2 call outs on this one.

Moving on to the -- sorry -- 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 of I-Pace is now available to order. E-PACE was introduced in JI in the China JV, and locally here in India, the NEXON A.M.T has been launched to some very good reviews. And other developments, while the 2 things that's really stand out for me is from a JLR side are the Velar winning the World Car Design of the Year. And of course, the Waymo partnership, which we'll talk about subsequently later.

As far as the Tata Motors side is concerned, both these products you saw in the Auto Expos, exciting new products coming in on the passenger vehicle side as well as the first rigid 6 axle truck coming on the CV side as well. So the excitement continues there.

Going into the market conditions, China and India continue to shine for us, while there are challenging market conditions elsewhere, particularly draw your attention to the U.K. situation, where between Brexit, diesel uncertainty, U.K. taxation as well as market cyclicality, we do see stress in the U.K., and we are -- as we look ahead, we're going to cover that as well. But strong performance in the -- sorry, the markets are concerned both in India as well as in China.

Europe is slightly better than what it was before. So last time it was a red, we're now calling it an 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 our analyst call, we talked about Fit for Future as a key schematic, where we said we'll review our assets, we'll review our investments, we'll review our policies. And then accordingly take decisions and update you as and when it happens. So we've now taken a hard call on our product development cost capitalization policy, which I will cover slightly later. But because of that change that we're going to introduce from 1st of 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 INR 2,000-odd crores for this quarter, and that is contributing to the PBT number the way it stands. And that's 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%, it's down 90 bps, fundamentally coming out of depreciation and amortization, with 2 clear message as far as Tata Motors stand-alone is concerned, this number has actually moved by plus 460 bps and JLR down 200 bps. And as far as the cash is concerned, good quarter for cash with about INR 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 a 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 the 8% came from Tata Motors. So the Tata Motors stand-alone 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 INR 762 crores and TML more than made up that entire number. So at an overall level, TML stand-alone's absolute profitable -- 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 stand-alone about 2.4% up, and all the others have the numbers moving through there.

And if you look at JLR also, the fundamental issue is coming out of primarily higher D&A 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 INR 11,000-odd crores is up 20% due to exceptional pension credits fundamentally in the -- in Q1 this year which we talked about, offset by Fit for Future exceptional charges. And this net credit of INR 1,500 crores is what [between] the 11,500 number. And on a full year, FCF was an outflow of INR 7,300 crores. If you recollect, last year -- last quarter cumulative JLR outflow was about INR 2 billion. They have improved it to about minus INR 1 billion at this point in time, but it did mean that there is an overall FCF outflow. And probably most hearteningly, Tata Motors stand-alone after 5 years has actually generated free cash flows on a full year basis, which is great news.

Now a little bit of time spent on Fit for Future, because I understand there will 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 spend significant amount of time reviewing our policy, benchmarking it with others and what we believe is the right level to capitalize in an industry that is actually getting significant disruptions are underway.

So therefore, we've 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 is a business case that is valid, we will take it forward only if it meets the affordability gateway. And therefore, this changes will now come from FY '19 onwards. And EBIT will be impacted as you see in the deck below -- on the 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, it will be much lower than that we expect. And the passenger vehicle is at about 60-odd percent. The EBIT impact of this is about 100 bps for JLR, and broadly about that 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 that range, the kind of technology that we are currently taking on, we have 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 a -- which are going to now change the nature of this expenditure. So we're very comfortable with that 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 from 1st of April, will immediately reflected on what is the implication of this on our current projects, current assets that are there. And therefore, we have to take a charge on that one. So therefore, business future affordability view is, what you see there with JLR beating TML at an overall conso level, we've actually taken additional charges, some of which 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 undertaken to save cash.

So the schematic that I like you to keep in mind is that, we were -- we are really going to be very careful on the kind of cash that we are going to spend. And wherever we can optimize cash, we are planning to do that. And if it means as a P&L chart, so be it.

Second area -- this is a -- I said first was policies. Second was assets. Now we talked about investments. And on the investments, we're now taken a hard look at the subsidiaries of Tata Motors in India, and looked at what is their strategic road map, what is their role, why do you think we can win competitively in the future. And on that basis, now taken some very clear calls. You're already aware that the defense business sale is in progress. We are now holding for sale our stake in Tata Technologies as well as Tata Hitachi as well as some of the share or 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 is a Singapore-based business that's being wound up. We're also bringing all light and core capabilities together. For example, we have various design capabilities in various companies, be it 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 reason -- no intention to say that the future always holded 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're trying to bring together is clarity on what are the Tata Motors Group about. And we are seeing it as a 6-cylinder engine, where JLR, CJLR are 2 strong cylinders that you're aware of. The CV business and PV business are 2 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 have blocked, putting it all together in the sixth bucket. And this is our intention that each of these 6 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 spend -- will take us through the strategy that he sees for the JLR piece. With this, over to Ken.

Very good. Thank you, Balaji. Right, so looking at Slide 13 here, just talking about our Q4 results and also what that did for us for the full year. In Q4, revenue of GBP 7.6 billion, which gave us a profit before tax of GBP 364 million and a headline EBIT margin of 5.5%.

Couple of points to note on that. The volume was up, in retail terms, 173,000 units and 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, amortization. Just building on what Balaji said, that's also included round about GBP 100 million of write-off of certain engineering charges. And without those, the EBIT margin would have been closer to 7% for the quarter. Where did that take us to the full year, revenue GBP 26 billion on the back of 614,000 units of retail sales, driving profit before tax of GBP 1.5 billion and an EBIT margin of just under 4%. And just to note that EBIT margin excludes the exceptional pension credit of GBP 437 million that we had in Q1 that is included in the PBT. And if we haven't have had the engineering charges in Q4, the EBIT margin would have been just above 4%.

Just looking at how the volume developments came then taking into account Q4 and the impact therefore on the full year, basically, we had strong growth in China, up 20% year-on-year. So very much back on the front foot in that region, which was good to see. On the other hand, we did see the impact of diesel uncertainty from a number of reasons in the U.K. and also impacting into Europe when we saw our sales overall down in both of those regions as a consequence. But on the other hand, the 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 sold 9,000 units, so that was also positive. We saw Discovery continuing to build to 46,000 units. And it's fair 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 FY '19.

In terms of the 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 reflect in the competitive environment that we faced during the quarter. We also have the continued growth of the depreciation, the amortization, particularly, of course, as we introduced the new models that we hope to get the benefit of in forthcoming years. We see the depreciation and the amortization kick in and that's a significant reason for the profit being down.

We saw net of FX and revaluation of commodity hedges produced year-on-year at a net of GBP 50 million reduction. And then overall, the one-off and onetime effects were net negative GBP 64 million, including that GBP 97 million impact of write-off of engineering charges took us to the GBP 364 million PBT for the quarter.

And then in terms of where that took us for the full year on Slide 17, GBP 1.5 billion on the right-hand side, you see the benefits of the higher volume, but you do see then on the full year, the -- basically 1 extra point of revenue of higher variable marketing expense really reflecting those more competitive market conditions in various regions. And we're very focused on driving our costs to offset some of these headwinds, and you see the benefit of that in lower material costs and other contribution costs being positive, favorable GBP 190 million. But you do also then see the full year impact of higher depreciation, 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 charge is 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 of those impacts gave us GBP 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 GBP 949 million cash inflow, which was really good to see. Of course, we've had a cash outflow for the first 3 quarters, so that took the full year to GBP 1 billion cash outflow as it's shown on the bridge between profits and cash. And what you can see there is the GBP 4.2 billion of investment being mostly funded by those operating cash flows.

Moving to Slide 19, that provides a breakdown of that GBP 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, it's coming this year. The technology and the electrification that we need in order to be at the forefront of the electrification wave that's coming and also remains effective 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 investment of GBP 4.2 billion split for the R&D splits 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 paid an annual dividend to Tata Motors of GBP 150 million a year. For this year, we declared a dividend payable to Tata Motors of GBP 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, other considerations, which the board needs to judge each year.

Quick, turning to second cylinder, CJLR. Just going to Slide 22 here. We had another positive year for -- and quarter for CJLR with revenue continuing to grow and a solid profitability. I'll just note that the profitability is benefiting from a similar change in terms of the accrue -- 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, a really solid result for CJLR.

Slide 23 has, therefore -- the volume development 88,000 units in FY '18, a significant step forward from the prior year, up 35% with new model introductions 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 development of the volume there, and all of that helping to support this then turning the share of profit in both the quarter and the full year, including, of course, that impact of accounting on local incentives.

And with that, I hand to Ralf to really talk about the future and our strategy going forward.

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're going to launch or rollout this and then the years to come.

I can clearly highlight Page 18 or 19 where we have a clear strategy. We exactly know where we are. We've a clear defined purpose of our company based on clear values as you see in the business blueprint. And I guess the business model is one anyhow, so I don't want to elaborate on that.

Next page is, so you see the clear structure of the metrics of our overall product portfolio. We have at the end of the day now 14 new different nameplates. We have grown from 8 to 14 nameplates within the year under the leadership of Tata. And Jaguar is divided in 3 pillars, luxury with all the sedans from XJ down the XE. The Sports car is F, which has convertible, but also quite clear the special operations vehicles and the lifestyle vehicles, which are called PACE. And I'm very proud to highlight that it's not only, let's say a quantitative roll out but also a qualitative improvement. In terms of quality, we have improved quality very much so. And we win awards and we have won the F-PACE winner of the World Car of the Year and World Design of the Year with F-PACE. And just some weeks ago, again in U.S., we did win the Range Rover Velar as the car on the Design of the Year. So a very, very good, let's say, proof that we really deliver outstanding products with this kind of very special British design and engineering integrity. And you can also see that there is the third pillar of the Land Rover side is still empty. You can be assured that we're working on the icon because we're celebrating this year also the 70th anniversary of Land Rover. And it started with the Land Rover, and it's quite clear that this vehicle is an icon and that we will bring it back into the market.

So overall, our strategy is absolutely fixed. We know exactly what we are doing. We know what is going happen also from a technology point of view. And you can see also that we have really ambition also for this year to grow in volume. And you'll see some reasons why behind. And you can go to the next page. You also see, we also know what's going on not just on back, to Page 28, where we can see that we are going the change really from the internal combustion engine environment to the ACE environment is autonomous, connected and electrified vehicles. And we clearly highlighted already that from 2020 onwards, the customers got their choice, and the customer can decide about the degree of electrification in his vehicles, and we will deliver on mild hybrids, plug-in hybrids but also quite clear battery electric vehicle motor.

We have brought in this kind of context, you've seen also that we just now delivered the Range Rover. And within the huge change in the refreshment of the Range Rover and the Range Rover Sport, we offer now also additional derivatives as plug-in hybrids. And it's quite clear that we are rolling out the electrified vehicle.

In that context, if you go to Page 29, you see the very first premium battery electric vehicle from a premium OEM, which is from a technology point of view, latest technology. We have more -- we have many patents in the complete drivetrain starting with the 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 within -- in between the one or the other car. And it's sensational, we will see by the way 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 are outperforming and we will deliver a very, very good product with a completely new design language, a completely new technology, which delivers you at the end of the space, a very compact vehicle with an interior -- from the outside, from the exterior, but with an interior, which is spacier than vehicles at class above.

Next thing, Waymo, I guess everything is highlighted and you probably have read all the news about Waymo, but I am really proud that we together with Waymo, are also on the forefront of technology going in the autonomous drive, and then also delivering 20,000 vehicles with the latest technology will give 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 U.K. U.K. not only has got Brexit, but also has at the moment tax issue because the U.K. is taxing latest technology and we see that the market is going down by nearly 15%. And as you know, the U.K. is our home market, so we feel it first, despite the fact that we are internationally very well balanced. We see quite clear new vehicles coming up. We see a proliferation of brands in the newer 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 the result out of the PD capitalization change, which is going to happen. And maybe we can discuss about it if you're interested in later.

Good. So overall, I guess, we know exactly our strategy. We are confident that our strategy is going to work. We are working in principle on 3 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, and all this kind of new technologies. And thirdly, we are 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 quite clear, we as a one team, one Jaguar Land Rover team is 2 iconic brand, we'll make it happen.

Thanks. Thanks, Ralf. We then move on to the next section, which is on Tata Motors. If you notice that I have combined the 2 cylinders together, 3 and 4, 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 the overall business.

The revenue is up for this quarter about 45%, and underlying EBIT is up 460 bps, which means very clearly the turnaround has delivered the positive free cash flow for the full year after 5 years. The reported EBITDA was 6%, but underlying EBITDA at 7.4% was up 290 bps, while underlying EBIT is up almost 460 bps. PBT, while it looks negative at minus INR 474 crores, has actually been impacted by a Fit for Future exceptional additional charges, which we talked about earlier of INR 1,236 crores. This means this quarter is a PBT positive quarter, and so it is for the entire year, where we will also be a positive PBT once you adjust for this one-off charges that we've taken, which is translating into positive free cash flows 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 FY '18. On the PBT numbers, the PBT is actually higher by INR 313 crores and underlying EBIT margin is up 460 bps. What I am really reassured by and then quite happy to now report is, despite an (inaudible) of about 70 bps, we delivered a positive 40-odd bps improvement between volume, net pricing and commodity impact, which means we're 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 a 460 bps improvement in the underlying EBIT.

On a full year basis, the story is very similar. Where the fixed cost level is about 500 bps and all the projects that you see if you adjust for the Uttaranchal exercise, there's a 100 bps improvement in overall contribution margin that you see, with every lever actually firing the way we would like it to see. So an underlying EBIT improvement of almost 400 bps because of that.

On a cash flow basis, full year cash flow positive at INR 1,300 crores, which is the first time in the last 5 years. And what is reassuring is that cash profit after tax of almost INR 4,000 crores is funding almost entirely the investment that is there, it's not just working capital leverage that you're seeing on this number.

On investment, overall about 6% of revenue is what we have invested, of which we have expensed out about INR 780 crores, and capitalized, including BS-VI investments of close to about INR 1,300 crores. And therefore the total investment spending is about INR 3,500 crores that you see is just 6% of revenue.

So sitting specifically on CV. If you recollect, we've called out winning decisively was the theme 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, qualifier categorizer as an arresting the share -- market share bleed of 70 bps improvement that you see, which is great news. And then, of course, we had a large set of 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'll continue to work on enhancing the customer experience and also 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, the -- actually the numbers that you see are after the supply chain bottlenecks that we have. So we've still got which we really need to work on that. And as far as cost reductions are concerned, the game has just begun. And therefore, we will continue to drive aggressive cost reductions to improve our profitability.

Talking about PV. The tonality is slightly different. We would love to win sustainably here by getting basic price, 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 have 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 which is also helping us in terms of contribution margins. And we are seeing sequential improvement in contribution margins, which we will talk about in the next quarter as well.

But of course, focus areas remain, the game has just 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, the number one priority for the business is rigorous cost reduction, should 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.

Before I'm going to talk about shifting gears with Turnaround 2.0 to today's most frequently asked question was, what has effectively happened in the last fiscal year, but actually yet to the financial performance improvement has just introduced and commented by Balaji. About beginning of July, end of June, beginning of July, after very difficult starting to the fiscal year '17, '18, we decided to shift gears from transformation as it got launched in 2016 to Turnaround as we call it today 1.0.

1.0, what has actually delivered the success, it was the single-minded focus on execution along 3 pillars of the Turnaround. The first one was sales enhancement, with a strong focus on commercial vehicle domestic. We see entry of new product enter a stronger market activation. It was technically 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'm going to elaborate on it a little bit more on 1 of the coming pages. And the third one was leveraging production and supply chain efficiency. That means eliminate the supply constraints and take at the same point of time the opportunity to consolidate the supplier base in order to get a more robust supply for the future.

As I already indicated, so we have decided for the fiscal year '18, '19 to shift gears again by introducing Turnaround 2.0, which is a stringent continuation of our lessons learnt from the last fiscal year. But with the aspiration to embed the Turnaround mentality into the 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're going to continue with the same aspirational targets and this is the same approach to also enter a passenger vehicle.

Balaji mentioned it already, on PV, we will aim to win sustainably with the approach on Turnaround 2.0. And on Page 43, we have summarized what we call the 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 are leading the e-mobility space in India.

We have seen a very positive feedback in the market on our Impact 2.0 design, which has given us a very strong identity for the plant. And a good feedback by the customers, getting higher preference and getting on the consideration list. Most important for us was and we have been in the past to the largest extent in terms of sales share of commercial fleet vehicle provider. We have managed to transition towards 87% of our total sales to private customers. And we have also been able to change the age structure, so 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 our progress, which we have made on the JD Power CSI, where we have become rank #2, together with the largest player in the Indian market and where the perception in terms of aftersales also significantly changed. And then we enjoy more trust and confidence in the present than in the past. And with all the cost-reduction effort triggered by last year's Turnaround, we have seen a good improvement of our contribution margin on which we are going to build the further growth story towards a sustainable financial performance for the passenger vehicle business.

As mentioned, the backbone of all the improvements in PV and CV and across the 2 business units was largely in the cost reduction side, our Improvement by Action projects, the ImpACT projects. If we just look into the key (inaudible) areas in PV, it's a span of activities from design to cost higher capacity utilization, common architectures, modularization as I already highlighted and documented by the 2 vehicles presented at 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, improvements on warranty and focus on spares and aftersales services.

On the common side for both of the business units, distribution and logistics, manufacturing footprint in line with higher capacity utilization, integrated S&OP planning in order to become much more stringent and to be far along the horizon for the planning out of our suppliers. And I mentioned in already 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 Investors Day because we have some more details to be shared, which would exceed today's con call.

I hand back to Balaji.

Yes. So thanks, Guenter. To further align this pretty exciting Turnaround 2.0 plan to delivery and align reward to the delivery of this, the board has and our remuneration committee today has decided to approve a proposal to provide ESOPs to key talent. This is a very big call for the company. And the objectives are very clear, drive long-term focus on competitive, consistent, cash accretive growth; ring fence critical talent during this turnaround phase; match employee payoffs to the long-term gestation period of key initiatives because these are long gestation projects like new product developments or Turnaround 2.0, therefore we need to ensure payoff are aligned to that and 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 this Turnaround 2.0.

And just to give you bit of a flavor of the proposed scheme. Firstly, this needs to be approved by the shareholders at the AGM. So it will be put up for approval at the AGM. These ESOP swaps are proposed to be granted on Q2 2019 based on the average -- 90-day average price, as of by not today, as of yesterday that is covering delivery over a 3 performance periods. Performance period from '19-'21 at Q1 '21, '20-'22 at '22 and what you see in the table below. Criteria, so this one basically covers 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 3 key metrics: market share gains, EBIT margin improvement, free cash flow as a percentage of revenue, all of the domestic business. And this would be equity settled with Tata Motors shares by issuing fresh shares to employees.

So this -- 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 required -- a separate clarification required we are more than happy to provide on this one. That was on the ESOPs.

Moving on to Tata, the fifth cylinder, Tata Motors Finance, something that we haven't talked too much about, but something it is absolutely the right thing to do. It's a very strong broad-based rebound that we see in Tata Motors Finance.

Its AUM has improved to almost 24% this year, market share up 300-odd bps for the year. And probably, the most hearteningly to see is gross NPA is down from almost 18% last year down to 4%, and the business actually generates an ROE of 17%. And the AUM is about INR 28,000 crores, including some which are part of the off -- we manage in off-book in this one as well, but that's a very small portion of about INR 1,000 crores, INR 1,500 crores in there. So a very good performance.

Going to the next slide. If I just see historically how this has moved and we just picked up the last 4 years, its AUM and the market share has actually now picked up dramatically from 21% to 25% this year, ROE is up to 17% and probably the GNPA slide is something that from a 26% peak, it is down to about 4% now. And its net NPAs are around 3%. It is our intention to take this down even further as the year progresses. So something is very, very crucial for us.

And the last cylinder, which is all the net debt and other subsidiaries. We already talked about future investment decisions that we have taken, but this is where it all comes together. At this point in time, our liquidity is adequate and our maturities are well spread out. And we don't see any concern on this one, but we will be talking about how we are intending to monetize some of our non-core assets. You are aware of the defense deal that we have done, where we have done 2 things there. One, we have slump selling the defense business that are within Tata Motors to TASL, which is the Tata Advanced Systems Ltd. And along with that, we are also doing a share sale of a subsidiary called TAL to TASL as well. Both of these are basically to ensure that we are 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 will have an upfront consideration of INR 100 crores, earn out of about 3% on future revenues, close to about for 15-odd years, up to INR 1,750 crores max. And as far as on the TAL side is concerned, we will generate an enterprise value of consideration we'll receive of about INR 625 crores. So that's the defense deal. It's our intention that as we look at the assets that's held for disposal, we are able to populate this even further, generate the cash and reduce the amount of debt that we are currently sitting on, that is the plan.

So going to the outlook, which is I'm sure the one that we are looking for. As far as the demand is concerned, global markets are likely to remain challenging. Uncertainty in the U.K. and Europe arising from diesel and Brexit are likely to continue. We see cyclically weaker markets in the U.S. at this point in time 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 rate prices because of inflation. So that is something that remains a cause for concern. But on a net basis, we are optimistic on the demand in India. Commodity cost, we expected to remain to be higher as we go forward. And investment needs also likely to remain high at this juncture coming basically from the ACES-related work that Ralf talked about as well as local, in India, the BS-VI migration that needs to be done and of course, new products investment that we need to continue to make.

So while these are context, in this context, what's our response as far as JLR is concerned, we will continue to invest almost about close to about GBP 4.5 billion in new products, technology and capacity to drive long-term sustainable profitable growth. We also expect higher sales growth with improved profitability in FY '19 compared to FY '18. 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 FY '19 to FY '21. And this is after the PDC policy changes that we referred to earlier and 7% or 9% over the long term, which means the long-term EBIT guidance that we've given pre-PDC policy will be hold. We're just giving you the stepping stones of how we intend to achieve there in terms of time horizon.

And as far as Tata Motors stand-alone is concerned, we will continue to drive all round performance improvement through Turnaround 2.0 while also investing for future growth. We are planning for a 3% to 5% EBIT post-PDC policy changes again between FY '19 and '21, and 5% to 7% over the long term. And the ESOPs that we had talked about earlier will also be reflecting this kind of a step up that we need to do in our delivery. And of course, the whole Fit for Future portfolio decisions will have to be completed, and we will have to ensure those are releasing cash and coming into releasing the debt levels as well -- net debt levels.

So therefore and in summary level as a group, we are committed to competitive, consistent and cash accretive growth over the medium to long term. And our approach will remain launching existing new models, driving cost efficiencies and of course, operating leverage with affordable investment spend. That's how we intend to drive this particular strategy.

With this, let me hand it back to Yogesh for the Q&A session.

Thank you very much, sir.

(Operator Instructions) The first question is from the line of Kapil Singh from Nomura.

First, 2 kind of questions. 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 line item, they have been taken?

Other expenses is where you will see it in the JLR side. And in Tata Motors, it's in 2 levels. One is as an exceptional item is also there. Because just to help you why we are doing this, JLR follows IFRS. IFRS is stringent on what goes into exceptional. Ind AS gives you the optionality of creating a policy on what goes into exceptional. Therefore, on that basis, all products or categories that we have not intending to continue further have all been taken in exceptional for the Tata Motors. But what we have done is to ensure there's complete clarity. Both of them have been combined together to ensure they are able to see the underlying EBIT number and underlying EBITDA, so there is no confusion from an accounting standpoint as to what exactly has got treated in. And we're also netting off, if you recollect in the -- if you see in my press release, we have talked about the pension credits also being netted off in the total number, so we've being absolutely clear about the final number.

Right. But the presentation says there are changes from FY '19, but you've taken the charges in Q4 as well. So are we taking it from Q4 onwards? And should we expect more to come and more exceptional charges to come? How should we think about it?

Great question. I think the policy is changing from FY '19 onwards. This is the PDC, with the product development capitalization policy, and the policy says very clearly that, going forward, affordability becomes an important criteria going forward. Which means, on March 31, I need to be checking my current projects. Is there anything that I'm good going forward, which I need to take a charge-off. So therefore, we have taken the difficult decision of actually wherever we don't intend to fund in our strategic plan going forward, those projects have been culled because the policy is about capitalization. This is a policy about -- this is 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 have taken. Second kind -- and this will basically save us cash flows going forward because we will not be funding it. And we also believe these are projects that we are removing or projects that are in the lower end of the return spectrum that we have. Second set of interventions we have made, and this is particularly true in Tata Motors, is assets have been restructured where we believe it is better to reuse this effort in a different place compared to the current place. For example, the paint shop, if you have not moved it away 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 where 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 have been very, very choiceful in terms of spending cash in the right place to generate the maximum returns, because we're acutely aware that there is a lot of demand for CapEx.

Got it. And second question is on JLR volumes. So I'm referring to Slide #27. It's an interesting slide, which gives the color of where you're expecting growth from. So what it shows is that, apart from the product shown on the slide, those models we are expecting a decline. So is this a right understanding that apart from these models, other models we see a decline? And related to that, if you can also give some color on what are the kind of 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 like you are expecting after the refresh when we have full year of these models?

Ken, would you like to take this question?

For sure. I think in terms of do I see all other models, I'd say, not necessarily. This graph is more of a schematic perhaps in order -- intended in order to drive the understanding that given that we've got a full year for our full year E-PACE, the full year of XEL long-wheelbase in the joint venture. I-PACE obviously is going to be a part year, launched this year, and a full year of the '18 model year Range Rover and Range Rover Sport, so those things should be expected to drive growth. And then within other models, we could be expected to see pluses and minuses, normal aging, that sort of effect, depending market-by-market exactly what happens. So it's a bit more of a schematic. In terms of the overall growth, no, we don't plan to give volume forecast, but the intent very much in FY '19 is to build on all the fantastic cars and SUVs that our customers love and being awarded and we launched last year. And we've got the opportunity to take a step forward this year.

Okay. 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 pull on -- or order book on some of these products, say I-PACE or all the other ones, how are you seeing that? And secondly, Range Rover and Range Rover Sport, I'd ask if you -- after the refresh, are you expecting a substantial growth, especially with the hybrid variant?

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-my-model, market-by-market.

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

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

Really pleased with the development and the consumer reaction to the plug-in hybrids in particular, actually. That's -- this could 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.

But what I'm trying to understand, are you expecting substantial growth in these models?

Kapil, can you move on to the next question? I think he has answered it a fair bit. Can you move to next one? I'm just conscious the queue is building up significantly. Kapil, if it comes up, we'll come back to your question again. Yes, apologies for this.

(Operator Instructions) The next question is from the line of Pramod Kumar from Goldman Sachs.

My first -- before I get off 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?

Consistent to whatever we've been following so far, no change as far as that treatment is concerned.

Yes. So if I -- if my memory is right...

Short answer is yes. It includes the joint venture contribution, which is consistent with what Balaji says as far as treatment.

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 FY '18 in terms of imports, exports out of U.K. to China, in terms 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 additional demand? Or is there a thought that some of the companies or the market demand environment may let you retain some of the benefit to the P&L? So that will be the first question.

Shall I answer that, Balaji?

Yes, yes, absolutely, Ken.

I mean, we really welcome the import duty change that's been announced in China from yesterday, from 25% import duty down to 15% import duty. Obviously, when 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 freight 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.

Okay. Then we'll wait for the 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 build up 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 charges, 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 forecast from the current basis, current quarter levels?

Three comments on this one. One is, there were a few additional charges that are there, which are too small to call out on an individual level, therefore we are not in a position to call them one-off, and therefore we just left it there. Two, commodity increases, you did see in the first -- 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 impact in terms of -- at an overall control level, with PV going higher, sometimes that create a bit of a drag on us, but we are committed that as PV also starts improving profitability, we'll be there. So therefore, that is a reason why we've actually put out there a very clear plan on what we intend to do with respect to our profitability going year-on-year basis. So I would urge you to look at a full year number for these kind of things rather than in quarter -- quarter-to-quarter kind of movements on this one.

The next question is from the line of Binay Singh from Morgan Stanley.

I have 3 questions relating to accounting practices only. Firstly, on the China change in policy (inaudible) now being through accrual. I can understand that there is an impact positively quarterly profitability, but why will it impact positively for the full year profit? That's my first question.

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 this absolute surety that the money will come. Therefore, we have to move to accrual accounting on that. That is what we have done once we got clarity on that. And that is valid both for Q4 as well as the full year number as well. So full year itself, this number would be there -- both will be there. An important number will be adding to the full year number as well.

Okay. So the number (inaudible) initiatives in terms in this quarter?

The clarity on that were achieved, and therefore, on that basis, we've taken an accrual, which means it hit both Q4 as well as full year number.

Okay, okay. And secondly, when you talk about Slide #9, existing and additional in Fit for Future, could you just explain these 2? I mean, what is existing and what is additional on the asset aside on Slide 9?

Can you repeat the question? I lost you on the...

Yes. On Slide #9, where we're talking about Fit for Future, and then assets, we're talking about additional charge and exceptional charge. We're breaking down the INR 877 crore into 2 parts. What is the difference between additional and exceptional?

Yes. The only difference is accounting standard-wise, there is a very clear call-out basis policy, what is it that is treated as exceptional that goes in there. In the case of JLR, the fundamental exception that you see sitting for this year is the pension credit. And as far as last year is concerned, we had, at the end, credit also sitting there. That was an exceptional item on JLR there for the full year basis. And this is something -- and there are also product stoppages that we have put out there. They were also treated as exceptional. As far as TML is concerned, the bulk of those exceptional items are projects that are being -- that are not being taken forward. So we're consistent with that at a consolidated level to call this throughout. With respect to what JLR and IFRS accounting, that is a very different accounting standard to the Ind AS accounting standard, for them the one-off that they follow, the 96-odd million that is there, the whole total is sitting at INR 877. Yes, but in [constant], I'm forced to split the 2 together. So that is just the nature of the accounting standard. My request is, take a look at the total, take a look at fact that we have split out clearly what is JLR, what is TML, and the fact that we're giving you underlying numbers independent of that. Request not to get too locked in into the -- splitting hairs on this one. It is just the way the accounting standard work. We are working with 3 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 our level best to keep it nice and simple for people to understand it.

That's a good advice to follow. And then the last question, just on the JLR dividend policy. Generally, in the past the company has guided about future cash flow. There is one statement that you made that we expect to have positive cash flow in the coming years. Whereas in this presentation, we are seeing the 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 the volume slowing down. JLR actually may not be expecting positive every year. So is it sort of an endorsement that you have very strong confidence from JLR having strong FCF in the coming year, thus you are raising the dividend payout ratio?

Yes. Let me pull back a bit. I think, first of all, dividends do not impact FCF at all. It is cash flow from operations less CapEx, less taxes this year. Yes. So therefore, dividend is not impacted. And as far as the dividend itself is paid, it is after profits are made. Which means, PAT is already there. And 25% of PAT is what is there, which means 75% of the PAT is available, therefore reinvesting. So that is the 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 are currently seeing from next year onwards brings us into the lower end of auto OEMs dividend payout ratios. So therefore, and after a lot of careful consideration, that the board of JLR has agreed to do that.

So basically, I was trying to think that they probably should be preserving cash if there is lot of CapEx coming in, and this policy sort of points out that JLR will be paying out more.

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

Yes. So the dividends would have helped JLR in building the balance sheet. But yes...

But there is a very strong balance sheet that we have there.

The next question is from the line of Jamshed Dadabhoy from Citigroup.

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

Ken, do we share this information?

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

So it's trended down slightly from 6.5% or so than it was a quarter ago.

What you get also, by the way, quarter-to-quarter, it obviously varies depending on market seasonality factors. So I prefer to look at it year-on-year, in which case you see it's actually fairly flat. And as you said, for the full year, I think it's fair to point out that it was almost a point higher than the same quarter as a full year. I see no factors in the U.K. markets and Chinese New Year as well as general trends.

Sure. Second question, the INR 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?

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

Okay. And last question, in this 4% to 7% kind of EBIT margin guidance which is there for JLR, this is under constant currency. Yes?

Yes, it's in JLR constant currency. That's right.

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

Ken, would you want to take that?

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 2 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 to dollar perhaps is in the 1 45 region per value, pound to the euro perhaps in the 1 20 region. Renminbi is difficult to call is fair to say. But we plan the business of fair value rates that are -- the present sterling is perhaps a little bit weaker than -- but not hugely.

Okay. So this is [now] targeting like 1 45 and 1 20. And how much self-help is there in the business from a cost-cutting perspective? I mean, you all have said that market conditions are a little soft in the U.S., challenging in Brexit, and yet you've got a decent EBIT margin sort of expectation. Assuming -- how much can you cut -- 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?

One area we will talk about in slightly more detail when you are there for the Investor Day, because it's required. 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 the area in the slide that Ralf talked to, but I think we can give far better clarity on that and the individual members can talk about it when you are there in Coventry in a week -- or a month from now.

(Operator Instructions) The next question is from the line of Robin Zhu from Bernstein.

Two quick questions, please. One is, could you give us an update on the table shares that's the volumes in the U.K. and Europe? And related to that, what's the time line that you guys are expecting in terms of having some hybrid rollout across more than just the Range Rover, across the small (inaudible). Second question, regarding the GBP 4.5 billion of investment spending in FY '19, how does management think about the need to balance cash accretive growth versus need to invest in SCR, EVs, autonomous, if you're working on? 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.

Ken, can you take it, should I take it?

I'll start, Ralf, and perhaps you can free to fill in if I don't cover all of it. On the -- on cash flow, yes, the investments in FY '19, we do see, as we said, around about GBP 4.5 billion, which could mean that cash flow in FY '19 will be negative. That is why we have strong liquidity to manage our way through the investments that we're making and the requirements continuing to invest in all of those technologies. Beyond that, obviously, we're only giving guidance on the investments in 1 year. And I think, exactly how it depends shows thereafter will depend on decisions that we've yet to take. But obviously, we're committed to continuing the electrification of all of our models, which you asked about in the slide that talk to it -- just you asked about the timing of it. And I think that slide, although we wouldn't want to talk about specific introduction dates for specific models, Slide 28 was intended to give you a shape of how we see the development in terms of 2017, and then obviously through '18, we launched the Range Rover and Range Rover Sport plug-in hybrids, the I-PACE being launched in 2018. As you can see there, through 2018 through 2019, where we see mild hybrids and plug-in hybrids over some other of our models. And then you see from 2020, mild hybrids, plug-in hybrids that vary in what's available across our range. So we prefer not to give specific introduction timings of specific models really for competitive reasons to keep our powder dry in the marketplace. It will obviously help you as investors to 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.

And maybe I can add probably one issue. Ken is right in that one rollout, but you also asked when will we roll out that in the area. First of all, we cannot really predict the future or forecast which gives us totally different numbers of electrification for every and each different technology. The most known one probably is 80-20 for the electric cars in 2025. But that means that 80% still will be general combustion engines. But you also can add 60-40 ratios for other ones. In addition, if you open and see today's news about government in the U.K., they want to now get rid of old (inaudible). 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 plan our rollout plans according to the governmental requirements.

Could I just follow up on the diesel (inaudible)?

Sorry?

Could I follow up on what's the percentage of your sales in Europe and in U.K. are still diesel -- [taking] diesel?

Sorry?

(inaudible)

Diesel at the moment is going down in Europe but also quite clear in the U.K. In the U.K., quite drastically 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 U.K. 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 also diesel engine is very, very good engine by the day 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, rid about emotional factors -- the emotional discussion points.

Okay. Got it. Actually, sorry. Just one very quick follow-up, if I may. The Range Rover and Range Rover Sport, I mean, do you think these are very key models for you. Do you think we're looking at a normal 7-year cycle? Or is it going to be like the last generation, which is much longer?

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

The next question is from the line of Sonal Gupta from UBS Securities.

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 -- your JLR side, in terms of the volume growth, you've changed, like you pointed out, to amber for Europe. So given that we've continued to see a drastic decline in diesel share, I just wanted 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've 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 despite that, we've seen volumes decline. So do we -- how -- I mean, can we really be hopeful of a positive volume growth for FY '19 given that effect was already there in Q4 and we still saw volume decline?

Ken, you can...

Ken, would you want to take that?

Yes, for sure. In terms of the amber for Europe, 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 development. And the U.K. economy and car market overall perhaps has got quite a number of risks around it 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 -- on Europe, actually, the overall economic backdrop in Europe is perhaps somewhat stronger, and therefore the -- that perhaps provided a little bit of a 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 think it's determined as being amber. In terms of the development of volume in Q4, what you saw in Q4 is, yes, overall, the retail volumes were down. That's partly because we did see in the prior year Q4 very strong, abnormally strong perhaps U.K. volume development, which came ahead of a tax change in Q4 last year. And hence, we saw Q4 volumes in the U.K. down 21% in our Q4. And that is 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 the diesel uncertainty. But China volumes were up 11%, overseas was up 9% and the U.S. was up 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 U.K. continuing to have economic uncertainty, diesel uncertainty. Some diesel uncertainty is still in Europe. U.S. economically actually continues to do fairly well. China never without this plusses and minuses, but overall developing relatively well. And with this interesting development of the duty change that's just been announced, I think, for Jaguar Land Rovers, plus we have these 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 E-PACE -- or full year Velar. We do have the Range Rover and Range Rover Sport we've been talking about with '18 model year refresh, which is quite a significant enhancement, giving customers new technologies and reason for thinking to invest in the 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. But 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.

And just my second question was on Tata Motors Finance. I mean, you've highlighted this strong reduction in gross NPA. I mean, if I calculate it, it's gone from like INR 4,000 crores or to INR 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?

It was also increase profits. It's the INR 290 crores profit that we've reported. So it's not write-offs. A lot of it is connections, focused connections and processes that are disciplined, choosing 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 Tata Motors Finance will almost session for about an hour in the Investor Day on June 5. But you can definitely appreciate all the efforts that have been taken. So it's something they have been working very hard on over the last 2 years. And I think this year, they have 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.

Ladies and gentlemen, we'll take the last question from the line of Sahil Kedia from Bank of America.

Two questions here. You 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 your cost reduction? Number one. Number two, in the FX strategy page, you've said that there is GBP 200 million of a positive gain on a year-on-year basis with FX losses actually coming down, but there is GBP 190 million of surcharge. 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 the EBITDA. Can you please clarify these 2 for me?

Ken, you can take it on.

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 GBP 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 of -- in the region of GBP 180 million that we have had in the year to March '17, and we had a positive revaluation of foreign exchange in balances in FY '18. And those effects were split across both working capital impact that are reported in EBITDA and nonworking capital, in other words, revaluation of dollar debt and few other balances that are outside of EBITDA. So it somewhat complicated there. And those effects are also being offset by a net change in revaluation of commodity revaluation. In terms of Slovakia, I think, probably, I'd say, watch this space in terms of announcements on Slovakia, but let me just talk about the overall economic impact. Slovakia does have a really positive effect for us as a relatively lower cost manufacturing location compared to the U.K. 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 the U.K. And that offers the opportunity of cost reductions for the models that we will produce there. So we look forward to that development for the business in future years.

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

In principle, yes, you're right that the duty change has come down also for imported materials, although the size of the reduction is a fair bit smaller. It only depends on the sort of commodity, but it's in the region of 1% or 2% duty rate. Yes, in principle, there are parts of the vehicles. Some of the commodities in the vehicles 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 principle.

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

Yes, in principle, in the region of 2/3 of the material of the car, plus/minus. It depends on the model and when it was localized. It's sourced in China by value of the car.

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

Yes. So firstly, I think, thanks for everybody for being here and taking this call. It has been very useful for us to spend time with you to explain where things have taken us. A lot of moving parts in the numbers, so therefore, this is a time well spent in doing it. So thanks a lot, and look forward to catching you up on a one-on-one as we go forward. And more importantly, we 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 U.K. So see you there. Thank you, and see you later.

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.