Tata Motors Ltd (TTM) 2019 Q3 法說會逐字稿

Good day, and welcome to the Tata Motors' Group Earnings Conference Quarter 3 Financial Year 2019 Conference Call. Today's conference is being recorded.

And at this time, I'd like to turn the conference over to Balaji. Please go ahead.

Hi, good evening all of you. Are you able to hear me clearly? I presume that should be fine, let me get started.

Firstly, thanks for joining the call so late in the evening. As it is -- won't like last time, I don't intend to cover all the slides. And I'll probably just cover off slides that are relevant, and you already have the decks in front of you. So I will refer to the page number, and we'll take off from there. Starting with the safe harbor statement. No additional information other than a critical information that you'll notice, which is on retail sales domestic of Tata Motors. Happy to announce that we are, henceforth, on a quarterly basis, we will report retail sales for both CV domestic and PV domestic, like any other part of the world.

And we would want to take this initiative from our end, and we hope that other OEMs would follow suit as well. So that's on the safe harbor statement.

On market conditions, the second quick slide on Slide #3, it's a -- not a slide deck that you would like to see, but that's what it is in terms of all parts of the world, really getting into trouble, be it on U.S.; Brexit-related matters in the U.K.; China, in particular, if you notice a change from green to an amber to a red at this point in time, hence, Tata is in trouble; and of course, India has been a very weak market situation at this point in time. And because of the muted demand environment that is there. So that's the environment that we see in front of us.

And an exciting product portfolio that has been launched, in particular in -- if I look at the Indian operation, I think 2 big numbers: one is Harrier being launched and Nexon getting its '5-star' rating. And even more excited that TML has snow been rated as the second most attractive overall brand and the most attractive automotive brand. So quiet happy with the progress that we have seen in the Indian

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Please stand by, we are experiencing some technical difficulty.

And you are connected.

Okay, can you -- Ralf, can you hear me now?

We can hear now. Yes, now it's quite fine. Thank you.

Okay, apologies, guys, a bit of a technical snag that's sweeping through, so hopefully, this should be sorted with this. So going back into the models in JLR, we have the all-new Evoque that has been launched and is now available on sale with hybrid options. And the new Defender has been announced as well, the most eagerly awaited car, if any that is out there. And the other big one that we have this quarter was the workforce reduction scheme that has been announced with a target of 4,500 people being restructured during the course of the next quarter. And of course, the investments in new battery assembly center have also been announced. So the investments continue [our case].

Next slide. If I look at the revenue for the quarter, I'm moving onto Slide 5, we had a revenue of INR 77,000 crores with an EBIT, with a bit of flat EBIT, where we had a domestic TML business delivering robust profitable growth, while the weak China sales impacted JLR. And I'll talk about the revenue growth in a while in the next slide but draw your attention to probably the biggest item in this particular slide, which is the impairment that we have taken of capitalized assets in JLR. I'll talk a little bit over it and then in the subsequent slide as well. But that's a GBP 3.1 billion impairment that we have taken, a one-off impairment that we have taken. And also, at the same time, Project Charge has started well, delivering GBP 0.5 billion of cash in this quarter alone. So we are on -- we are now starting to move on that piece as well.

Going to the next slide. I'm on Slide 6 now. The only point I would draw in the slide is that bulk of the revenue growth plus volume growth has been muted. Bulk of the revenue growth has come from ForEx. But the real reassuring part is that retails are well ahead of wholesales, both in TML, CV, PV; as well as in JLR, which I think is a good start for our proper turnaround coming through everywhere. So that's the broad message here.

From a profitability perspective on Slide 7, EBIT down 370 bps, fundamentally led out of the drop in JLR profitability because partially offset by continued improvement in TML standalone, which I'll talk, again, subsequently as well.

Let me spare -- try to take a little bit of time to talk about the impairment that we have taken and the background to it and why we are doing it. First is from a point of view of how we are viewing it. We have already called our Fit for Future as well as the thematics in terms of ensuring that we are ready for growth going forward, so some of the interventions we had to make are tough to take, but it is something that is necessary for us.

We had done a series of work in Tata Motors last year. And this year, we have moved on the JLR, and there is a Fit for Future charge that we have taken of about GBP 3.1 billion off capitalized investments.

Now the background to that is that, as we are well aware, I don't need to tell you about the challenges this automotive industry is facing, be it on market, be it on technological, regulatory, take your pick. And at the same time, the need for investment in new models, keeping innovation continuing, the ensuring that we stay ahead on the technology, all that continues to remain high. So therefore, in this scenario of muted demand and this impact on the financials, the group has decided that the carrying value of the capitalized investments that we have done so far should be written down by GBP 3.1 billion. And the way the impairment thing works is that it is only about the assets that are already in use. It does not consider any future investments we make. Both future growth plans on new models as well as future CapEx requirements are not considered in this investment. This is just a restatement of what is the right carrying value of the assets that we already have in a very conservative assumption of growth, the conservative assumption on margin. And on that basis, we have written down this GBP 3.1 billion.

And this just shows that we continue to take decisive actions just like what we are doing in Charge and Accelerate in order to make this business Fit for Future, giving us a strategic flexibly to invest where we want and ensure that we are reducing our breakevens, reducing our costs, improving our cash flows to deliver sustainable, profitable growth.

So that is the background to this. And if you just take a little bit time to understand the implication of this, there is -- first of all, it's a noncash charge. The loss for the quarter is about GBP 3.4 billion. And the net worth after the impairment continues to remain robust at GBP 6 billion. And just to see it in context, the gross debt-to-equity is 0.75:1 even after the impairment has been taken, and the cash flows remain unchanged because of this. This will give us -- this will reduce our growth in depreciation, amortization in the coming quarters, coming years, by almost about a revenue of worth GBP 300 million per annum. That is what we see as a number. And we are more than happy to take any questions that we have on this.

But just to remember that, of JLR, the cash generating unit is one cash generating unit at an overall level, and therefore, the impairment is done at that level. And it is attributed to those assets that are recognizable. They are relevant assets, we will attribute it to that. And that work is being done.

So moving on to the 6 cylinders of the Tata Motors engine. This you've already seeing, no further news here. Let me start with the first engine and hand it over to Ken. Ken can I ask you to comment?

Of course. Thanks, Balaji, and good afternoon, good evening to everyone on the call. Thank you for joining us. Like Balaji, I'll try not to talk to every single slide, but instead call out the main points of the financial results for the quarter and the 9 months to date. And then move on to what we are doing about it in terms of our moving forward strategically with our business plan and driving cost, working capital and investment reduction improvements through Project Charge and Accelerate.

If I turn first to Page 14 in the slide deck. Before the impairment that Balaji just described, the loss before that exceptional item is GBP 273 million in the quarter. That's really reflecting weak China sales in the quarter together with some one-off effects related to destocking that we did and tax rebate non-recur that we had last year. And within that, we have some favorable material and manufacturing costs. But really, the big impact, year-to-year, is the reduction in our China volume driving that GBP 273 million loss.

In the China joint venture, on Slide 15, we're really also reflecting those tough trading conditions in China with wholesales substantially lower, including reducing production in order to reduce inventory, which is the right thing to do, faced with the fall in demand that we saw. But of course, it's painful for the financial results. And hence, the profit after tax was a loss of GBP 30 million for the joint venture in the quarter.

Slide 16 talks to the volumes that we saw. In the positive here is -- outside of China, we actually saw some growth in the U.S., growth in the U.K., relatively flat in Europe, little bit backwards in Overseas. But as you can see, year-on-year, the big change has been the China reduction that we've experienced, down 47% in the quarter compared to the same quarter a year ago, clearly offsetting the positive movements we've had on balance in the rest of the world.

And on Slide 17, what you see is the -- our new models, E-PACE, I-PACE, the change in the -- to the '18 model year, Range Rover, Range Rover Sport have also produced good growth for us year-on-year but have also been offset by some product aging in the case of Evoque, which is now on run-out and models, in particular, in China with Discovery Sport also going backwards year-on-year, largely because of the challenges in China. But the new model is providing growth, which is important for us.

Slide 18 gives an update on our retails in January. They were just under 44,000 units. Basically a similar trend: China also lower year-on-year; and the rest of the world, up in the U.S., flat in the U.K., little bit down in Europe, flattish in Overseas, but continuing to see those China challenges.

Coming to just explain some of the numbers in a bit more detail in our year-on-year bridge and call out maybe a couple of other factors that are going on. In the same quarter a year ago, we had a profit before exceptional items of GBP 190 million. The net impact of the volume is about GBP 160 million, really reflecting that China reduction, partially offset by the increase in other markets but net a GBP 160 million.

We had a quality-related cost of GBP 90 million year-on-year impact within the contribution cost, partially offset by positive news on material and manufacturing costs.

Within the structural cost, we have a -- we had the impact of labor and overhead coming out of inventory related to the destocking. We reduced company inventory in the quarter by about 9,000 units, and that -- which is positive for cash flow to the tune of roughly GBP 250 million, but the labor and overhead coming out of inventory associated with that reduction is worth minus GBP 80 million. Depreciation and amortization continues to grow as we introduced new models, that's a GBP 50 million increase, and then there is some non-recur of good news we had a year ago.

And the other thing I should say: FX overall, year-on-year, is flat. But actually, within the quarter, we had negative revaluation of foreign exchange and negative revaluation of commodity hedges to the tune of about GBP 100 million bad news in the quarter with the FX piece really reflecting Brexit uncertainty weighing on sterling. So within the GBP 273 million loss, without seeking to talk it away in any sense, there is about GBP 100 million bad news for revaluation; it's about GBP 82 million related to destocking; and there's warranty -- within the warranty number, there is about GBP 60 million charge in the quarter. So those explain together quite a large amount of the loss of GBP 273 million.

And Slide 20 talks to the quarter-to-quarter view, where you see some of those same factors making an appearance. You see the revaluation making an appearance more quarter-on-quarter. You can see the destocking impact, slightly different number when look quarter-on-quarter. And the -- the quality-related cost is a bit different also quarter-on-quarter. But you can actually see the positive development of wholesale volume being higher in the quarter year-on-year, which is a positive sign.

Slide 21 has the cash flow, overall, a cash outflow in the quarter of GBP 361 million. But actually within it, a positive in the inventory and other working capital improvements that we made in the quarter, which is towards our full year improvements on inventory that we are pushing forward with, and I'll talk a bit more about as the call goes on. And those are being partially offset by a payables impact of minus GBP 300 million. That reverses in Q4. That's really related to the timing of production reductions we've done in the quarter. And the -- if we had not had that, if you like, our cash flow would have been quite close to breakeven in the quarter.

And the other point to note on this is, as a result of the work that we're doing to reduce inventory, I do expect to see positive cash flow in Q4 as a result of targeting positive profit before tax and positive movements on inventory through further reductions in the level of company stock that we expect to see.

Investment spending. We're on track to achieve the lower target of GBP 4 billion that we set ourselves. So overall, reducing from the guidance we gave of around GBP 4.5 billion, we're very much on track to spend GBP 4 billion or slightly less in the full year. So that's good. But at the same time, of course, we are on track to continue our investments in our new products and technologies and electrification that is the lifeblood for our future.

Turn out to the section on turnaround, transformation and strategic elements. As we discuss Slide 24, we've launched our turnaround and transformation plan. We expect to see demand remaining muted, and therefore, we're planning on that basis.

And of course, what we know is, therefore, that we have to reduce our cost and investment level in order to support that lower volume level that we expect to see. However, of course, we're also taking action to rejuvenate our sales and resume profitable growth in China in particular. And those things will be the focus for the discussion today.

In terms of rejuvenating sales. Product is at the heart of everything that we do. And it's really exciting to be in the middle of the launch of our new Range Rover Evoque that includes mild and plug-in hybrid options and really moves the car forward in every way compared to the prior model. We're very excited about it. It gives a good opportunity to go out to customers this year with a really strong product offering.

Slide 26 talks to the I-PACE, which is launched globally. And we've got growing sales and a strong order book. And that gives us confidence that our new models are a driver for growth for us for the future, which is talked to on Slide 27.

We've got a strong product portfolio. We're launching the Evoque. We will be announcing and revealing the new Defender later this year. And we have a model pipeline that has further new models beyond that, that we look forward to talking to you about in the future. And we continue to refresh and keep up-to-date our existing model lineup.

At that point, we should be joined by Qing Pan, who is our head of our operations in China. And what we really wanted to do was a little deep dive into the challenges in China and also how we're responding.

So with that, I'm going to hand over to Qing for the next 3 or 4 slides.

Good afternoon, good evening. This is Qing, Qing from Beijing. In total, I have 6 slides. And I do intending to go through all the 6 slides in little bit more details.

On the Page 29. I think the Page 29 is just indicating the current economic situation in China. It still remains challenging despite a significant expansion of state-owned enterprise's value added. And the economic outlook still remains slow.

And the private sector remains under pressure with a flat development. And this is very critical because the private sectors are providing 80% of urban employment. Other key factor during the second half of the 2018 was that both PMI and the Shanghai Composite dropped significantly. And these are also important because the general economic situation will affect consumer confidence.

Slide 30. In 2018, the overall market experienced a negative development, which was the lowest since 1990. Premium market continued to grow but at a much slower rate, at just 8%, the lowest since 2014 (sic) [2004]. Underlying demand in the premium market during 2018 is even weaker than this as has been -- it has been driven by higher incentives. The growth of the premium market is predominantly driven by accessing the lower segments with a larger discount. JLR discounts throughout 2018 were higher than the competition, but during the second half of the year, we saw significant drop of the competitors while JLR remained unchanged. We fully recognize in this most competitive market the focus on the dealer profitability over pure volumes is essential to be sustainable in growth.

Slide 31. JLR, overall, as you know, has been present in China for only 9 years. And therefore, the dealer network is less mature, in many sense, versus the longer-standing competitors.

First of the structure issues is that last year, when we saw, first, a then greater decline in the Tier 3,4 and 5 cities. And the problem is that the JLR is represented with almost 40% of its dealers in these less-developed cities. And during the last quarter, some of the Tier 2 cities also showed the impact.

The second factor. JLR is more concentrated on smaller number of dealer investor group. It means we are affected greater by a smaller number of groups if they face financial difficulties. And we feel an immediate impact as a result.

The number three factor. As we are relatively young in China, almost 40% of our dealers are less than 3 years old. And I think that is clear that we need to continue to focus on the improvement of its quality and speedup the building the after sales business.

Our focus, therefore, is to ensure we have a fully balanced, capable and a profitable network.

Page 32. Despite the short-term issues, a longer-term opportunity remains substantial. We remain optimistic about China and the potential for JLR.

Premium market is already the largest market with 2.8 million sold during 2018. Overall market demand could continue to grow to an annual market size of over 35 million units.

Importantly, for JLR, this means by 2025, we will see a total Core Premium market of around 4 million cars, with a further 3 million Near Premium market, providing an upgrade opportunity. The longer-term outlook remains positive for the premium brand such as ours. And if the carpark per thousand inhabitants will mature to a more developed country level, then the total carpark might increase 3 to 4x.

Page 33. During 2018, we saw another significant issue that we took action to address. Supply and the demand were out of balance. So JLR took immediate action to reduce the stock. In addition, the ability of the dealer to become self-sustained and profitable was an issue. And therefore, our current, immediate focus has been to create a sustainable dealer business model as we move to a pull system.

In addition to the chart, I might want to just give you a quick update on January.

Actually in the January, we made a lot of changes, which include: one is a clear sales attitude on the model but also on the city level.

Second one is distribution system upgrade. We are focusing very much on the transparency, stock control and the forecast tools.

The third element was simplify the dealer communication -- the dealer communication. And I think that we utilized the scorecards, agents, reports and the forecast tools.

And the last one is simplify the dealer commercial policies. And here, it's very much focused on the dealer profitability and the sales quality. And our overall -- the 2019 target for the dealer stock is around 1.5 months, ensuring that we can constantly keep the right balance between supply and demand.

January overall, it's just one month, but a positive trend with the dealers following our strategy, and about 82% could achieve the maximum sales policy.

And we move also away the incentives on the wholesale to the retail as well as that we are very much aiming to provide the right support to enable dealers to be profitable.

Page 34. In line with the January actions, we would like to advise that we have already launched a comprehensive turnaround strategy in China, called Dragon, to drive change at a rapid pace. Turnaround is focused into 3 pieces: stabilization, regain confidence and sustainable growth. With Dragon, our main focus are short-term actions for this year, but many will continue into the future, such as brand building and organizational efficiency. We also started the journey of the local research and development. And we will continue also to drive local sourcing strategy to enhance the competitiveness of our global cost base. Thank you.

Now may I hand back to Ken?

Gentlemen, just a moment. I might be fastest -- the farthest call within a minute, so I really would like to make one additional remark. First of all, thank you, Balaji, Ken and Qing. You presented the facts and figures very well.

Overall, 2018 was, indeed, a tough year with a lot of headwinds. But you can see as a seismograph, we act very quickly with this consequence, and we do the very best in order, based on a very good product portfolio. And our good directional strategy giving us also electrification in the future. And we were the very first on this with the I-PACE in the market, giving us an opportunity to expand our business and come back with profitable and sustainable growth. So I'm quite confident that we have taken every actions, and we haven't stepped away from tough decisions. We take it, and we bring the company forward. Thank you.

Thank you, Ralf. I should just conclude with 3 or 4 slides to talk on the cost side on Project Charge and finish up with guidance for how we see the balance of the year, and then hand over to Balaji. So 5 more minutes for me.

Just finishing off the sale section. I think Qing's given us a really good overview of everything that we're doing in China. And not forgetting, of course, that we have actually got really encouraging sales growth in the other major markets supported by the new products with the U.S., the U.K., and Europe all up year-on-year in Q3, as shown on Slide 35.

Turning to Project Charge. I'd say we're off to a really solid start and well on the way to achieving our GBP 2.5 billion target. Slide 36 got little bit of an assessment of that. On investment, if you remember, we said that we would be targeting GBP 1 billion reduction in investment versus the GBP 4.5 billion that we were planning on spending for FY '19 and FY '20. We're very much on track with that, and GBP 300 million of that GBP 1 billion already realized through December '18.

On inventory and working capital, we said we wanted to reduce the working capital versus the end of September position by at least, GBP 0.5 billion. There's already over GBP 200 million of that achieved through the 9,000 unit reduction in Q3. And I'm expecting to see a bigger reduction of company inventory in Q4. So on track to meet or beat the GBP 0.5 billion.

On the cost side, takes a little longer to see the benefit of the costs coming through the income statement. But we will do, and we see about GBP 40 million through the quarter 3 coming through the income statement but with more to come. So we've made a really solid start, and we're on our way here, which is good.

Slide 37 talks to those -- a little bit more detail on the work stream. So I'll maybe call a couple of pieces without going through every word.

On the investment, as I say, actually, we've got plans in place to be at GBP 4 billion this year, to be at GBP 4 billion next year and, therefore, the GBP 700 million on the chart is pretty firm. And that will be achieved. The inventory piece was another GBP 300 million of GBP 0.5 billion. And with the production reductions we've done, we've really been tough in cutting production hard. That's meant downtime in all our factories in the U.K. It's meant change of shift patterns. It's meant workforce reductions and the same also in Changshu in China. But that's what's necessary, so that's what we do. And we are, therefore, on track to deliver at least GBP 300 million in Q4 of inventory reduction.

On the cost side, as I say, takes a little bit longer typically for cost savings to start coming through, but we've made a really solid start. We announced last month, a reduction of -- a further reduction of 4,500 of the workforce through release of agency workers and the voluntary redundancy program. And that should, together with the 1,500 workers we already released in 2018, contribute to a circa GBP 400 million reduction in workforce costs in 2019.

There will be -- and so just to point out, we will have a onetime restructuring cost but at -- presently estimated in the region of GBP 200 million, which I expect to book in the fourth quarter as an exceptional cost of that voluntary redundancy program. But well on the way with redesigning our organization to fit with the 6,000 fewer workers that we will have in 2019.

We've got cross-functional teams. For example on product cost, of course, it's the -- it's our biggest cost, is the material cost of our cars. So we've got a huge amount focus on optimizing the product cost of our vehicles and putting actions in place for our '20 model year across the entire business. For example in the commercial area, we're very much seeking through a mixture of getting the -- our inventory in the correct place to improve the pressure on transaction prices, reduce the pressure on our variable marketing spend and see benefit for that next year.

So we're well on the way. The workforce reductions take us forward and across the entire business. And I've called out a few areas we're working forward to realize the balance of the cost reductions we need over the next 18 months.

Slide 38. I'm not going to talk at length about Brexit but -- because it's clearly uncertain. But what we have done is in the event of -- because we know that the -- in the event of a -- some disruption relating to Brexit at ports and border crossings in April, that could result in some disruption to our production plans in the U.K. and the shipment of vehicles. As a result, we've decided to pull forward 5 days of scheduled holiday into Easter. And we've -- we're taking an additional 5 days of planned downtime in April, and we're increasing a little bit the production buffer stock that we're doing as well as having a Brexit steering committee in place. And those actions put in place to really manage our way through the possibility of any border disruption to our production plans.

Slide 39 talks to guidance in terms of how we see the future. Clearly, for the full year of FY '19, given what's behind us, we see our full year retail sales growth in FY '19 to be negative. Overall, given the losses that are behind us, in FY '19, I expect to see the full year EBIT margin marginally negative. PBT for the full year will be negative. Investment spending will be in the region of GBP 4 billion. Free cash flow will be negative. Notwithstanding, as I already said, I expect to see a positive cash flow in Q4. And before the exceptional items, we are targeting to have a positive profit in Q4, but notwithstanding that the full year would be negative.

For FY '20, we're targeting retail sales growth roughly in line or ahead of the premium segment with our new model introductions and beyond. But we're very much seeking to plan on a realistic volume basis and size our cost base to fit with that cost base.

We're targeting an EBIT margin at a minimum of 3% and growing through the business plan period. We clearly want to get back to positive profit, and that's what our plans are all targeted towards. Maintaining our investment spending, which is -- some might ask, why don't you cut your investment spending more? And I understand that. But it's our lifeblood for the future, our new models, as is electrification and the technology required to compete. And therefore, we're really fighting through our cost reductions and efficiency programs to maintain our ability to invest in the future. And hence, we see it being in the region of GBP 4 billion over this period per annum.

That said, I expect cash flow in FY '20 to continue to be negative, but positive thereafter is what we're targeting. And clearly beyond that, we're building to a place where we want and are targeting to achieve competitive EBIT margins, positive cash flow and investment spending starting to, as a percentage of revenue, come back into the range of the overall industry in the region 11% to 13%.

With that, thanks for bearing with us through that section. There's obviously a lot to talk about. I'm happy to take questions. I'm going to hand back to Balaji and Guenter to talk Tata Motors.

Thanks a lot, Ken. I'll make it quick in terms of the numbers. I'm sure there's a lot of Q&A lined up on this, but that was important that we hear Qing and Ken explain the JLR performance.

Tata Motors is -- the real thing that delights me in this particular quarter is that the revenue growth, despite being just 1.5%, we continue to deliver profitable growth, held our margins, in fact, improved our margins by almost 70 bps in the extremely difficult environment that we face. And the growth in this particular quarter was impacted by both liquidity stress and the impact of axle load changes, [et cetera] to M&HCV segment by far the most. But despite that, we managed to hold our margins that I'll talk about in a little while.

The thing that we are much happy with our performance is on the free cash flows, where we have an outflow of INR 1,500 crores. But the only piece there is it is impacted almost entirely by lower creditors because the festive period went quite into the quarter. It was only after the festive period, having read demand, we had to cut our production. We want to refill that. And that meant we lost some creditors, while we gained on stocks. So stocks and debtors are down, but creditors is something that actually will definitely come back. This is going to be an area of focus for us clearly, because we are committed to deliver a positive free cash flow for the year. So that is a theme to call out for us from our perspective.

Going to the next slide. I'm on Slide 43, just to explain how the PBT has moved and EBIT margins have moved. The challenge in the market and the kind of commodity inflation you had is explained in the first 3 bars, which is contributing to a negative of almost 40 bps. An extremely challenging market condition. And despite that, we have put through pricing in the face of significant commodity inflation came through this quarter. But what is really happening is in the rest of the pipeline, the fixed cost, the ForEx -- ForEx was something, if you noticed, was a negative last quarter because of a reset and that just came back this quarter. And the control on fixed cost continues to be tight. So operating leverage continues to give us the benefit.

So this quarter is actually the first time we can confirm that the turnaround is well and truly underway. Even in a low-growth scenario, they're doing it, and it is our intention to continue this way going forward as well.

Just to split CV and PV. First message was on retail growth being significantly higher than wholesale. And that's the right focus for us. Particularly in challenging environment, the focus needs to be on retail so that dealers continue to remain profitable. We have done that. And we will continue to focus on market activation, continue to drive realizations up. Our cost reduction plans continue. And in particular, we want to focus acutely on steamlining processes, inventory and debtors because we also have BS-VI coming up. And therefore, the inventory management and the run-up for that needs to be absolutely immaculate. And therefore, that's something we are focused on. But the good part is, despite these challenging market conditions, market shares continue to improve during the quarter. The 9-month cumulative has -- continues to remain positive.

On the financials, I'd draw your attention to the fact that EBITDA is held at a very, very stable level under all kind of growth scenarios, decline scenarios, M&HCV growth, SCV growth, full combinations there. That tells you the business is starting to get flexible in a way to pull these various levers. We have to continue down this path. It's a good start. We need to keep at it from that perspective. But an EBITDA margin of 11.6% on a business that typically spends about 2%, 3% on CapEx is a very, very strong business that we're talking about here, and we intend to keep it that way.

Towards PV, again, market share gains continue very well ahead of industry over many, many months even though it's a much more challenging market than it is today. We have grown ahead of the market. And here, again, the retail is at 9.7%, well ahead of the wholesale that you saw at about 2.9%. So again, a good performance coming through, focusing on the right areas. And we're seeing particularly the launches are giving us the benefit in the muted demand environment scenario.

And here, I think the one -- the first milestone for us was to ensure that we stabilize our EBITDA breakeven. I'm happy to confirm that we've done that even though we've grown only at about 2.9%. And we have stabilized the EBITDA breakeven. The objective is to keep it that way and keep moving on from here onwards. So that was PV for you.

Moving on to Tata Motors Finance, a quick slide there. The AUM growth continued to remain strong, and GNPA came down further to 3.3%. What you see this year is -- in this quarter is a loss of INR 17 crores against a gain of INR 95 crores, broadly split into 50-50 with a one-off in the prior quarter. But about 50% of this quarter is fundamentally is coming because in the early period, October and November this year, because of the liquidity stress, we had a lot of good customers having challenge in the 0 to 90 days bucket. And as per IndAS, those provisions actually go up. And also, they had a higher cost of borrowings.

This is an area that both of these have improved since December, and we're expecting to see a strong close to the year and don't see any concerns on this one. But it also is a message to us to ensure that we have remained absolutely focused on collections on the 0 to 90 days bucket versus the linear standard where we couldn't be -- we are waiting for GNPA. GNPA alone is not good enough. We need to move even further to 0 to 90 days bucket. That's our focus. But the net NPA at 1.9%, down 200 bps, I think we are getting every piece of this business one by one right going -- already and doing the same going forward as well.

Net debt profile, I think our debt maturities are well spread out. In the case of JLR, the gross debt to last 12 months EBITDA if you take -- is moved up from 1.3 to 2.1, still at a comfortable level, but it is important that we keep a close watch on that.

And for Tata Motors, what used to be a quite worrying 7.7 is now down to 4. And as we keep improving the business performance, this number should come down. And also, when you pay down the debt through a divestment, this should come down even further, so quite confident this is on the right trajectory. Liquidity is adequate, both in terms of cash as well as undrawn facilities in the RCF, so no concerns on that one as well.

Moving on to the market outlook, and I'll take a minute on this. Let me start with India. The near-term challenges are real in terms of retail growth, quite impacted still by the liquidity crisis. Where our CV is concerned, the axle load capacity overhang is still -- it's going to take a little bit of time for it to work its way through. And as far as PV is concerned, we would love to see the customers coming in and also buying more there. The walk-ins are there, but we need convergence. And therefore, credit in the market is still not as liquid as we would want it. But in the positives, I think, the medium to long term still remains robust.

As far as China is concerned, the second one, having macro headwinds and low consumer confidence as a challenge continues, but it's good to know the Tier 1, Tier 2 demand is still good. And premiumization is a mega trend out there. And therefore, we are on the right side of the trend in terms of 2 absolutely distinctive brands that are Jaguar and Land Rover. And it's our intention to keep strengthening that and upward levels at opportunity.

U.K., we've talked about it, earlier we had spoken at length, and same as Europe. A minute on the U.S., I think the challenges will remain with the fact because the market cyclicality is kicking in and, therefore, the high incentive is an area of concern. Tariff risks are real as well. And the positives are the strong SUV demand that continues to flow through there.

So this is a mixed bag of market outlook. But it's fair to say that the demand outlook is weak at this point in time in the near term, and there is a lot of promise for the medium to long term.

In this scenario, this is what our outlook plan is. I will leave you to read it, barring I'll just tease out one piece there. Our EBIT margin plan that we are working with on -- between FY '20 and '22, we have talked about 4% to 7% earlier. We are sort of calibrating it slightly and bringing it down to 3% to 6% given the challenging environment that we see the market. If you will recollect, we had done exactly the opposite in Tata Motors. We have stepped it up last time when we saw a demand coming in. So we are sharing with you the very things, the very plan, so that you are also aware of our thinking that goes behind it. Otherwise, all the rest are in line with what we had indicated earlier. And yes, it's fair to say that all of us as a group are quite disappointed with our FY '19 performance in JLR due to an unexpected slowdown in China. That would be a fair statement to make.

And as far as India is concerned, we are quite confident that Turnaround 2.0 will deliver despite challenging market conditions. But it's not going to be easy for us in the coming months. And we have quite -- are absolutely convinced that we'll be on message and then further deliver through this problem.

So that's what I have to say. Let me now hand it over back to you Q&A.(Operator Instructions) And we will take our first question from Prateek Poddar from Reliance Nippon Asset Management (sic) [Reliance Nippon Life Asset Management].

Yes, am I on it?

Yes. Go ahead.

Yes, okay. So my question is, if you go to slide -- so if go to Slide 33, is it fair to say that we haven't been able to liquidate inventory in China, which you had guided for by -- at the end of the quarter 2, and we have guided that by quarter 4 -- by quarter 3 most of the inventory liquidation would have happened. Is that a fair understanding?

Qing, will you want to take this call -- take this question?

Sure. I think that you see that the balance of the supply and the demand, it's one of the key element in our current strategy. And therefore, the entire team, starting from the target setting to the distribution to the flexible manufacturing, I think we are moving towards the right direction in terms of more proactive retail stock managing process. I mentioned it before, January actually is a month. I think that it's also very true, and it's a month that we achieved our own target and that the dealer stock is reducing. And at the current moment, the dealer stock is still higher, slightly higher than the targeted 1.5 months and -- but we gained some missing load balance between the demand and supply. And the lead driver to that, although that January is just one month, but I believe that's a good sign and a good start to the full year, because 82% of all the dealer followed our strategy. They are able also to enjoy the amount of the first...

Okay. And sorry, just follow-up questions to this. How you plan to come out of this? How do you plan to get back your market share and grow in line with the market? Could you just talk a bit about this? And just one small clarification with regards to JLR China sales. When you say you want to come back to 1.5 months, is that per end of 2019, year 2019 or by March 2019?

Sorry, I do not understand that any...

Prateek, this is Balaji. Qing, just a minute. Can you just go unmute once you have asked the question. Because we're hearing a lot of noise from your side. And then I'll leave it -- I'll hand over to Qing for the questions.

Should I repeat my question? Or should I just go on mute? Okay. So my question was, how do you plan to come out of this? How do you plan to get back your market share in China or grow in line with the market? And a small clarification, when you say that you want the inventory to be at 1.5 months, is it by the full year 2019 or by March 2019?

Thank you for the question. I think that what we introduce in terms of turnaround program, as mentioned before, we're focused very much on the short term. Although that's some of the brand and organizational and the network-related issues or rather -- it is the long-term related. And so in the short term, what we're seeing is the focus is very much on is the push real hard to change the entire distribution system into a rather pull system. And pulling for us means: One is, we are aiming for sustainable growth. And I know that China might no longer be in the golden age, the gold [age]. And -- but we are all confident that the China will remain as the biggest market in the world. And two is in this sense, it means we need to start from now on and to balance in the demand and the supply. But I think it is not contradictory to what we trying also in the same time to do to optimize our market potential.

The second element of the pull strategy is growth in quality. And I think that we started the year with a brand new strategy, and then it worked. And -- but we need to do it to be consistent, follow our strategy. We need to be streamlining the network and the training, coaching and do everything possible to refuel the sales organization.

And the last one, and the pull strategy means we need to be profitable. And I think that we are aiming on the win-win with our dealer networks together. I think this is not helpful if the retails and -- there's so much rely on the discounts to sell the cars. And I think one of the elements why in the past in JLR saw higher discounts, besides is structure related and feeds the stock. And for that simple reason, the team is aiming of reducing the stock level to the ideal level in the very short term.

Okay. Okay. I still have some doubts, but maybe I'll come back later. Just one small more question. The GBP 400 million of workforce reduction, the savings, this is on an annualized basis. And this should come from next quarter. Is that a fair understanding?

That is correct.

And we will take our next question from Kapil Singh with Nomura.

I wanted to check the guidance that we have given of 3% to 6% range. Does 3% -- I mean, in what scenarios do we see 3%? When do we see 6%? Does a no Brexit kind of scenario mean we would still be at 3%? And does the guidance, margin guidance for current year of marginally negative EBIT margin include the GBP 200 million charge that we are likely to take next quarter?

Let me come in here. I think as far as the 3% to 6% as I shared, again, this is a plan that we're working towards, so we sharing with you how we intend to look at the business at this point in time. And this is a range that we have given over a period of time and not necessarily that first year is 3% and the last year is 6%. We are not working with that. That's the range that we would love to operate under. That's one. As far as the GBP 200 million is concerned, Ken has already guided for it as an exceptional item. And therefore, that is outside EBIT and will be treated as such.

So in case of a no-deal Brexit, we are still targeting 3%. Would that be the right way of understanding it?

Right now, the best case assumption -- we have no idea how Brexit is going to look like and what form or shape it will come. As far as our going base assumption that we're working towards is a frictionless trade-free operation, as we have been maintaining consistently that, that is what our wish is for business to continue as usual. And therefore, a negotiated settlement with the EU is what we prefer as soon as possible. And that should then give us frictionless trade, and that would help us there. So the preparations on no-deal Brexit that you have talked about are worst-case preparations that we really have to be ready with. And that's how we look at it.

Okay. And second question was, if you could call out if there were any nonrecurring charges in Q3, particularly above EBITDA. One thing that I can notice is that raw materials, the sense is seeing a sharp spike compared to the level we have been seeing for last many quarters. So any color there would be helpful.

Ken, would you want to take that?

This is for JLR.

Sure. I think I call out the significant chunky items. I called out the impact of labor and overhead coming back out of inventories. We destocked 9,000 units in the quarter. That was about GBP 80 million. I called out quality-related warranty reserve adjustments where the absolute amount for was circa GBP 65 million at a slightly bigger effect year-on-year. Actually, overall on material cost, the overall manufacturing material cost was actually -- the performance element was slightly positive but we're definitely seeing negative on the percentage due to the market and product mix, the percentage of overall material cost as the percentage of revenue rises because of the reduction year-on-year in the China volume.

I also -- and then on -- yes, not in EBIT so much, but I called out the foreign exchange and commodity revaluation that in the quarter was round about GBP 100 million, but most of that, not in EBIT.

And our next question will come from Jatin Chawla from Cr?dit Suisse.

Just on your EBIT margin guidance, this start from 4% to 7% to 3% to 6%, actually it seems an even bigger [target] when we take it into context that you've taken about GBP 300 million of depreciation out of it at JLR. So effectively, it almost implies a 2% cut on the margin guidance. So wanted to understand what are the kind of factors that have led to -- such a sharp cut, GBP 1 billion a quarter.

Yes, I'll draw you to the margins progression slide that we have shared with you. What you would notice in that is a consistent headwind of depreciation that's coming at us. So charge, for instance, the work that we are doing addresses what we -- what I call is controllable costs from a current perspective. It is looking at people, it is looking it overhead, it is looking at variable cost. But one area of cost that it is not able to address head-on is because of the depreciation and amortization number. So it's the back of a headwind that we are immediately facing. So this impairment that we are taking, yes, it gives you a depreciation credit, but also, it is going -- it is only [standing] the runaway increase and depreciation that we have. And therefore, this is offsetting that from that perspective. So it's as much a call that we're making in some of the decisive interventions that we making. And more importantly, as the next -- as the GBP 4 billion investment goes through, it's also giving us strategic flexibility to direct investments where we want it to go. Otherwise, this depreciation headwind is basically only forcing us to cut out investments and not getting us the -- giving us the liberty to decide where we want to direct our investment to. So I truly believe that this is giving the right strategic flexibility that the business desperately needed, which is not getting addressed through charge. So with this intervention now, we're actually having all the length of the P&L available for us to flex and direct it the way we want it to be and to make us Fit for Future.

Okay. And on the China JV margins, you've seen a really sharp fall quarter-on-quarter despite not 2 different volumes quarter-on-quarter. I know it's marginally lower, but the margin fall is very acute. So just wanted to understand what's kind of driving that?

Ken, you want to take that?

Yes. So I mean, really it is the impact of the lower volume year-on-year that's really driving the results in the China joint venture. And it's -- the volumes are over 50% lower -- the wholesale volumes over 50% lower year-on-year as we've faced up to the lower retail volume and the stock position that we find ourselves with, and therefore took a significant amount of production downtime in Q3 in order to reduce the inventory. And that also lowered the wholesales. So fundamentally, that what's going on.

On quarter-on-quarter basis, was the production down significantly on a quarter-on-quarter basis? I think the wholesales are broadly similar, but was the production down very significantly? And has that impacted margins?

Yes -- he's asking quarter-on-quarter. Let me come back on the specific numbers. But it is basically the volume that is driving the reduction here and the weak profitability. And yes, there is less production -- there was less production in Q3 than Q2, but I can't give you the specific figure at my fingertips here.

Okay. And just one clarification, you mentioned that you're looking to reduce inventories by about GBP 300 million in 4Q. And then in terms of Brexit preparation, you mentioned that you are looking to create some buffer. So how do both of these things tie in?

Yes, all of that is part of our plan. I mean, we're very focused on having a very lean inventory pipeline in order to be better placed to deal with the other challenges that the market may give us. And because having less inventory in the pipeline creates less pressure on our dealer network and, in principle, should be -- avoid higher levels of variable marketing. And we've taken into account the inventory reduction that we need to make in Q4 and the product downtime that we're planning in Q1 of the next fiscal year with our demand projections, which also include, by the way, the seasonal factors that we anyway see normally through the next 6 months of the year in order to drive an inventory level, which is low and keeping it tight in order to provide the headroom in case market conditions continue to be challenging. So all of that planned in.

(Operator Instructions) And we will take our next question from Robin Zhu with Bernstein.

Just 2 questions please. One, I mean, a lot has been said about the turnaround [signed] and the measures that you plan to take. I see that the P&Ls, in fact, are taking a bit of time to come through. Just wanted to get your thoughts on management. Clearly the workforce has taken a hit as a result of the company challenges. Just wanted to get Balaji and particularly your thoughts on where management stands in terms of the framework of the company's realignments and restructuring, any thoughts on central changes here going forward? Second question, on China, first of all, I don't know if Ken cannot seem to provide an absolute number for where the inventory levels now stand. But more importantly, I think, one is to get your thoughts on, is there a risk given that the deals has been under quite a lot of pressure and have been quite unprofitable in China, is there a risk that [Zhe Lau] would have to [tighten things up] at some point in the next few quarters, basically -- as a sort of reconciliatory move or just to sort of reset the relationship between yourselves and them.

Yes, let me take the first one and we'll have -- set the context for the second one then hand it over to Qing for further amplification on that. I think the head count numbers that you've seen is actually going across the entire company and not just workforce so it is a company top-down intervention that is happening and at all levels. Very, very carefully scrutinized and managed. And therefore, this is not just that you have one phase kind of a set up that you're looking at. As far as the dealer, wanted to keep pieces of the puzzle that on China and also to answer the earlier question that was there to what happened about inventory in Q3, is that it has taken us a while to put together a plan on moving from wholesale to retail and more importantly, get dealer alignment on these plans and getting them to sign off. And therefore, that is taken us a little bit more time but that has now been mostly signed off starting calendar year January -- I mean, starting with January onward. So that has taken a little bit of time including whatever else that we had in the past that had to be closed off. So Qing, would you want to pick that piece up?

Sure. Thank you, Balaji, and thank you, Robin for the question. I think that 2018 overall [the same year] that will need to be improved on and that dealer profitability was also not up to our expectations. I think it's a nominal compensation which you're probably addressing on that in China it's really a common denominator. But I think in the last weeks and months, we did pass a lot of dealer communications, investor communications. We agree with the dealer councils and the strategic investors, these type of field support will not solve any of the fundamental issues. The same applies to the cash incentives, and which you see in the last [few] months and that's a different OEM and that's really sharply increasing. And because this could eventually cause even higher discount levels in China and no OEM can really afford of doing that. And therefore, for us a great way for dealer, if we need to improve the dealers capabilities, we need to restructure the distribution systems and network, provide the customers with the right products and premium experiences at the end of the day. I mentioned before, January for us is a good sign and as a dealer followed our strategy, which Balaji and [Ken], explained. I think the strategy where we are aiming for is a simple one. We are telling the dealer very clear what are the models we are driving for the [following], what are the models that we are aiming for very healthy profitability and with a clear sales policy in driving the target achievements. But more important is, since I said 82% of the dealers in January followed our strategy this gives us a very good confidence, and that's with all the other dealer positive results of January where we see a very positive trend. And therefore, Robin, I think, that we agree with the dealer council and the investors compensation is not a lasting effect. We rather then focusing on improvement of dealer capabilities in our own organization capacity.

Sorry, could I just follow up on this -- from what you just said, my understanding is that you've discussed it with the dealers. It sounds to me like the decision is to accept a lower level of volume in China. And rather than push the market, do that, and avoid more discounting. Can you confirm that?

I think what I said earlier to the other gentleman's question is we are shifting away from a push to a pull strategy. Robin, I'm fully aware that they are following the sectors in many years. And that you are aware, certainly, of the past developments in similar situations met by our competitors. I think exactly those are the areas we are aiming for and focusing on and taking few examples like -- we like to put the right product with the right position into the market. The second one is the planning should be based on the potentials. The third one, we will see, very much on the demand and supply. And we will focus on the quality improvements and entertain the customer experience. But I think other companies showed us also how important it is that we create an efficient organization. And so I mentioned that the turnarounds programs consist of the Dragon, Dragon project, with a lot of shortened focus but all those 5 areas: product, planning and [premier] principles focus on quality and organizational efficiency. I think that will take time and we are aiming to improve our quality but at the same time I don't think that will hinder us to go after market potential.

Just to build on that, Robin, I think, one thing we are trying to nuance the messaging, nuance the approach is to say, "Yes, volume is important but volume is not everything." And therefore, it is crucial that we generate the value over the long term and therefore, we are looking at far more sustainable metrics: brand health, metrics like dealer profitability, ensuring that we are segmenting the deal for the brand offerings in the market, maximizing the absolute profits overall -- balancing of what's the right volume, what's the right mix and what is the right dealer profitability that we have. So it's a far more, well-encompassed and well-rounded approach we're adopting. And the play is for the medium- to long-term and not worry about in-month numbers because opportunities -- the reason why we are taking so much pain on this -- it's very easy for us to do a short-term approach on this, but the reason we want to actually do it the right way is what Qing called out in terms of long-term opportunity that we have there. Because in the Core premium along with by 2025 it's a GBP 4 million market and then a premiumization opportunity of GBP 3 million is out there, what are we talking about in terms of 140,000 vehicles that we sold last year, the sky is the limit in terms of how much we can upgrade. And why we're so confident of that, because premiumization is a mega trend in China, the consumer is seriously status conscious. If your brands are there strong and firing, you should be able to see growth coming to you. So we would rather want growth come to us rather than we chase growth. And what we have to do is to ensure we do everything right for the long-term, then doing the business that would really give us long-term retention. That's the reason we are taking it on the chin in terms of pain, but that's the right thing to do at this point in time. And we're absolutely convinced about that.

And we'll take our next question with Binay Singh of Morgan Stanley.

Just continuing on China, we didn't hear anything on the product side from you guys. Like, what is the product strategy over there? What are the products that will drive volume growth going ahead? And could you talk a little bit more on that side? What is doing well in China? What do you think will sort of shrink now?

Qing? Absolutely.

I think, in China that well presented and it took 9 years, and in meanwhile, that the entire product portfolio within 16 name plate are available. And in China, we are very grateful. Those are -- those products are superior in capabilities. I think that's what we need to do and need to focus is rather than be more precise and to [attract] the right customer groups. China is the largest to market, but for sure, it's also one of the most competitive markets. And China has a lot of noise and in order to make an outstanding, the brands, I think we need to focus on positions and by utilizing a lot of digital technologies. And talking about the product. I think what we also changed significantly to 9 years ago is, we are more efficient and dedicated to serve the Chinese customer's needs. And if you're looking to the sedan that we launched the XE and the [XF] both extended versions. And I think both vehicles are well expected in their ways. And on top of that, with all other newly launched vehicles also in the infotainment area, so in the connectivity areas that we are dedicated of developing some of the latest gadgets and the features for the Chinese consumer, knowing those consumers are very open to the latest technology. And related to that, maybe one of the interesting areas for everyone is also in the [AUV] area, in the new energy vehicle area. I think certainly, and China will follow the global product strategy. And we launched lately the I-PACE, and I think the I-PACE is doing the ramp-up, but we successfully already obtained the green number plates in the megacities like Beijing and Shanghai and for that we can serve a very elite circle of the customers. But [besides all that] the JLR is cooperating with the local [heros] and last April and related to all the product and product developments. We announced strategy for the fuel engine and dual-power strategy. But we'll develop independently in the U.K. also in China some of the key technologies but also dual-power will mean that [JLR] is one of the power that will utilize also a lot of the local [heroes] in China. In the battery, specific area, that JLR is cooperating with one of the largest battery manufacturer in the world [CATL] of creating and developing the next generation of the products. Overall, I think our product portfolio is well accepted but since we are young company, I think specifically for the brand Jaguar, we still need to strengthen the communication and be more specific, and for that reason we also launched lately the brand strategy. But I think keep it short, the product as such. We are expected, we are localizing lot of the features to serve the Chinese customer's needs. And we do in certain areas like getting fixed marketing and in the [prime] communication, we need to speak out more.

So anything between the localized models and the imported models? Which one you think will grow more in 2019 versus 2018?

In 2019 ...

Or like you were mentioning that you are asking dealers to...

In 2019, in January, you see that we launched a different sales strategy. While those sales strategy we [configured] the product into 2 groups. One is called hero cars and one is called Brand Ambassadors. Under the hero cars are those cars who would bring the dealers, but also the OEMs for certain amount of basic volumes. I think it is important for the dealers so that they can have a sustainable growth in the long run. And for those areas, both in the imported cars and in the local manufactured cars, we have models defined in the hero cars. In the hero cars category, for January, for the last quarter of the fiscal year, 2 of the models, XEL and the Discovery Sport as being defined as hero cars. And this strategy will pilot, we're piloting at the current moment and, hopefully we will completely roll out even further models in the coming up.

I think we need to move on. And I think one request, we have kept Qing online for quite a while in the midst of the Chinese New Year. So I think it'd be nice if you can move questions away from China into other parts of the business that you would be keen to talk about.

And we will take our next question from Sumad Kumar (sic) [Sampath Kumar] with Goldman Sachs.

Balaji before I start the question, just kind of want to understand the assumptions what are you making for the premium industry [globe] for 2019 and 2020? The reason I ask this is that Daimler has just put out a guidance that the market expected to be flat globally for the calendar year 2019 so I just want to check what assumptions are we baking in?

I think in our point of view, we are very small OEM. And our objective is to grow ahead of the market whatever is the market growth. That is only way we would like to look at it. And it's dynamic, as you can well imagine, and we need to play quarter-by-quarter.

Fair enough. And on the China side, this is for Mr. Pan, given the fact that quite a lot of your dealers are in -- sorry -- hello -- can I...

Yes, I think we have been a fair amount of questions on China, which I'm sure we would want to maybe go with this one and thereafter we try to move questions about China with others areas that others may want to talk about.

Yes, on China basically, thanks for that. For China we see in the underperformance -- I can understand the retail weakness in the fact the inventory weakness, actually, the inventory was quite high and we are kind of trying to reduce it. But the fact that even in January, we probably underperformed the retail growth was [displayed] in a very big way, very substantial way despite having launches. What I'm trying to understand is, is there any attrition at a dealer network level itself, where smaller dealers in Tier 3, Tier 4 or smaller cities are kind of not finding it viable? In short, have you kind of lost any dealers? And where we stand on our dealer count currently in China?

Thank you for the question. I think I would like to answer in twofold. Number one, from the OEM perspective. January, yes, you are right. On year-on-year comparison, China was still far below the last year. But I mentioned before, the turnaround program has 3 phases. Phase one is stabilization. The second one is to regain the confidence and the third one is to sustain the growth. Stabilization, that is the first phase of the trial. We [are looking for a turn] moment. If you do look into the December numbers, we see retail is around 9000 units. We view this every year and December number is the highest for the JLR, and the January should see at least 10% below that number. But if we compare the January number with the December number, I think we are very much on the same level. And therefore, which also underlines 82% of the dealer are following us. I think it is a very good sign, a positive sign of the year. The second part of your question. I mentioned before, in the Tier 3, 4, 5 cities last year, we've seen the slowdown first. But last year, we have already constrained the growth in the dealer network. So last year, we had 261. Today, we still have 251 dealers. But one thing that we are focusing on is we are improving the quality of the dealer network. Improving dealer network, it is partially automatic convenient talks, because it means for us we need to be proactive to consolidate the dealer network. And that will be effective in the coming months as well. But in certain cities, if the dealers build over size in the good economic time, we will help the dealers to downgrade with this format. So that's the different model will the more sustainable, is one. Second one, for those dealers who continuously under-perform, particularly in the megacities, I think we will probably choose for termination or support the dealer for the buyout. And the third one, if in chosen cities, a very limited number cities, where they are under-represented, we might add additional dealerships. And those are the plan for the retail network. But so far we didn't lose dealers.

Fair enough. The second question is pertaining to the funding...

Sorry, apologies, we have another 2, 3 minutes to close out. So we probably have time to take one more question from outside. If you could really limit yourself to one, then we need to move on to the last question.

And we will take our final question from Jinesh Gandhi from MOSL.

My question pertains to this cost reduction which we are talking about, that 4,500 people plus 1,800 which we would -- we reduced last year. This net savings would be about $400 million is what we are guiding for, right?

Ken, you want to take that?

Yes. All that is all ordered together with other head count cost reductions and peoples cost-reduction that we're making. It's of that order, yes.

[A savings of] GBP 400 million?

Sorry -- pound Sterling.

So GBP 400 million is including other cost savings as well, including head count reduction?

It substantially the head count reduction connected with 6,000 people.

Sure. And just one clarification, the oneoffs which you referred to 260 basis points, that's on Slide 19, it's primarily pertaining to destocking and warranty costs, right?

Yes. So summarily it would be -- yes, exactly that.

So that only is occurring in fourth quarter onwards?

To be honest, I would expect to see in Q4. We are doing further destocking. So it's entirely possible we see continuation of destocking-related cost. But once we get through that destocking, I'd expect to see the situation normalize.

So the destocking thing would get over by fourth quarter? Or it will -- you think further [you will] see inventory reduction in 1Q as well?

After the fourth quarter, we'll be in more normal situation of the normal ebb and flow of this amount instead of a significant swing that we've got this quarter. And the further swing that I'd expect to have in Q4.

Okay. I think I'll take this opportunity to thank all of you for staying put on the call and asking and clarifying stuff that you'd wanted to clarify. I hope this met your expectations. And in terms of the quality of the coverage, the information as well as -- nice to have Qing on the call in the midst of the Chinese New Year. Thanks a lot, Qing, and see you very soon. Take care. Thank you.

And that concludes today's conference. Thank you for your participation. And you may now disconnect.