Jaguar Land Rover Automotive plc – Annual report – 31 March 2025
Industry: automotive
5 REVENUE (extract)
Revenue from ordinary activities, including sales of vehicles, parts and accessories and services, is recognised when the control of the goods or services is transferred to the customer. Revenue is measured based on the contract price, net of variable consideration and any amounts collected on behalf of third parties. Revenue is measured based on the contract price, which is the consideration specified in the contract with the customer and excludes amounts collected on behalf of third parties, and net of settlement discounts, bonuses, rebates and sales incentives. The Group’s primary clients from the sale of vehicles, parts and accessories are retailers, fleet and corporate clients, and other third-party distributors. The Group recognises revenue when it transfers control of a good or service to a customer, thus evidencing the satisfaction of the associated performance obligation under that contract.
The Group recognises revenue on the sale of vehicles, parts and accessories at the point of wholesale. The sale of the relevant good is generally recognised at the point of dispatch or the point of delivery to the customer, depending on individual contractual arrangements.
When agreed with clients on a case-by-case basis, revenue may be recognised on a bill-and-hold basis, where goods are sold to the customer but are retained in the Group’s possession on behalf and at the request (usually due to the lack of available space at their own premises) of the client ahead of being physically transferred to them at a future time. The goods are identifiable as separately belonging to the customer, ready for physical transfer to the customer, and the Group does not have the ability to use the goods or direct them elsewhere.
The Group sells a small number of vehicles under sale and leaseback arrangements that qualifies as a sale under IFRS 15. As they are part of the Group’s ordinary activity, the revenue and associated cost of sales are presented gross.
The consideration arising from vehicle wholesales is usually settled immediately (within two working days). The consideration arising from sales of parts and accessories usually falls due for payment within 30 days.
The costs associated with providing sales incentives (variable marketing expense) are considered to be variable components of consideration, thus reducing the amount of revenue recognised by the Group.
Under IFRS 15, the Group ensures that variable consideration is recognised to the extent of the amount to which it expects to be entitled. To meet this principle, the Group constrains its estimate of variable consideration to include amounts only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty is subsequently resolved.
The Group estimates the expected sales incentive by market and considers uncertainties including competitor pricing, ageing of dealer stock and local market conditions. The constraint on variable consideration is estimated with reference to historical accuracy, current market conditions and a prospective assessment considering relevant geopolitical factors, including global stock positions for both the Group and its third-party dealer network reflecting the pipeline of vehicle inventory for sale to end clients.
Variable consideration received for contracts with multiple performance obligations is allocated to all such obligations only when applicable. For example, with the sale of a vehicle, the cost of the incentive provided is allocated entirely to the vehicle as its purpose is to incentivise the sale of the vehicle rather than support any additional obligations. Liabilities in relation to sales incentives are disclosed in note 27.
Revenue from services relates to scheduled maintenance contracts, vehicle connected service features and extended warranties. The Group typically receives payment relating to services at the same time as the proceeds from the vehicle sale, at which point the amount is recognised as a contract liability. This is measured at the stand-alone selling price of the service; which for scheduled maintenance contracts is estimated using a cost-plus approach. The stand-alone selling price for vehicle connected service features and extended warranties is the observable price of the service when the Group sells the service separately to customers.
Revenue for vehicle connected service features and extended warranties is recognised on a straight-line basis over the period to which the service relates, which generally ranges from 12 to 60 months. Revenue for scheduled maintenance contracts is recognised over the life of the plan based on the expected performance of the services from the point of a vehicle being retailed to an end customer and aligned to the expected profile of costs to fulfil those services based on historical information.
When a contract includes an option or obligation for the Group to repurchase the product sold (including repurchasing a product originally sold as part of an amended product), revenue is not recognised until the product is sold by the Group with no repurchase obligation or option attached. Such instances are common in the Group’s arrangements with third-party fleet clients or in contract manufacturing arrangements that the Group is party to. The related inventory continues to be recognised on the Group’s consolidated balance sheet.
Vehicle sales do not typically include allowances for returns or refunds, except where there is legislative requirement. Regarding other goods, where rights of return may be prevalent, the Group estimates the level of returns based on the historical data for specific products, adjusted as necessary to estimate returns for new products. Revenue is not recognised for expected returns – instead the Group recognises a refund liability and asset where required.
Use of estimates and judgements (extract)
Judgements (extract)
Revenue recognition: The Group uses judgement to determine when control of its goods, primarily vehicles and parts, pass to the customer. This is assessed with reference to indicators of control, including physical possession of the vehicles and parts, and the risks and rewards of ownership and legal title with reference to the underlying terms of the customer contract. Refer to note 5 for further information.
Estimates and assumptions (extract)
Significant estimates (extract)
Product warranties
The Group provides product warranties on all new vehicle sales in respect of manufacturing defects. These warranties are not separate performance obligations but are accounted for under IAS 37, which requires recognising a provision for warranty repairs.
The estimation process involves assessing historical warranty claim data, considering the nature and frequency of claims, and projecting future warranty costs. This provision is inherently uncertain and requires significant management estimation. Refer to note 30 for further detail.
Given the complexity and uncertainty involved in estimating future costs, the warranty provision is a significant estimate that can materially affect our financial statements. We continuously review and adjust our estimates to reflect new information and trends, ensuring that our financial reporting remains accurate and reliable. Refer to note 30 for further detail.
30 PROVISIONS (extracts)
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. When the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
Product warranty provision
The Group provides product warranties on all new vehicle sales in respect of manufacturing defects, which become apparent in the stipulated policy period dependent on the market in which the vehicle purchase occurred. The estimated liability for product warranty is recognised when products are sold or when new warranty programmes are initiated.
Provisions are recognised for the costs of repairing manufacturing defects, recall campaigns, customer goodwill (representing the Group’s constructive obligation to its clients when managing those warranty claims) and the Group’s other obligations under the warranty.
Assumptions are made on the type and extent of future warranty claims based on experience of the frequency and extent of vehicle faults and defects historically.
The estimates also include assumptions on the amounts of potential repair costs per vehicle and the effects of possible time or mileage limits and are regularly adjusted to reflect new information. The timing of outflows will vary as and when a warranty claim will arise.
The Group’s calculation methodology uses detailed historical data corrected for experience as information becomes available as well as individual campaign assumptions (such as scope, uptake rates and repair costs). This can lead to changes in the carrying value of provisions as assumptions are updated over the life of each warranty to reflect where actual experience differs to past experience, for example due to higher inflation or timing of claims impacting disbursement curve analysis.
The Group notes that changes in the automotive environment regarding the increasing impact of battery electric vehicles presents its own significant challenges, particularly due to the lack of maturity and historical data available at this time to help inform estimates for future warranty claims, as well as any associated recoveries from suppliers due to such claims. The Group offers warranties of up to eight years on batteries in electric vehicles. The related provisions are made with the Group’s best estimate at this time to settle such obligations in the future, but will be required to be continually refined as sufficient, real-world data becomes available.
The discount on the warranty provision is calculated using a risk-free discount rate as the risks specific to the liability, such as inflation, are included in the base calculation.
Estimates of the future costs of warranty actions are subject to numerous uncertainties, including the enactment of new laws and regulations, the number of vehicles affected by a service or recall action and the nature or final cost of the corrective action. Due to the uncertainty and potential volatility of the inputs to these assumptions, it is reasonably possible that the actual cost expenditure over an extended period of time could be materially different to the estimate in a range of amounts that cannot be reasonably estimated. The Group continues to monitor developments in global macroeconomic conditions, including the global tariff environment, and adjusts provisions if required.
The Group also has back-to-back contractual arrangements with its suppliers in the event that a vehicle fault is proven to be a supplier’s fault. Estimates are made of the expected reimbursement claims based upon historical levels of recoveries by supplier, adjusted for inflation and applied to the population of vehicles under warranty at the balance sheet date. Supplier reimbursement claims are presented as separate assets within “Other financial assets” in note 19. Supplier recoveries are recognised only when the Group considers there to be virtual certainty over the reimbursement, which also requires historical evidence to support.
Accounts examples 