Jaguar PLC, 1987
...ss. However, BL incurred significant losses and got in serious financial trouble. In order to save the British motor industry the government acquired nearly all of BL's equity in the mid 1970s and provided over £1 billion to BL. 1.2 The source of Jaguar's dramatic turnaround in the early 1980s Although well known for the extraordinary design of its cars, during the 1970s Jaguar had a very bad repu-tation for its production quality. With the beginning of the 1980s Jaguar placed the main emphasis on quality improvement. Jaguar re-established itself as a quality producer by parting with suppliers who did not meet the quality standards and by improving output per employee. As a consequence Jaguar enjoyed a strong resurgence of demand and returned to profitability. Due to the reputation improvement Jaguar's relations with its workers and the morale within the work force also improved. This effect improved the company's results further as well as the heightened public awareness of Jaguar's recovery because of the revitalization of its racing team. Another priority of Jaguar's strategy was to increase its exports, above all to the U.S. The sales in the U.S. were boosted by a restructuring of the U.S. dealership and a good customer service. The new strategy was a success: From 1980 to 1983 revenues grew from £166 million to £473 million and the company's operating profit went from - £44 million to £57 million. Jaguar's growth was predominant due to increased exports, above all to the U.S. In 1983 the company sold 54 % of its car production in the U.S. and earned 62 % of its total revenue from these sales. But the increased exports involved also a risk: the exposure to the fluctuation in the foreign currencies exchange rates, above all to the dollar/sterling exchange rate. 1.3 Actual problem in July 1984 In July 1984 the British government was preparing to return ownership of Jaguar plc to the private sector through a public offering of stock. In order to price the shares Jaguar had to be valued, taking into account all the risks the company faced. One of the major uncertainties was the future dollar/sterling exchange rate, above all because many analysts predicted a significant decline in the value of the dollar at that time. The aim of the following chapters is to analyze Jaguar's market position, to assess the economic expo-sure the company faces and to give recommendations to counter that exposure in order to increase the value of the firm. 2 The position of Jaguar in the international market for luxury cars and its resulting potential FX exposure 3 Quantification of Jaguar's FX economic exposure In order to estimate Jaguar’s economic exposure we have performed a sensitivity analysis of the present value of the firm [DCF method]. Different scenarios were analyzed for understanding how fluctuations in the dollar/ pound exchange rate would affect the value of the firm. Using as starting point the Income statement at the end of 1983 an...