BMW Quarterly Report to June 30th 2009

[mika]

BMW Quarterly report to June 30th 2009
PDF file

BMW Group: Second-quarter EBIT of euro 169 million
ÔÇó 04.08.2009
ÔÇó Press Release
Reithofer: Good progress with financial and cost management
Lasting economic recovery not yet in sight

Munich. The BMW Group recorded positive earnings in the second quarter 2009 despite the weak state of the global economy. ÔÇ£Our foresighted financial and cost management strategies are paying offÔÇ£, stated the Chairman of the Board of Management of BMW AG, Norbert Reithofer, on Tuesday in Munich. As with all companies operating in the automobile sector, however, the BMW Group still faces difficult business conditions. ÔÇ£Despite some tentative positive signals, a lasting and wide-ranging recovery is not yet in sightÔÇ£, continued Reithofer.

The combined effect of the financial and economic crisis on consumer spending on major sales markets and intense competition in the automobile sector is significantly affecting the performance of the BMW Group. Second-quarter revenues decreased to euro 12,971 million (second quarter 2008: euro 14,552 million) as a result of the drop in sales volumes. The BMW Group reports a profit before financial result (EBIT) of euro 169 million (second quarter 2008: euro 425 million). The profit before tax declined to euro 151 million (second quarter 2008: euro 602 million), while the profit after tax amounted to euro 121 million (second quarter 2008: euro 507 million).

Revenues for the six-month period fell to euro 24,480 (first half-year 2008: euro 27,837 million). The Group reports a six-month EBIT of euro 114 million (first half-year 2008: euro 1,252 million) and a loss before tax of euro 47 million (first half-year 2008: profit before tax of euro 1,243 million). The loss after tax was euro 31 million (first half-year 2008: profit after tax of euro 994 million).

The BMW Group was again able to assert its position in the face of generally difficult economic conditions. In this situation, further progress was made in the area of cost management, contributing amongst other things to lower personnel expenditure. Efficiency improvements also had a positive impact.

During the period from April to June, the BMW Group was also able to reduce the Automobiles segmentÔÇÖs inventory and working capital levels. ÔÇ£We managed to generate a positive free cash flow of euro 516 million for the first half of the yearÔÇØ, pointed out Reithofer. In total, the BMW GroupÔÇÖs liquidity increased to euro 11.9 billion at the end of the quarter.

Market climate remains highly volatile / impetus created by new models

Due to the highly volatile state of the markets and uncertainty with regard to future economic developments, it is not possible at present from the BMW GroupÔÇÖs perspective to give a forecast for earnings in 2009. At a sales volume level, the forecast is still for a short-fall compared to the previous yearÔÇÖs high level. Deliveries to customers in the second half of the year are, however, expected to stop the downwards trend registered in the first six months of the year.

Several new models are being launched over the course of the year which will help to boost the sales volume performance. The new BMW 7 Series is now available worldwide. A four-wheel-drive version of the 7 Series will come onto the markets in autumn. The new BMW Z4 was launched in parallel in May. Both of the new models have received a very positive response from customers. The X1 and the 5 Series Gran Turismo will also be introduced to the markets during autumn. The M versions of the BMW X5 and the BMW X6 will be launched in summer.

From 2010 onwards, it is expected that the renewed product range will provide further impetus for business. This trend should be fuelled further between 2010 and 2012 when the new versions of high-selling models come onto the markets. For the year 2012, the BMW Group continues to target a return on capital employed (ROCE) of more than of 26% and an EBIT margin of between 8% and 10% for its Automobile segment.

Focus on sustainability and new technologies

The BMW Group set a new strategic course back in 2007 with the adoption of its ÔÇ£Number ONEÔÇØ Strategy and remains focused on implementing that strategy. All measures and activities currently being undertaken are aimed at future sustainability. ÔÇ£We are pooling technical and financial resources in the areas of sustainability and the development of new technologiesÔÇ£, emphasised Reithofer. ÔÇ£The BMW Group is the worldÔÇÖs leading premium manufacturer in the automobile industry and, in our opinion, ÔÇ£premiumÔÇØ should lead by example. From our perspective, this creates a special accountability for the company, its products, its social commitment and the premium business model that we pursueÔÇ£, continued Reithofer.

Weak economy hits earnings of Automobiles segment

Similar to developments throughout the automobile sector, the BMW GroupÔÇÖs second-quarter sales volume figures were adversely impacted by the weak state of the worldÔÇÖs economies. The rate of decrease in sales volume did, however, slow down compared to the first quarter. Total sales of BMW, MINI and Rolls-Royce brand cars during the three-month period from April to June fell by 18.1% to 338,190 units (second quarter 2008: 413,087 units). Sales of BMW brand cars decreased by 18.6% to 280,093 units (second quarter 2008: 344,019 units). The number of MINI brand cars sold fell by 15.7% to 57,942 units (second quarter 2008: 68,756 units). 155 Rolls-Royce motor cars were sold during the period (second quarter 2008: 312 units / -50.3%).

In total, 615,454 (first half-year 2008: 764,874 / -19.5%) BMW, MINI and Rolls-Royce cars were sold during the first six months of the year, enabling the BMW Group to maintain its position as the leading premium manufacturer worldwide. The BMW brand increased its share of the premium segment by 0.6 percentage points to 21.1%. Sales of BMW brand cars decreased by 19.4% to 513,591 units (first half-year 2008: 637,569 units). The number of MINI brand cars sold fell by 19.9% to 101,534 units (first half-year 2008: 126,810 units). 329 Rolls-Royce motor cars were sold during the period under report (first half-year 2008: 495 units / -33.5%).

Second-quarter revenues and earnings of the Automobiles segment were adversely impacted by the steep drop in sales volumes in the wake of the global economic crisis and the intense competition in the automobile sector. The segment reports a negative EBIT of euro 31 million (second quarter 2008: positive EBIT of euro 395 million) and a loss before tax of euro 158 million (second quarter 2008: profit before tax of euro 325 million). Revenues fell to euro 10,827 million (second quarter 2008: euro 13,754 million). Revenues of the Automobiles segment for the six-month period fell to euro 20,432 million (first half-year 2008: euro 25,916 million). The segment reports a negative EBIT of euro 282 million (first half-year 2008: positive EBIT of euro 1,014 million) and a loss before tax of euro 629 million (first half-year 2008: profit before tax of euro 864 million).

Sales volume decrease for BMW Motorcycles in second quarter

The difficult climate on the worldÔÇÖs markets was also felt by the Motorcycles segment. The BMW Group sold 29,742 motorcycles during the second quarter, 14.7% fewer than one year earlier (second quarter 2008: 34,886 units). Revenues fell to euro 336 million (second quarter 2008: euro 392 million). Segment EBIT declined to euro 26 million (second quarter 2008: euro 56 million), while the profit before tax was down to euro 24 million (second quarter 2008: euro 53 million). Segment revenues for the six-month period fell to euro 626 million (first-half year 2008: euro 737 million) with EBIT decreasing to euro 54 million (first-half year 2008: euro 92 million). The Motorcycles segment reports a profit before tax of euro 50 million (first-half year 2008: euro 87 million).

The BMW Group continues to expand its motorcycle model range: the new F 800 R has been available since May and the road version S 1000 RR will come onto the markets at the end of the year.

Financial Services segment earnings improved

The Financial Services segment performed well during the period under review within a difficult business environment. Segment revenues increased to euro 4,224 million (second quarter 2008: euro 3,877 million). The profit before tax improved to euro 81 million (second quarter 2008: euro 64 million). Revenues for the six-month period increased to euro 8,227 million (first half-year 2008: euro 7,734 million) while the profit before tax edged up to euro 153 million (first half-year 2008: euro 148 million).

The total volume of all financing and leasing contracts signed with retail customers during the first half of the current year amounted to euro 12,023 million, a decrease of 18.7% compared to the same period one year earlier. Despite the general decrease in new business during the period under report, the number of contracts actually increased overall, with retail customer contracts at the period end up by 9.0% to 2,798,668 units. The proportion of new cars of the BMW Group financed or leased by the Financial Services segment was 47.0%, 0.6 percentage points above the proportion recorded one year earlier. The proportion for the financial year 2008 had been 48.5%.

Workforce reduced

The number of employees decreased further during the period under review. The BMW Group workforce comprised 98,261 employees worldwide at the end of the second quarter 2009 (30 June 2008: 106,027 employees), representing a 7.3% decrease on a year-on-year basis. Compared to 31 December 2008, the number of employees was decreased by 1.8%.


* * *
The full Interim Report to 30 June 2009 is available for download at www.bmwgroup.com/ir.


The BMW Group ÔÇô an Overview
2nd quarter
2009 2nd quarter
2008 Change
in %
Vehicle production
Automobiles units 306,009 413,711 -26.0
Motorcycles units 21,152 31,972 -33.8

Deliveries to customers
Automobiles units 338,190 413,087 -18.1
Thereof:
BMW units 280,093 344,019 -18.6
MINI units 57,942 68,756 -15.7
Rolls-Royce units 155 312 -50.3
Motorcycles units 29,742 34,886 -14.7

Workforce at end of quarter 98,261 106,027 -7.3

Operating cash flow euro million 987 1,320 -25.2

Revenues euro million 12,971 14,552 -10.9
Profit before financial result
(EBIT) euro million 169 425 -60.2
Thereof:
Automobiles euro million -31 395 -
Motorcycles euro million 26 56 -53.6
Financial Services euro million 75 39 92.3
Other Entities euro million 26 88 -70.5
Eliminations euro million 73 -153 -
Profit before tax euro million 151 602 -74.9
Thereof:
Automobiles euro million -158 325 -
Motorcycles euro million 24 53 -54.7
Financial Services euro million 81 64 26.6
Other Entities euro million 18 342 -94.7
Eliminations euro million 186 -182 -
Income taxes euro million -30 -95 68.4
Net profit euro million 121 507 -76.1
Earnings per share euro 0.18/0.19 0.77/0.78 -76.6/-75.6


1 including G 650X assembly by Piaggo S.p.A., Noale, Italy, excluding Husqvarna Motorcycles (1,993 units).
2 excluding Husqvarna Motorcycles (2,907 units)
3 Automobiles segment
4 for common/preferred stock in accordance with IAS 33.



1 January to 30 June 2009 1 January to 30 June 2008 Change
in %
Vehicle production
Automobiles units 573,646 819,306 -30.0
Motorcycles1 units 50,263 60,561 -17.0

Deliveries to customers
Automobiles units 615,454 764,874 -19.5
Thereof:
BMW units 513,591 637,569 -19.4
MINI units 101,534 126,810 -19.9
Rolls-Royce units 329 495 -33.5
Motorcycles2 units 46,974 55,932 -16.0

Workforce at end of quarter 98,261 106,027 -7.3

Operating cash flow3 euro million 2,109 2,383 -11.5

Revenues euro million 24,480 27,837 -12.1
Profit before financial result
(EBIT) euro million 114 1,252 -90.9
Thereof:
Automobiles euro million -282 1,014 -
Motorcycles euro million 54 92 -41.3
Financial Services euro million 145 118 22.9
Other Entities euro million 38 124 -69.4
Eliminations euro million 159 -96 -
Loss/profit before tax euro million -47 1,243 -
Thereof:
Automobiles euro million -629 864 -
Motorcycles euro million 50 87 -42.5
Financial Services euro million 153 148 3.4
Other Entities euro million 42 337 -87.5
Eliminations euro million 337 -193 -
Income taxes euro million 16 -249 -
Net loss/profit euro million -31 994 -
Earnings per share4 euro -0.05/-0.04 1.52/1.53 -


1 excluding Husqvarna Motorcycles (4.117 units).
2 excluding Motorcycles (4.867 units).
3 Automobiles segment
4 for common/preferred stock in accordance with IAS 33.

 

[mika]

Statement by Dr. Norbert Reithofer, Chairman of the Board of Management of BMW AG, Conference Call Interim Report to 30 June 2009
ÔÇó 04.08.2009
ÔÇó Speech
Ladies and Gentlemen!

The BMW Group is standing its ground in a persistently difficult market ÔÇô as an independent car company that has a sound financial footing.

Based on our Strategy Number ONE, we started early to realign the entire company.
And we have launched various strategic measures to offset the effects of the global economic crisis. So far, these efforts have served us well in these difficult times.
Today I would like to touch briefly on the following two issues:
1. Where do we stand?
2. How are we getting ahead with our strategy?

So, where do we stand at the end of the first half of 2009?
ÔÇó We achieved earnings before interest and taxes
of 114 million Euros.
ÔÇó Earnings before taxes and Group profit are slightly negative because of the negative first quarter.
ÔÇó In the first six months of this year, we delivered a total of over 615,000 cars ÔÇô down 19.5 percent year-on-year. This means we will not be able to match last yearÔÇÖs high retail volume.

The climate on the automotive markets remains tense.

It is mainly the volume car companies who benefit from current government-backed programs, like the scrappage bonus in Germany and France. So we will be much less affected when the program is discontinued next year.
In June, our sales increased again in some markets compared to the previous year:
ÔÇó Germany plus 15 percent
ÔÇó China plus 44 percent
ÔÇó India and Brazil plus 20 percent and plus 100 percent respectively. In Brazil, we introduced the MINI in April.

With regard to global sales, retail decline slowed down in the second quarter. However, in the large triad markets ÔÇô the US, Japan and Western Europe ÔÇô the downturn in consumption continues.

Even though some indicators suggest that the economic situation might improve in the second half of the year ÔÇô we remain cautious. There is still a lot of uncertainty in the markets. There is no unified agreement among experts.

This is why we are not announcing a result forecast for the full year 2009 today. We will continue to use measures to steer the company through these hard times.

Our new models will definitely help us in this area:
ÔÇó The new BMW Z4 has been on the market since May and is selling very well.
ÔÇó The new all-wheel drive BMW 7 Series will be launched this fall while the V12 version is currently being presented to the media. As the positive sales figures for the new BMW 7 Series show: There is market demand for large, high-efficiency cars.
ÔÇó The same is true for our SAVs. We are going to introduce the M models of the BMW X5 and X6 in September.

ÔÇó In the fall we will launch the BMW X1 and the BMW 5 Series Gran Turismo. To meet demand, production will be stepped up, with Plants Munich and Leipzig working extra shifts. In Dingolfing, we will temporarily suspend short-time work for the months of September and October. Already in July, we reduced the number of workers on short time to about 12,000.

The BMW Group is the worldÔÇÖs leading premium car manufacturer. As we see it, this leads to a particular responsibility.

We believe that premium will have to set clear standards with regards to sustainability.
Which brings me directly to my second point: How are we getting ahead with our strategy?

The general understanding of premium is increasingly defined by sustainability in all its aspects. Customers want to know:
ÔÇó Is a product made in a resource-friendly way?
ÔÇó What kind of company stands behind this product?
ÔÇó Does this company act responsibly and sustainably?

Being able to answer these questions satisfactorily is crucial for a companyÔÇÖs long-term economic success ÔÇô in my opinion.

In the automotive industry, we are presently the company with the best sustainability performance.

In May 2009, BMW Group was once more listed on the FTSE4Good, which is one of the leading sustainability indexes in the world. This means that independent experts have again confirmed our high sustainability standards.

And this is the path we will continue to follow ÔÇô with our products and how we produce them.

In line with our Strategy Number ONE, we continue to focus our expertise and financial resources on sustainability and new drive technologies.

Let me give you a few examples:
ÔÇó First: Due to Efficient Dynamics, we have reduced fuel consumption of our BMW and MINI fleet in Germany to an average of 5.9 liters per 100 km. Unlike with the scrappage incentive, BMW definitely benefits from the new, partly CO2-based motor tax ÔÇô and this is a long-term effect. Due to this tax adjustment effective as of July 1, driving a BMW has on average become more economical. Our BMW 118d is the passenger car in Germany that offers the greatest savings on tax, compared to the previous, only cubic capacity-based taxation.
ÔÇó Second: At the Frankfurt Motor Show, we are going to introduce innovative concepts that combine sporting flair and efficiency in an even more compatible way. At the same time, IAA marks the kick-off for a comprehensive sustainability campaign that demonstrates what we plan to achieve in the future.
ÔÇó Third: The sustainable alignment of our company is also the driving force behind our decision to end our Formula 1 activities with the end of the 2009 season.
ÔÇó Fourth: We have developed the MINI E. TodayÔÇÖs largest fleet of electric cars is currently being tested by customers in everyday driving.
ÔÇó Fifth: Our project i is working on a Megacity Vehicle as well as on new mobility concepts. The Board has now decided: This auto will be launched on the market as a sub-brand of BMW. As BMW is the innovation driver within the Group, the decision for a sub brand under BMW is the most logical step. Details on this topic will be made known later this year.

All of these examples clearly demonstrate our drive to be the leader when comes to premium.

But it is first and foremost new drive technologies that will pave the way for a sustainable future.

We as well as other companies have invested early on in the development of new, economic technologies. Now it is all about establishing suitable regulations on an international level that will help a new type of mobility to grow. A reliable framework is important for every carmaker to continue to invest effectively and efficiently.
A promising option also for us is electric mobility.

As announced yesterday, we have chosen SB Limotive as the supplier of battery cells for our future Megacity Vehicles. This is a further step within Strategy Number ONE. This cooperation gives us access to state-of-the-art lithium-ion storage technology.
Both partners of this joint venture Bosch and Samsung SDI have the competence and ability to handle the entire battery lifecycle up to the stage of re-use or recycling.
Acting sustainably also means thinking ahead.

True, there might be a few scattered indicators of an economic recovery. However, the economic environment will remain volatile, unstable and characterized by the global economic and financial crisis. A lasting recovery period is not yet in sight.
This is why we will continue to act with foresight.

Step by step we will continue to implement our vision of becoming the leading provider of premium products and premium services for individual mobility.

Thank you very much.

 

[mika]

Statement by Dr. Friedrich Eichiner, Member of the Board of Management of BMW AG, Finance, Conference Call Interim Report to 30 June 2009
ÔÇó 04.08.2009
ÔÇó Speech
Ladies and Gentlemen,
Now I would like to say ÔÇ£Good MorningÔÇØ to you. As Dr. Reithofer, I will be brief so that you have more time to ask questions.

Intensive cost control and prudent financial management are the two main pillars of our half-year result.

Group EBIT in the second quarter amounted to 169 million euros. This reflects our resolute course in improving efficiencies. Following the loss in the first quarter, earnings in the first half of the year were slightly above break-even, with the EBIT amounting to 114 million euros. Earnings were hampered by substantial market decline and fierce competitive pressure.

The downward trend in sales volume slowed considerably in June. We expect to see a slightly positive development in the second half of the year. However, the basis effect will play a primary role here.

Positive signals from the stock markets and from some economic indicators show the first signs of a slight improvement. This and the slowing pace of sales volume reductions gives us reason to be somewhat cautiously optimistic. However, we cannot predict whether a stable recovery is indeed imminent. Instead, we are bracing ourselves for a persistently difficult and volatile environment in the second half of the year.

Therefore, we remain cautious and will continue to take measures to enhance efficiency and lower costs. As before, we will fight for every euro and every customer.

In this regard, our sights are set on both fixed and variable costs. As explained when we announced our strategy Number ONE, these efforts will take increased effect when we start production for new models. As you know, we will launch a host of new models from the end of 2009 onwards. We will keep you updated over the remaining course of the year.

What steps did we take in the second quarter?

We continued to adjust vehicle production to demand with foresight. In total, manufacturing output in the second quarter was 26% down year on year to 306,000 units. Sales volume exceeded production by 32,000 units.

We continued to implement measures to reduce fixed costs even furtherÔÇöacross all areas within the company. This gives us the room for maneuver that we need.
We will improve our capital efficiency even more in 2009. As announced, we will reduce capital expenditure by 10% compared with last year.

We are also optimizing our development costs: The realized potential enables us to invest in forward-looking technologies, despite the large number of new model startups. In so doing, we are strengthening our leading position in Efficient Dynamics.

Scaling back inventories and actively managing receivables and liabilities enabled us to decrease working capital in the Automobiles segment in the first half of the year. Net current assets were down more than 1.5 billion euros. As we fill the pipeline in the second-half of the year with new models and production start-ups, we expect a rise in working capital.

Cash flows from operating activities in the Automobiles segment amounted to 987 million euros in the second quarter. In the first-half of the year, this figure amounted to EUR 2.1 bn, a decline due to the overall sales trend of 11.5% versus the first-half of 2008. With this result, we asserted ourselves quite well in a difficult environment, particularly considering the 19.5% decline in sales.

In the second quarter, we again generated a positive free cash flow in the Automobiles segment in the amount of 296 million euros. Free cash flow generation in the first-half year was thus significantly positive and amounted to EUR 516 mn. These key performance indicators show that we have clear control over our financial management despite the market challenges. Despite the previously mentioned effects on working capital, we will continue to work towards achieving a positive free cash flow for the year as a whole.

Our liquidity base improved again from the first to the second quarter.
At the end of June, the GroupÔÇÖs liquidity position was 11.9 billion euros. We took advantage of the easing of debt capital markets in the first six months and raised funds under attractive conditions. I would also like to highlight an ABS transaction in the USA, which enabled us to source 2 billion US dollars at a total cost of approximately 2.8% over three years.

Once again, global access to capital markets and the ability to select refinancing tools flexibly paid off for the BMW Group in the second quarter. Despite the difficult environment, we succeeded in optimizing refinancing costs and benefited from the reduction in risk spreads.

This puts us in a position to slightly reduce our liquidity in the second half of the year.
In the second half of 2009, we will assess the marketÔÇÖs development and the situation on the capital markets to determine whether we will externalize another tranche of our pension obligations. This externalization, which is part of our Strategy Number ONE, does not only benefit our employees. It also results in financial advantages for the company as a whole.

This step will depend on the economic situation and the stability of the capital markets.
LetÔÇÖs now turn to the individual segments.

We sold a total of 615,000 units in the Automobiles segment in the first six months. The decline in sales volume caused revenues to slip by 21% to 10.8 billion euros compared with the same period last year. The segmentÔÇÖs EBIT amounted to -282 million euros in the first half. In the second quarter, it totaled only -31 million euros.

We posted another positive EBIT in the second quarter in the Motorcycles segment. All in all, we earned an EBIT of 54 million euros in the first six months. This is 41% down year on year, owing to the decline in sales volume.

We adjusted production output to demand in time here as well. We even succeeded in gaining market share in some markets, despite the market contraction.

The Financial Services segment proved its mettle in a difficult market environment. New business with customer contracts was down 19% year on year due to the sales volume decline. The penetration rate for the first half of the year was 47%.
Furthermore, we shifted our focus from leasing to credit financing. These two business lines are now of roughly equal size. In total, Financial Services recorded a profit before tax of 81 million euros in the second quarter. This was 27% up on the same period last year.

What does the segmentÔÇÖs risk situation look like? The residual value of used cars in the US and UK recovered in the first half of 2009. This was due to increased demand for used cars and sales-promotion measures aimed at returns. Based on the Manheim Index, the US used luxury car segment hit the highest level since 2001. We achieved higher residual values than forecast in both markets.

In contrast, residual values in Germany and several other European countries are displaying a more negative trend. In Germany, the scrapping bonus, additional dealer rebates and other factors are causing used car prices to drop. They have not bottomed out yet. Other European markets are depicting a similarly negative picture, caused by comparable state support measures for parts of the automotive industry and the effects of the recession.

The negative trend in one region for residual values is being offset by the positive trend in the other. We expect the used-car markets to continue displaying difficult and diverging developments.

Credit risks are facing a similar situation. The credit loss ratio recorded a marginal drop from the first to the second quarter. However, we do not view this as a sign of recovery. In light of mounting unemployment rates, short-time work, and the falling consumer index, we do not see any signs of easing in terms of credit defaults in the second half of the yearÔÇöneither for individual customers, nor for dealerships. We have planned for and taken the appropriate risk provisions in our results.

Given current economic forecasts, we can expect the economy to bottom out in the second half of 2009. But there is no stable upward trend on the horizon, and setbacks cannot be ruled out.

As I mentioned earlier, the Board of Management is anticipating a challenging second half-year. We expect competition to remain very fierce. This may have an adverse effect on profits in the months ahead.

We will proceed with our resolute financial management and continue to act both flexibly and with foresight. As before, we will pursue the profitability goals established in our Strategy Number ONE with full force. We expect to be able to seize opportunities to improve earnings on this basis.

In addition, we expect the upcoming new models to give us tailwind. These will make our portfolio even more attractive and improve our chances on the market.
As you can see, the financial figures of the BMW Group clearly show that the relative strength of the company has grown despite an intense competitive environment.

Thank you for your attention.

 

[lkchris]

Omits the part about bailing from Formula 1.

 

[mika]

Yes it does. That technically happened in the third quarter. How they deal with it will be something to watch for when that report comes out.