BMW Group: Market climate significantly deteriorated

+++ Additional burden of approx. euro 1.3 bn in first three quarters +++
Nine-month EBIT down to euro 1,639 million +++ Operational improvements
achieved in first nine months +++ Forecast for 2008 no longer possible
due to financial crisis +++ Clearly positive earnings expected for the
full year +++ Profitability targets for 2010 and 2012 confirmed +++
BMW Group will emerge stronger from current market climate +++
Munich. The knock-on effects of the international financial crisis and a
downturn in the global economy had a significant negative impact on the
performance of the automobile industry in the third quarter. Ongoing
consumer reticence on the main sales markets, the weak state of the
pre-owned car markets together with difficult refinancing conditions
also took their toll on the BMW Group, resulting in a perceptible drop
in revenues and earnings. Group revenues for the quarter were down by
8.6% to euro 12,588 million (third quarter 2007: euro 13,778 million).
The profit before financial result (EBIT) fell by 60.2% to euro 387
million (third quarter 2007: euro 973 million) reflecting the
significant impact of adverse external factors. The pre-tax profit, at
euro 279 million (third quarter 2007: euro 765 million), was down by
63.5%. The profit after tax decreased by 62.9% to euro 298 million
(third quarter 2007: euro 803 million). Higher expense for residual
value and bad debt risk provision Nine-month revenues increased
marginally to euro 40,425 million (first nine months 2007: euro 40,412
million). EBIT amounted to euro 1,639 million (first nine months 2007:
euro 2,904 million/-43.6%) and the profit before tax was euro 1,522
million (first nine months 2007: euro 2,682 million /-43.3%), both below
the previous year's figures. Group net profit fell by 39.7% to euro
1,292 million (first nine months 2007: euro 2,143 million). In the
face of a general reticence to spend by consumers, the ongoing
difficulties of the pre-owned car markets and increased bad debt risks,
the BMW Group again raised its provision for residual value risks and
credit risks during the third quarter. The expense for risk provision
was euro 342 million in the third quarter, bringing the total expense
recognised in the first nine months of the year to euro 1,037 million.
In addition, a further euro 258 million was incurred during the period
from January to September in conjunction with previously announced
measures to reduce the size of the workforce. BMW Group will emerge
stronger from current difficult situation "The financial crisis is
by no means behind us yet, particularly its impact on the real economy
in 2009. The automobile industry is without doubt facing some extreme
challenges. However, we need to look at the opportunities such times
may bring us. As a strong and innovative company, the BMW Group will
overcome the current difficult situation, putting it into an excellent
starting position for the future", stated Norbert Reithofer,
Chairman of the Board of Management of BMW AG in Munich on Tuesday.
Due to the worsening of the financial crisis, it is currently impossible
to make stable forecasts for the rest of the year and beyond.
"Difficult business conditions and the volatile climate on the
market mean that it is as good as impossible from today's perspective
to make a reliable prediction of the earning outcome for the financial
year 2008. We will, however, achieve a result that is clearly
positive", continued Reithofer. Previously, the BMW Group had
forecast a return on sales of at least 4% for the year: this is no
longer feasible given the sharp deterioration in market conditions.
The BMW Group forecasts that its worldwide sales volume for the full
year will not be as high as the previous year's record level. In view
of the weak state of the global economy, the BMW Group will bring
production volumes into line with market demand, and in additional to
the 25,000 units already announced, will cut back production for the
year by at least a further 40,000 units compared to the original
forecasts. The BMW Group has a highly versatile production network with
flexible working-time accounts which allow it to "breathe".
Profitability programme generates operational improvements A host of
efficiency improvement measures are being implemented at great pace on
both the cost and the revenues side to enable the BMW Group to rise to
future challenges. One important aspect of this is investment in the
future, pushing ahead for example with measures such as
"EfficientDynamics" and "project I" as part of its
strategy Number ONE. The sharper focus on profitability will result,
amongst other things, in product decisions being revisited. As a
result, the BMW Group will no longer produce a series version of the
Concept CS since this vehicle does not meet the internal requirements
for rates of return. The BMW Group has continued to achieve
improvements in operational terms during the period under report, even
if the general positive trend has been increasingly overshadowed by the
impact of adverse external factors (risk provision and severance pay)
totalling approximately euro 1.3 billion. The BMW Group has
significantly increased efficiency in the area of research and
development, with third-quarter R&D expenditure down by 5.1%. Sales
and general administrative costs also fell sharply after adjustment for
severance pay expense. Third-quarter cost of sales was reduced by 5.5%
despite the higher level of expense recognised in the areas of risk
provision, currency and raw materials. This is a clear indication that
efficiency improvements are beginning to benefit material and fixed
costs. Discussions are currently being held with the Works Council with
a view to achieving a closer link between voluntary payments over and
above union-agreed rates and the BMW Group's financial performance.
These negotiations have already resulted in some successes. In view of
the expected decrease in company earnings, the employee profit share
for the current financial year (which is due for payment in 2009) will
be reduced compared to the previous year. The Christmas bonus for the
current year will be paid on the old basis. From 2009 onwards, a new
basis will be used. In the light of the increasing effectiveness of
its profitability improvement measures as part of the strategy Number
ONE, the BMW Group continues to target a group return on sales of at
least 6% for the year 2010. This does, however, depend on the markets
recovering. For the year 2012, the BMW Group continues to target a
return on capital employed (ROCE) in excess of 26% and an EBIT margin
of between 8% and 10% for its Automobile segment. Numerous new models
launched The BMW Group will launch a number of new models in the near
future that will provide momentum for business. The revised models of
the BMW 3 Series Limousine and the BMW 3 Series Touring have already
been available on European markets since the end of September. The new
Rolls-Royce Phantom Coupé has also been available on the markets
since September. The new BMW 7 Series will follow in mid-November. The
BMW Group also presented three concept vehicles -- the BMW Concept X1,
the BMW Concept 7 Series Active Hybrid and the MINI Crossover Concept
-- at the Automobile Show in Paris. With the BMW X6 Active Hybrid and
the BMW 7 Series Active Hybrid, two models employing the highly
efficient Active Hybrid technology will be available in series cars
from the beginning of the coming year. Automobiles segment earnings
adversely affected by external factors In addition to model life-cycle
factors, the third quarter sales volume performance was perceptibly
affected by reduced customer spending in the wake of the financial
crisis. The total number of BMW, MINI and Rolls-Royce brand vehicles
delivered to customers decreased by 4.2% to 349,098 units (third
quarter 2007: 364,564 units). Sales of BMW brand cars went down by 5.3%
to 290,661 units (third quarter 2007: 306,964 units). MINI registered a
1.4% sales volume increase to 58,105 units (third quarter 2007: 57,315
units) despite the forthcoming model change of the Convertible.
Rolls-Royce achieved a significant sales volume, with 332 units (third
quarter 2007: 285 units) sold. The number of cars sold in the first
nine months of the year edged up by 1.7% to 1,113,972 units (first nine
months 2007: 1,094, 849 units). Sales of BMW brand cars, at 928,230
units, were almost at the previous year's level (929,379/-0.1%). The
MINI brand also made good progress, with sales up by 12.1% to 184,915
units (first nine months 2007: 164,891 units). Rolls-Royce handed over
827 units to customers (first nine months 2007: 579 units), 42.8% up on
the corresponding period last year. Third-quarter earnings of the
Automobile segment were adversely affected by uncertainties on the part
of consumers, the higher expense recognised for residual value risks,
currency factors and high raw material prices. EBIT fell by 82.1% to
euro 141 million (third quarter 2007: euro 788 million) and the profit
before tax decreased by 97.4% to euro 18 million (third quarter 2007:
euro 704 million). Revenues decreased by 15.2% to euro 11,113 million
(third quarter 2007: euro 13,107 million). Nine-month revenues dipped
by 4,5% to euro 37,029 million (first nine months 2007: euro 38,782
million). The EBIT of the Automobiles segment decreased by 49.2% to
euro 1,155 million (first nine months 2007: euro 2,273 million) and the
profit before tax fell by 58.3% to euro 882 million (first nine months
2007: euro 2,114 million). The expense for risk provision during the
first nine months of the year was euro 560 million. Third-quarter
sales volume increase for BMW Motorcycles The BMW Group's Motorcycles
segment sold 24,818 units in the period from July to September (third
quarter 2007: 23,549 units), an increase of 5.4% over the previous
year. This performance was helped by the positive resonance received
from customers and media for the new F 650 GS and F 800 GS models.
Revenues of the Motorcycles segment for the three month period increased
by 4.6% to euro 271 million (third quarter 2007: euro 259 million). As
a result of adverse external factors, EBIT fell to a negative euro 5
million (third quarter 2007: positive EBIT of euro 7 million). The loss
before tax was euro 7 million (third quarter 2007: profit before tax of
euro 5 million). The number of motorcycles sold during the nine-month
period fell by 2.5% to 80,750 units (first nine months 2007: 82,779
units), while segment revenues slipped by 1.4% to euro 1,008 million
(first nine months 2007: euro 1,022 million). EBIT fell by 14.7% to
euro 87 million (first nine months 2007: euro 102 million) and the
profit before tax dropped by 15.8% to euro 80 million (first nine months
2007: euro 95 million). Financial services business severely
affected by credit crisis The knock-on effects of the international
financial crisis severely affected financial services business during
the period under report. Third-quarter segment revenues rose by 14.4%
to euro 4,084 million (third quarter 2007: euro 3,569 million).
Third-quarter segment EBIT turned from a positive amount of euro 176
million in 2007 to a loss of euro 26 million in 2008. The pre-tax loss
was euro 17 million (third quarter 2007: pre-tax profit of euro 191
million). In the third quarter 2008, the Financial Services segment
recognised an additional provision expense for credit risks and
residual value risks amounting to euro 232 million. The expense for the
nine-month period totalled euro 477 million. Earnings were also
adversely affected by higher refinancing costs caused by wider credit
spreads on the capital markets. Revenues increased by 17% during the
period under report to euro 11,818 million (first nine months 2007:
euro 10,101 million). EBIT fell by 83.1% to euro 92 million (first nine
months 2007: euro 545 million). The segment profit before tax fell by
76.7% to euro 131 million (first nine months 2007: euro 563 million).
The business volume of the segment in balance sheet terms rose by 17.1%
to reach euro 57,944 million at 30 September 2008. The number of lease
and financing contracts in place with dealers and retail customers rose
by 17.0% to a total of 2,971,437 contracts. The proportion of new BMW
Group cars financed by the Financial Services segment during the first
nine months of the year amounted to 48.0%, 3.3 percentage points higher
than the proportion recorded one year earlier. Workforce reduced
The number of employees was decreased in line with previously announced
plans. The BMW Group workforce comprised 103,625 employees worldwide
(September 30, 2007: 107,731 employees). This corresponds to a
reduction of 3.8%, including the 1,778 employees of the Cirquent Group.
With effect from 30 September, the BMW Group sold 72.9% of its shares
in the IT consultancy firm to the Japanese company, NTT Data. By the
end of the year, the BMW Group will have achieved its target of cutting
out 8,100 positions worldwide, including 3,100 from the core workforce.
These figures do not include Cirquent employees. The BMW Group remains
committed to fulfilling its social responsibilities. More than 1,100
apprentices will be taken on in the coming year, 1,080 of them in
Germany. * * * The full Quarterly Report to 30 September 2008 is
available for download at www.bmwgroup.com/ir. The BMW Group - an
Overview (see table in attached document)