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Conference Call Interim Report to 31 March 2018¶

Statement by Harald Krüger, Chairman of the Board of Management of BMW AG. Statement by Dr Nicolas Peter, Member of the Board of Management of BMW AG, Finance.

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Statement by Harald Krüger, Chairman of the Board of Management of BMW AG, Conference Call Interim Report to 31 March 2018

Good morning, Ladies and Gentlemen!

 

The first quarter of 2018 continued to build on our successful 2017 financial year. And the BMW Group remains the world’s most profitable car company in the world. This underscores our core philosophy: We continue to chart our own course – even in a volatile environment. Our Strategy NUMBER ONE > NEXT provides a clear direction for shaping future mobility.

 

We have once again set the bar even higher with our goals for the current financial year. We are targeting:

•      a slight increase in automotive deliveries and a new all-time high.

•      Group earnings before tax at the same high level as last year, and

•      an EBIT margin in the Automotive Segment within our target range of  8 to 10 percent.

 

After the first three months, we are right on track:

•      For the first time, we delivered more than 600,000 vehicles in a first quarter.

•      Our BMW, MINI and BMW Motorrad brands all achieved new first-quarter sales highs.

•      We made gains in all major market regions: Asia, including China; Europe, including Germany; and the Americas, including the US.

•      Our EBIT margin in the Automotive Segment is at the high end of our target range, at 9.7 percent.

 

At the same time – and we believe this is crucial – we are continuing to invest in our future. We are tackling several key areas at the same time.

 

1.     We will continue to expand the electrification of our portfolio.

2.     We will be launching various new models.

3.     We are accelerating our autonomous driving activities.

 

First, a few words about electrification:

 

I have often said that: The e-mobility growth curve is exponential. This is confirmed by our sales figures for the first quarter of 2018 compared with the first three months of last year:

 

•      Between January and March, we sold over a third more electrified vehicles.

•      Sales of our BMW iPerformance plug-in hybrids are up more than 40 percent.

•      Our MINI Countryman with plug-in-hybrid drive train is also in strong demand.

•      In the US, demand for BMW i, BMW iPerformance and MINI Electric vehicles increased by an impressive 78 percent during this period.

 

I have stated our goal for the full year very clearly: We aim to sell at least 140,000 electrified vehicles this year. Our new models will help us achieve this: I am talking, of course, about the BMW i8 Roadster and the revised BMW i8 Coupé, which will be launched in May. Both come with the fourth generation of the BMW eDrive technology for plug-in hybrids. This enhances significantly their electric range. You already know that we plan to offer 25 electrified models by 2025 – 12 of them pure electric.

 

You can already see what lies ahead, this year. We will be presenting three all-electric concept vehicles:

 

•      Our new technology flagship, the BMW iNEXT.

•      The BMW i4 as a four-door coupé, and

•      the first fully-electric vehicle of our core brand will be the BMW iX3, which I presented in China this April.

 

All these vehicles will go into series production over the next few years. The BMW iNEXT combines the key technologies for future mobility. Its innovative design brings these technologies to life. It serves as a modular kit and an innovative enabler for all our future vehicles within the Group. We are building the iNEXT and i4 here in Germany – in Dingolfing and Munich, respectively. On the one hand, we are clearly strengthening relevant technologies for future mobility at our home base in Germany.

 

On the other, we our focusing on China as it is the world’s biggest market and a real driving force in e-mobility. Through this, we are sending a strong signal for sustainable mobility in China: From 2020, we will be producing our first fully-electric BMW – the iX3 – in Shenyang, which will be the start of using pure electric drivetrains within our core brand. The iX3 will be the first to use our fifth-generation electric drivetrains. Our customers in China already have six electrified models to choose from. And they also have access to the world’s largest network of public charging points. By the end of this year alone, there will be 80,000 ChargeNow charging points in more than 100 cities.

 

We also plan to build pure electric MINI vehicles in China in the future. For this reason, we have signed a letter of intent with Great Wall Motor to create a second joint venture in China. And we will continue to work successfully with our joint-venture partner, BBA, which is now in its 15th year.

 

Now, we will be adding another local model – the new BMW X3. Starting in the summer, this model will also be produced in China, as well as in Spartanburg, in the US, and Rosslyn, South Africa, to meet worldwide high demand.

The X3 brings the number of BMW models produced in China to six. With our local partners, the long-term focus is on creating a win-win situation for everyone.

 

China has signalled plans to eliminate tariffs and to open its auto market further. Global thinking and global acting are what have made the BMW Group successful. Our business approach has always been based on: free trade and open markets. Customs duties and trade barriers only divide the world into regions and are not conducive towards global prosperity and worldwide economic development. That is why we will continue to advocate for customs duties to be dismantled.

 

Let’s move on to my second point: New models.

 

We are now in Phase II of our model offensive – where the focus is on luxury and the X family. We earn high margins in this segment. Our offensive will receive a major boost over the coming months from:

 

•      The new BMW X2.

•      The new X4.

•      The BMW 8 Series Coupé – which launches the 8 Series range, with a total of six models.

•      Model updates to the 3 and 5 door MINIs and the MINI Convertible, and

•      The new Rolls-Royce Phantom.

 

EarIier this year I made it a point to meet with our dealers in the US and China. We showed them our new models for the coming months. The dealers in both countries were extremely pleased and could hardly wait to have these new models in their showrooms. These new models offer growth opportunities for the dealers and for our company. For us, new products and new technologies go hand in hand.

And that brings me to my third point: Autonomous driving.

 

In April, we officially opened our Autonomous Driving Campus, outside Munich. We intend to play a leading role in autonomous driving. And safety remains the absolute priority for us in this technological advancement. Our iNEXT, which we will launch in 2021, will be fully electric and completely connected. It will not only be partially autonomous, but also completely safe. The iNEXT will be followed by a whole range of additional highly-automated models. For this reason, we are combining all our expertise in vehicle connectivity and automated driving at the new campus. We will also be introducing new forms of collaboration in a highly flexible working environment, designed for quick decision-making.

 

Our new campus is further proof that: The customer is at the center of all that we do. To build a base of 100 million active customers by 2025, we will need a complete ecosystem that provides an all-round service to fulfill all our customers’ demands and needs. To strengthen our mobility services, we are combining our activities in this area with those of Daimler AG. The planned joint venture will combine both on-demand mobility offerings on an equal footing. Together, we will define the development of services and digitalisation in our industry. We want to take our customers’ experience of premium mobility beyond the vehicle.

 

Ladies and Gentlemen, as you can see: We take a clear holistic approach towards bringing future mobility into the lives of our customers. And I remain confident that the BMW Group will be in the forefront of these future advancements within our industry and beyond. This is the message I will share with our shareholders at our Annual General Meeting in a fortnight, and that 2018 is set to become another record year – the ninth in a row to be exact.

 

Thank you.

 

Statement by Dr Nicolas Peter, Member of the Board of Management of BMW AG, Finance.

 

Ladies and Gentlemen,

 

Good morning.

 

The BMW Group performed well in the first quarter – fulfilling all our expectations. Our positive operating performance shows: our strategy is generating strong results.

 

Group earnings again reached the same high level as last year. The EBIT margin in the Automotive Segment rose to 9.7%, despite higher R&D costs. We are well positioned in our target corridor of 8-10%. Segment EBIT is on par with the previous year, despite high upfront investments and headwinds from currency and commodity prices. We already announced at the Annual Press Conference that our R&D spending for this year will reach a new record high.

 

We are investing in future projects and expanding our innovation leadership. R&D costs increased by over 100 million euros in the first quarter. As planned, we were able to partially offset this additional expenditure with internal efficiency improvements. However, as already announced in March, we will see a significant increase in costs in the second half of the year.

 

This is due to the large number of vehicle launches and continued upfront investments in future technologies. The negative impact of currency and commodity prices dampened earnings. For the full year, we expect a headwind in the mid to high three-digit million-euro-range, due to various economic and political conditions. As part of the transition to the new IFRS 15 accounting standard, certain comparative figures from the previous year had to be adjusted. You will find more details on this in the current Quarterly Report.

 

First, let’s take a closer look at the Group figures.

 

First-quarter revenues decreased to 22.69 billion euros. Adjusted for negative currency effects, they were approximately on par with the previous year. Group earnings before tax totalled 3.17 billion euros – which is on par with the high level of the previous year. The EBT margin was 13.9%. The higher financial result reflects the positive earnings contribution of our Chinese joint venture and valuation effects from the acquisition of DriveNow, among other factors. In line with this strong business performance, Group net profit rose slightly to 2.30 billion euros.

 

Ladies and Gentlemen,

 

We are strengthening our product portfolio this year: This includes renewing and expanding our X family, as well as our product offensive in the luxury segment. When it comes to future technologies, we are also competing in the Champions League: Our newly-opened Autonomous Driving Campus and our Battery Cell Competence Centre underline this commitment. Flexibility is an essential component of this. It is what makes us robust and competitive. As part of our continuing strategic development, we invested almost 130 million euros more in the first quarter than in the same period of 2017 – a total investment of around 734 million euros.

 

As a result, the capex ratio rose to 3.2%. For the full year, we expect a ratio of up to 5%. We will therefore continue to remain in our long-term target corridor. As announced, R&D expenditure also remained at a high level and totalled 1.27 billion euros for the year to the end of March. Due to high upfront investments in new products and technologies, we expect this figure to reach around 7 billion euros over the course of the year. The R&D ratio currently stands at 5.6%. The figure for the full year 2018 will be between 6.5 and 7%.

 

Let’s take a look at the Automotive Segment.

 

In the first quarter of 2018, global sales performed well, increasing by 3.0%.

The strong euro meant that segment revenues were slightly lower than the previous year. Adjusted for currency effects, revenues were up 1.5%. The segment EBIT of 1.88 billion euros was on par with the previous year – despite higher R&D costs and headwinds from currency and commodity prices. This was offset somewhat by positive effects from volume/mix/market and efficiency improvements. The financial result once again contributed to positive pre-tax earnings. Our Chinese joint venture, BBA, increased its earnings contribution to 240 million euros. Sales climbed 20% in the year to the end of March. The X1 and the new 5 Series in particular are highly popular.

 

The valuation effect from the acquisition of DriveNow also had a positive impact. This was offset by a similarly high positive valuation effect from the previous year in connection with new investors acquiring a stake in the mapping service HERE. Pre-tax earnings amounted to 2.28 billion euros.

 

Ladies and Gentlemen,

 

These figures underline that our core business is built on a very solid foundation. At the end of the first quarter, despite a planned significantly higher accumulation of working capital, free cash flow stood at 302 million euros. For the full year, we continue to target a free cashflow of more than 3 billion euros.

 

In the Financial Services Segment, the total portfolio of customer financing contracts reached almost 5 million. In the first quarter, 47.3% of all BMW Group new vehicles were leased or financed by the Financial Services Segment. Almost 452,000 new contracts were concluded with retail customers. The segment’s risk situation remained stable. Overall, used-car prices are trending downward slightly in international markets, as expected. We place a strong emphasis on proactive risk management. We evaluate our portfolio on a regular basis, so that we can make adequate provisions for our business risks at all times.

 

Let’s move on to the Motorcycles Segment.

 

Almost 36,000 motorcycles were delivered to customers in the first three months of 2018. Revenues were 15.5% lower than the previous year, at 524 million euros. Due to the ramp-up of new models, including the impact of various model changeovers, total production declined in the first quarter. Consequently, sales to the retail organisation – which form the basis for revenue recognition – decreased. Currency effects also had a negative impact.

As a result, the Segment’s operating earnings for the first quarter were lower than the previous year. The EBIT margin was 14.7%.

 

Now to the outlook for the full year.

 

As long as political and economic conditions do not deteriorate significantly, we expect positive business development in 2018. We are targeting Group earnings before tax at least on par with the high level of the previous year. In late March, BMW AG and Daimler AG signed an agreement to combine their mobility services.

 

If approved by the relevant authorities in the course of this year, the formation of the joint venture will trigger a one-time valuation and earnings effect in the BMW AG’s group financial statement and thus lead to an adjustment of the company’s guidance. Under these circumstances, pre-tax earnings on Group level would increase slightly in 2018 compared with the previous year.

 

In the Automotive Segment, we anticipate a slight increase in deliveries and revenues for 2018. Despite high upfront investments, we still aim to keep the EBIT margin between 8 and 10%. We now expect a slight increase in deliveries in the Motorcycles Segment in 2018. Our target for the EBIT margin remains unchanged at between 8 and 10%. In the Financial Services Segment, we expect return on equity to exceed our new target figure of 14%.

 

Ladies and Gentlemen,

 

The BMW Group is on course to meet its guidance for the full year. In 2018, we will continue to make important strategic decisions. And, as you know: Whatever we start is well thought through, and we implement it sustainably. In such a volatile environment, our core business delivers the highest level of performance from one quarter to the next. This gives us the freedom we need to continue investing in our future.

 

Thank you.

 

 

Consumption and Emission Data.

 

BMW X1:

Fuel consumption in l/100 km (combined): 6.5-4.6

CO2 emissions in g/km (combined): 149-120

 

The fuel consumption, CO2 emissions, power consumption and operating range figures were determined according to the European Regulation (EC) 715/2007 in the version applicable. The figures refer to a vehicle with basic configuration in Germany and the range shown considers the different sizes of the selected wheels/tyres and the selected items of optional equipment.

 

Further information on official fuel consumption figures and specific CO2 emission values of new passenger cars is included in the following guideline: 'Leitfaden über den Kraftstoffverbrauch, die CO2-Emissionen und den Stromverbrauch neuer Personenkraftwagen' (Guideline for fuel consumption, CO2 emissions and electric power consumption of new passenger cars), which can be obtained free of charge from all dealerships and at https://www.dat.de/en/offers/publications/guideline-for-fuel-consumption.html.

 

 

Consumption and Emission Data.

BMW X1:

Fuel consumption in l/100 km (combined): 6.5-4.6

CO2 emissions in g/km (combined): 149-120

BMW i8 Coupé:

Fuel consumption in l/100 km (combined): 1.8

CO2 emissions in g/km (combined): 42

Power consumption in kWh/100 km (combined): 14.0

 

BMW i8 Roadster:

Fuel consumption in l/100 km (combined): 2.0

CO2 emissions in g/km (combined): 46

Power consumption in kWh/100 km (combined): 14.5

 

BMW X2:

Fuel consumption in l/100 km (combined): 6.2-4.5

CO2 emissions in g/km (combined): 142-119

 

BMW X3:

Fuel consumption in l/100 km (combined): 8.4-5.0

CO2 emissions in g/km (combined): 193–132

 

BMW X4:

Fuel consumptions in l/100 km (combined): 9.0-5.4

CO2 emissions in g/km (combined): 209-142

 

MINI 3 door:

Fuel consumption in l/100 km (combined): 6.0-4.8

CO2 emissions in g/km (combined): 138-109

 

MINI 5 door:

Fuel consumption in l/100 km (combined): 6.2-4.8

CO2 emissions in g/km (combined): 141-110

MINI Convertible:

Fuel consumption in l/100 km (combined): 6.3-5.2

CO2 emissions in g/km (combined): 144-118

 

MINI Cooper S E Countryman ALL4:

Fuel consumption in l/100 km (combined): 2.3-2.1

CO2 emissions in g/km (combined): 52-49

Power consumption in kWh/100 km (combined): 14.0-13.2

 

Rolls-Royce Phantom:

Fuel consumption in l/100 km (combined): 13.9

CO2 emissions in g/km (combined): 318-319

 

 

The fuel consumption, CO2 emissions, power consumption and operating range figures were determined according to the European Regulation (EC) 715/2007 in the version applicable. The figures refer to a vehicle with basic configuration in Germany and the range shown considers the different sizes of the selected wheels/tyres and the selected items of optional equipment.

 

Further information on official fuel consumption figures and specific CO2 emission values of new passenger cars is included in the following guideline: 'Leitfaden über den Kraftstoffverbrauch, die CO2-Emissionen und den Stromverbrauch neuer Personenkraftwagen' (Guideline for fuel consumption, CO2 emissions and electric power consumption of new passenger cars), which can be obtained free of charge from all dealerships and at https://www.dat.de/en/offers/publications/guideline-for-fuel-consumption.html.

Consumption and Emission Data.

BMW i8 Coupé:

Fuel consumption in l/100 km (combined): 1.8

CO2 emissions in g/km (combined): 42

Power consumption in kWh/100 km (combined): 14.0

 

BMW i8 Roadster:

Fuel consumption in l/100 km (combined): 2.0

CO2 emissions in g/km (combined): 46

Power consumption in kWh/100 km (combined): 14.5

 

BMW X2:

Fuel consumption in l/100 km (combined): 6.2-4.5

CO2 emissions in g/km (combined): 142-119

 

BMW X3:

Fuel consumption in l/100 km (combined): 8.4-5.0

CO2 emissions in g/km (combined): 193–132

 

BMW X4:

Fuel consumptions in l/100 km (combined): 9.0-5.4

CO2 emissions in g/km (combined): 209-142

 

MINI 3 door:

Fuel consumption in l/100 km (combined): 6.0-4.8

CO2 emissions in g/km (combined): 138-109

 

MINI 5 door:

Fuel consumption in l/100 km (combined): 6.2-4.8

CO2 emissions in g/km (combined): 141-110

MINI Convertible:

Fuel consumption in l/100 km (combined): 6.3-5.2

CO2 emissions in g/km (combined): 144-118

 

MINI Cooper S E Countryman ALL4:

Fuel consumption in l/100 km (combined): 2.3-2.1

CO2 emissions in g/km (combined): 52-49

Power consumption in kWh/100 km (combined): 14.0-13.2

 

Rolls-Royce Phantom:

Fuel consumption in l/100 km (combined): 13.9

CO2 emissions in g/km (combined): 318-319

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