BMW Group adjusts forecast to market conditions

Significant deterioration in business conditions Provisions for
residual value risks increased to euro 695 million Workforce reduction
expense of euro107 million Second-quarter and six-month earnings down
Operating performance improves in the first half of year Munich.
Business conditions for the automobile industry deteriorated sharply
again in the second quarter due to further ongoing steep rises in oil
and raw material prices, the weakness of the US dollar, the impact of
the international financial crisis and a weaker US economy. As a
result, the price level of pre-owned cars in the USA - and hence the
level of revenues that can be generated on vehicles returned at the end
of leases - remained under further pressure. This situation has made it
necessary for the BMW Group to increase its risk provision. The
expense recognised for provisions and allowances for residual value
risks and bad debts - including the euro 236 million recorded in the
first quarter - increased in total to euro 695 million, thus
significantly holding down earnings for the first half of the year. In
addition, an expense of euro 107 million was recorded in conjunction
with measures already announced to reduce the size of the workforce.
Adjusted return on sales improved to 7.3% for six-month period The
Group's good operating performance in the current year is being
overshadowed by the impact of a significantly less favourable
environment. "At an operating level, the BMW Group has improved
significantly during the first half of the year", stated Norbert
Reithofer, Chairman of the Board of Management of BMW AG on Friday in
Munich. Adjusted for exceptional items - the expense of additional risk
provision and one-time personnel expenses - the return on sales
improved to 7.3% (first half-year year 2007: 7.0%). The impact of
external factors has increased substantially and resulted in additional
costs so far this year to a high three-digit million amount. Despite
the operational improvements made, it has not been possible to offset
this amount in full as had previously been the case. The BMW Group has
therefore revised its earnings forecast to take account of less
favourable market conditions. "We now expect that the pre-tax
return on sales for the year to be at least 4%", continued
Reithofer. An EBIT margin of approximately 4% or higher is forecasted
for the Automobiles segment. In sales volume terms, the BMW Group is
still aiming for a new high level for the year. Given the current
difficult conditions, the BMW Group will continue to monitor the
situation on the pre-owned car markets carefully and, if necessary,
adjust the risk provision for residual value risks and bad debts during
the second half of the year. Implementation of strategy Number ONE
remains top priority Rising raw material prices, increasingly weaker
sales markets in the USA and Europe due to the financial crisis as well
as an unfavourable exchange rate environment require additional
measures to be taken to ensure that the BMW Group remains on its
successful course: "We will use the strong headwinds as an
opportunity for change and continue the process of renovating and
optimising our business in conjunction with strategy Number ONE. We
must and we will intensify our efforts on both the cost and revenues
side even further", announced Reithofer. Implementation of the
strategy Number ONE remains a top priority. The BMW Group is planning,
amongst other things, to implement the following additional measures
aimed at improving profitability: • The BMW Group will continue
to optimise its sales strategy in the light of changed market
conditions. The company intends to retain its position as the world's
leading premium manufacturer in the future. This is only possible
through growth. Sales volume growth, however, will not be pursued at the
expense of profitability. In the light of the ongoing weakness of the US
dollar and market, sales volumes will be reduced in the USA on a
targeted basis as part of a new strategy for this region. Some of the
vehicles originally intended for sale in the USA will be switched from
the US dollar region to countries with higher margins. The BMW Group's
US sales volume figures for 2008 are therefore likely to be lower than
one year ago. The emphasis is also being placed on profit-oriented
growth in other regions. • Production capacities worldwide will
be brought even more closely into line with the major sales markets.
The BMW Group has decided to reduce production volumes and increase
selling prices. • The introduction of a new working time account
model at the beginning of April allows for even greater flexibility in
working hours, therefore making it easier to offset production
fluctuations. • The BMW Group will also negotiate with the
employee representatives about voluntary benefits beyond general pay.
• Within the financial services line of business, measures aimed at
improving residual values and reducing bad debts will be pursued more
intensely. Reithofer: 2009 will also be a challenging year The
macro-economic situation in the automotive industry is unlikely to
improve in the coming year. "We assume that 2009 will be another
difficult year full of challenges", explained Reithofer. The
benefits generated by the strategy Number ONE should be significantly
more perceptible in 2010. The BMW Group aims for 2010, as an
intermediate target, to achieve a Group return on sales of at least 6%
and in Automobiles segment an EBIT of almost 6% or higher. By 2012, the
BMW Group continues to target a return on capital employed (ROCE) in
excess of 26% and an EBIT margin of 8% to 10% for its Automobiles
segment. Strategy Number ONE showing the first signs of success
"The increasing challenges clearly show that our strategy Number
ONE - which we continue to implement rigorously - is an essential part
of the process to safeguard the BMW Group's future and increase its
value", emphasised Reithofer. The implementation of this strategy
is making good progress. The BMW Group is making good progress in the
field of alternative electric-based engines. Results to date are very
promising. "We have therefore decided to construct a vehicle
equipped with an electro-engine" continued Reithofer. At present,
MINI brand vehicles are being used to gain invaluable insights into how
a thrilling driving experience can be achieved with a powerful
electro-engine. This is a further logical step in the implementation of
the company's EfficientDynamics strategy. "The current situation
does not only represent a challenge. We see it primarily as an
opportunity for the BMW Group. The measures we are implementing are
aimed at a significantly more demanding environment than one to two
years ago. Our company will become even more efficient and we will
continue to invest in our future", stated Reithofer. An array of
new products is in the pipeline. The new 7 Series was recently
presented to the general public. Moreover, future models such as the X1
and the Progressive Activity Sedan (PAS) will continue the tradition of
"Sheer driving pleasure", fully incorporating innovative
features such as EfficientDynamics. First half year 2008 affected by
adverse external factors Against the background of the difficult
business conditions described above, second quarter earnings have been
significantly affected by additional adverse factors which have offset
the positive performance at an operating level. The higher expense
recognised for residual value risks and bad debts as a result of
unfavourable developments on the US market reduced second-quarter
earnings by euro 459 million. Compared to the previous year, Group
revenues in the second quarter fell by 0.9% to euro 14,552 million
(second quarter 2007: euro 14,683 million) primarily due to exchange
rate factors. The profit before financial result (EBIT) fell by 58.3%
to euro 425 million (second quarter 2007: euro 1,019 million). The
pre-tax profit, at euro 602 million (second quarter 2007: euro 1,065
million), was down by 43.5%. The net profit decreased by 32.7% to euro
507 million (second quarter 2007: euro 753 million). Revenues for the
six-month period rose by 4.5% to euro 27,837 million (first half-year
2007: euro 26,634 million). Excluding the exchange rate impact,
revenues increased by 9.9%. EBIT amounted to euro 1,252 million (first
half-year 2007: euro 1,931 million/-35.2%) and the profit before tax was
euro 1,243 million (first half-year 2007: euro 1,917 million /-35.2%),
both therefore below the previous year's figures. The pre-tax profit
reported for the first half of 2007 included a one-time gain of euro 61
million on the conversion of the exchangeable bond on shares in the
aero engine manufacturer, Rolls-Royce plc. Group net profit fell by
25.8% to euro 994 million (first half-year 2007: euro 1,340 million).
Adjusted for exceptional items - the expense of additional risk
provision and one-time personnel expenses - the EBT margin improved to
7.3% (first-half year 2007: 7.0%): BMW Group 2nd quarter 2008 2nd
quarter 2007 1st half-year 2008 1st half-year 2007 EBT (in euro
million) 602 1,065 1,243 1,917 EBT margin (in %) 4.1 7.3 4.5 7.2
EBTadjusted* (in euro million) 1,128 1,035 2,045 1,856 EBT margin
adjusted * (in %) 7.8 7.0 7.3 7.0 (*Figures excluding provisions and
allowances for residual value risks and bad debts, workforce reduction
expense and the one-time gain on the settlement of the Rolls-Royce
exchangeable bond). Sales volume growth for all three brands The
BMW Group registered sales volume growth for all three brands for the
period from April to June 2008, and hence new high levels for all
brands. The total number of BMW, MINI and Rolls-Royce brand vehicles
delivered to customers increased by 4.0% to 413,087 units (second
quarter 2007: 397,009 units). Sales of BMW brand cars went up by 2.3%
to 344,019 units (second quarter 2007: 336,230 units). The MINI brand
also recorded strong growth with the second-quarter sales volume up by
13.5% to 68,756 units (second quarter 2007: 60,598 units). Rolls-Royce
Motor Cars recorded an extremely high growth rate, with 312 units
(second quarter 2007: 181 units) sold in the quarter (+72.4%). The BMW
Group sales volume for the six-month period increased by 4.7% to
764,874 units (first half-year 2007: 730,285 units). Sales of BMW brand
cars went up by 2.4% to 637,569 units (first half-year 2007: 622,415
units) as a result of the success of the 1 Series , the X5 and the X6.
126,810 units (first half-year 2007: 107,576 units) of the MINI were
sold in the period, 17.9% more than one year earlier. This was helped
in particular by the performance of the MINI Clubman, which has been
available on the markets since November 2007. The number of Rolls-Royce
brand cars sold increased by 68.4% to 495 units (first half-year 2007:
294 units). Second-quarter reported earnings for the Automobiles
segment were adversely affected by the external factors mentioned
above. EBIT fell by 52.1% to euro 395 million (second quarter 2007:
euro 824 million) and the profit before tax decreased by 59.4% to euro
325 million (second quarter 2007: euro 801 million). Due to the ongoing
weakness of the US dollar, segment revenues fell by 3.5% to euro 13,754
million (second quarter 2007: euro 14,257 million). Excluding the
exchange rate impact, revenues increased by 1.8%. Revenues for the
six-month period edged up by 0.9% to euro 25,916 million (first
half-year 2007: euro 25,675 million). The EBIT of the Automobiles
segment fell by 31.7% to euro 1,014 million (first half-year 2007: euro
1,485 million) and the profit before tax decreased by 38.7% to euro 864
million (first half-year 2007: euro 1,410 million). Adjusted for
exceptional items - the expense of additional risk provision and
one-time personnel expenses - the EBIT margin in the Automobiles
segment improved to 6.1% (first half-year 2007: 5.8%). Motorcycles
business affected by difficult market conditions The Motorcycles
segment sold 34,886 units during the period under report (second
quarter 2007: 36,201/-3.6%). The main factor for the decrease in sales
volume was a poor performance in the USA in the wake of the financial
market crisis. The new two-cylinder models, the F 800 GS and the F 650
GS, are not yet available on the US market. Second-quarter revenues of
the Motorcycles segment totalled euro 392 million (second quarter 2007:
euro 396 million/-1.0%), while EBIT was euro 56 million (second quarter
2007: euro 59 million/-5.1%) and the profit before tax was euro 53
million (second quarter 2007: euro 56 million/-5.4%). Six-month segment
revenues were down by 3.4% to euro 737 million (first half-year 2007:
euro 763 million). The EBIT of the Motorcycles segment fell by 3.2% to
euro 92 million (first half-year 2007: euro 95 million) and the profit
before tax decreased by 3.3% to euro 87 million (first half-year 2007:
euro 90 million). Financial services business adversely affected by
credit crisis The Financial Services segment was again able to expand
business during the period under report. The total business volume as
disclosed in the balance sheet increased by 8.8% to euro 53,115 million
(30 June 2007: euro 48,811 million). The number of lease and financing
contracts in place with dealers and retail customers rose by 12.9% to a
total of 2,806,776 contracts. The proportion of new cars of the BMW
Group financed by the Financial Services segment was 46.4%, 2.4
percentage points above the proportion recorded one year earlier.
Segment revenues climbed by 12.4% to euro 3,877 million (second quarter
2007: euro 3,449 million). The segment profit before tax was adversely
affected by the impact of the financial crisis, as explained earlier.
Segment EBIT decreased by 78.5% to euro 39 million (second quarter
2007: euro 181 million). The pre-tax profit fell by 66.1% to euro 64
million (second quarter 2007: euro 189 million). Six month segment
revenues climbed by 18.4% to euro 7,734 million (first half- year 2007:
euro 6,532 million). Segment EBIT decreased by 68.0% to euro 118
million (first half-year 2007: euro 369 million). The pre-tax profit
fell by 60.2% to euro 148 million (first half-year 2007: euro 372
million). Workforce reduced at end of second quarter The worldwide
workforce at the end of the second quarter decreased to 105,802
employees (30 June 2007: 107,079 employees/-1.2%). The previously
announced reduction of the workforce is progressing in line with plan.
Since September 2007, the workforce has been reduced by approximately
1,500 employees, the number of temporary staff by approximately 4,000.
* * * The full Quarterly Report to 30 June 2008 is available for
download at www.bmwgroup.com/ir. The BMW Group - an Overview 2nd
quarter 2008 2nd quarter 2007 Change in % Vehicle production
Automobiles units 413,711 406,659 1.7 Motorcycles units 31,972 32,772
-2.4 Deliveries to customers Automobiles units 413,087 397,009
4.0 Thereof: BMW units 344,019 336,230 2.3 MINI units 68,756
60,598 13.5 Rolls-Royce units 312 181 72.4 Motorcycles units 34,886
36,201 -3.6 Workforce at end of quarter 105,802 107,079 -1.2
Operating cash flow euro million 1,.217 1,545 -21.2 Revenues
euro million 14,552 14,683 -0.9 Profit before
financial result (EBIT)
euro million 425 1.019 -58.3 Thereof: Automobiles
euro million 395 824 -52.1 Motorcycles euro million 56 59 -5.1
Financial Services euro million 39 181 -78.5 Reconciliations euro
million -65 -45 -44.4 Profit before tax euro million 602 1.065 -43.5
Thereof: Automobiles euro million 325 801 -59.4 Motorcycles euro
million 53 56 -5.4 Financial Services euro million 64 189 -66.1
Reconciliations euro million 160 19 - Income taxes euro million -95
-312 69.6 Net profit euro million 507 753 -32.7 Earnings per share5 euro
0.77/0.78 1.15/1.16 -33.0/-32.8 1st half-year 2008 1st half-year
2007 Change in % Vehicle production Automobiles units 819,306
788,678 3.9 Motorcycles1 units 60,561 68,567 -11.7 Deliveries to
customers Automobiles units 764,874 730,285 4.7 Thereof: BMW
units 637,569 622,415 2.4 MINI units 126,810 107,576 17.9
Rolls-Royce units 495 294 68.4 Motorcycles2
units 55,932 59,230 -5.6 Workforce at the end of quarter 3 105,802
107,079 -1.2 Operating cash flow euro million 2,322 2,798 -17.0
Revenues euro million 27,837 26,634 4.5 Profit
before financial result (EBIT)
euro million 1,252 1,931 -35.2 Thereof:
Automobiles euro million 1,014 1,485 -31.7 Motorcycles euro million
92 95 -3.2 Financial Services euro million 118 369 -68.0
Reconciliations euro million 28 -18 - Profit before tax4 euro million
1,243 1,917 -35.2 Thereof: Automobiles euro million 864 1,410 -38.7
Motorcycles euro million 87 90 -3.3 Financial Services euro million
148 372 -60.2 Reconciliations euro million 144 45 - Income taxes
euro million -249 -577 56.8 Net profit euro million 994 1,340 -25.8
Earnings per share5 euro 1.52/1.53 2.05/2.06 -25.9/-25.7 excluding
Husqvarna Motorcycles (7,924 units) 2 excluding Husqvarna Motorcycles
(6,172 units) 3 excluding employees of Husqvarna Motorcycles (225
employees) 3 Profit before tax for the first half of 2007 includes a
one-time gain of euro 61 million arising from the exchangeable bond on
Rolls-Royce plc shares. 5 For common/preferred stock in accordance
with IAS 33. For questions please contact: Corporate and
Governmental Affairs Mathias Schmidt, Finance Communications Telephone:
(+ 49 89) 382-24118, Fax: (+ 49 89) 382-24418 Marc Hassinger, Business
and Finance Communications Telephone: (+49 89) 382-23362, Fax: (+49 89)
382-24418 Internet: www.press.bmwgroup.com e-mail: presse@bmw.de