BMW Group Report Profit Down 90% for 2008

We usually save our stories about the overall BMW Group for BimmerFile but since this clearly affects MINI we felt it appropriate.

Official BMW AG Release: The BMW Group’s performance held up well in 2008 despite difficult market conditions. “The BMW Group has been able to make improvements at an operating level in the midst of extremely difficult economic times”, stated Reithofer Norbert, Chairman of the Board of Management of BMW AG, on Thursday in Munich. “Cost structures have been further optimised and, thanks to rigorous management of free cash flow, the BMW Group is in a very solid financial position”, he added.

Difficult economic conditions nevertheless took a toll on the BMW Group’s reported figures for 2008. Just taking the additional risk provision expense for re-sidual value risks — caused by the weak used car markets — and for bad debts (euro 1,968 million in total) plus one-time personnel expenses of euro 455 million, earnings were reduced by exceptional expenses amounting to euro 2,423 million.

The profit before financial result (EBIT) of the BMW Group fell accordingly to euro 921 million in 2008 (2007: euro 4,212 million/-78.1%). The profit before tax was euro 351 million (2007: euro 3,873 million/-90.9%) while the net profit came in at euro 330 million (2007: euro 3,134 million /-89.5%). Group revenues fell relatively moderately to euro 53,197 million (2007: euro 56,018 million/-5.0%).

Adjusted EBIT margin of 6.3% in the financial year 2008

Adjusted for the exceptional expense for risk provision and personnel costs referred to above, EBIT would have been euro 3,344 million and the EBIT margin would have been 6.3%. Unadjusted, the EBIT margin in 2008 was 1.7%.

High level of exceptional expense recorded in the fourth quarter

The expense recorded in the fourth quarter 2008 for the exceptional items referred to above totalled euro 1,128 million, comprising euro 931 million for risk provisions and euro 197 million for one-off personnel expenses. The negative fourth-quarter EBIT was euro 718 million (fourth quarter 2007: positive EBIT of euro 1,308 million). Net of these exceptional items referred to, the Group would have reported positive EBIT of euro 410 million. Fourth-quarter revenues fell by 18.2% to euro 12,772 million (2007: euro 15,606 million).

Fixed costs reduced / greater savings planned for costs of material

The BMW Group made good progress in 2008 at an operating level, which is reflected in reduced fixed costs and substantial cost savings in the area of purchasing. “We have set ourselves the task, by 2012, of surpassing the euro 4 billion of material cost reductions targeted in conjunction with the strategy Number ONE”, announced Reithofer.

Group liquidity strengthened

In addition, the BMW Group’s liquidity was further strengthened in 2008, despite the turmoil on the capital markets. Holdings of cash funds and marketable securities increased by 86.3% to euro 8,107 million (2007: euro 4,352 million). The net interest-bearing assets in the Automobiles segment increased to euro 9,046 million, compared to euro 7,354 million in 2007. The Group has therefore been able to start the new business year with a very solid financial position. “We prepared ourselves early on and swiftly for severe business conditions, for example by taking immediate steps to bring production volumes into line with lower demand, and thus enabling us to further optimise working capital. This is also reflected in reduced inventory levels”, emphasised Reithofer. With a negative figure of euro 81 million, the BMW Group was almost able to achieve a break-even free cash flow in 2008 in its Automobiles segment.

Dividend in line with earnings performance

As a result of decreased earnings, the Board of Management and the Supervisory Board will propose to shareholders at the Annual General Meeting on 14 May 2009 that a dividend of euro 0.30 (2008: euro 1.06) be paid on each share of common stock and of euro 0.32 (2008: euro 1.08) on each share of preferred stock. “We want to pay a dividend even in difficult economic times, demonstrating both the confidence we have in our operating strength and the interest in our shareholders”, emphasised Reithofer.

EBIT of Automobiles segment down to euro 690 million

The Automobiles segment profit for 2008 was severely affected by the increased risk provision for residual value risks and measures to reduce the size of the workforce, totalling euro 1,363 million. EBIT fell by 80.0% to euro 690 million compared to euro 3,450 million one year earlier. The profit before tax fell to euro 318 million (2007: euro 3,232 million /-90.2%). Revenues generated by the Automobiles segment totalled euro 48,782 million (2007: euro 53,818 million /-9.4%). Adjusted for the exceptional items discussed above, the segment EBIT would have been euro 2,053 million. This would be equivalent to an EBIT margin of 4.2% (2007: 6.4%). Unadjusted, the segment EBIT margin in 2008 was 1.4%.

Unsurprisingly in the face of difficult business conditions in 2008, the BMW Group was not able to match the previous year’s record sales volume figure. In total, the BMW Group sold 1,435,876 BMW, MINI and Rolls-Royce brand vehicles in 2008 (2007: 1,500,678 units/-4.3%). The Group therefore recorded its second-best annual sales volume figure in its history (behind 2007).

Despite the fact that the whole automobile industry faced huge challenges in 2008, the BMW Group was nevertheless able to achieve new sales volume records for its MINI and Rolls-Royce brands. One of the main contributing factors enabling the sales volume decrease to be kept to a moderate 4.3% was the BMW Group’s “Efficient Dynamics” technology which is designed to reduce fuel consumption and CO2 emissions. All new BMW and MINI models are now equipped with this technology as a standard feature. In Europe alone, some 830,000 vehicles equipped with Efficient Dynamics were handed over to customers in 2008.

1,202,239 BMW brand vehicles (2007: 1,276,793 units/-5.8%) were sold worldwide in 2008, well ahead of the volumes achieved by relevant competitors in the premium segment. MINI was again able to increase the number of units sold, thus setting a new sales volume record. In total, 232,425 units were sold, 4.3% more than in the previous year.

Rolls-Royce Motor Cars sold 1,212 units in 2008 (2007: 1,010 units) corresponding to a sales volume growth of 20.0%. This was the fifth annual increase in succession, ensuring that Rolls-Royce remains the undisputed market leader in the ultra-luxury segment.

Motorcycles segment reports EBIT of euro 60 million

The earnings performance of the Motorcycles segment in 2008 was influenced by difficult business conditions. EBIT fell to euro 60 million (2007: euro 80 million/-25.0%) and the profit before tax dropped to euro 51 million (2007: euro 71 million/-28.2%). Revenues totalled euro 1,230 million (2007: euro 1,228 million/+0.2%). BMW Motorrad was almost able to match its previous year’s record sales volume figure despite unfavourable business conditions on the world’s motorcycle markets. In total, 101,685 BMW motorcycles (2007: 102,467 units) were sold in 2008 (-0.8%).

Financial Services segment earnings adversely affected by financial crisis

The earnings performance of the Financial Services segment was severely impaired in 2008 by a number of factors, including the recognition of a risk provision expense of euro 1,057 million for residual value risks and bad debts. The segment reported a loss before tax of euro 292 million (2007: profit before tax of euro 743 million). Adjusted for exceptional factors, the segment would have reported a profit before tax of euro 765 million and a return on equity of 19.1% (2007: 18.1%). The Financial Services segment increased its revenues to euro 15,725 million (2007: euro 13,940 million/+12.8%). The volume of new retail customer contracts rose by 3.1% to euro 29,341 million. The proportion of new BMW and MINI brand cars financed by the Financial Services segment amounted to 48.5%, up by 3.8 percentage points compared to the previous year. This increase was largely attributable to the higher proportion of credit financing, while lease financing remained fairly constant.

Capital expenditure below previous year’s level

Capital expenditure, at euro 4,204 million (2007: euro 4,267 million/-1.5%), was lower than in the previous year. The main focus of capital expenditure was on product investments in conjunction with the production start-ups of new models such as the BMW 7 Series, the Z4, the X1 and the MINI Convertible as well as infrastructure investments. Capital expenditure for property, plant and equipment and other intangible assets increased by 1.6% to euro 2,980 million (2007: euro 2,934 million). In addition, euro 1,224 million (2007: euro 1,333 million/-8.2%) of development expenditure was recognised as assets in accordance with IFRS. The capitalisation ratio, at 42.7%, was therefore similar to the previous year’s level (42.4%).

Workforce reduced

The number of employees was reduced over the past year as a result of the previously reported personnel-related measures, the sale of business units, normal staff attrition and the expiry of temporary contracts. At the end of 2008, the worldwide workforce comprised 100,041 employees (31 December 2007: 107,539 employees), 7.0% fewer than one year earlier. Approximately 4,000 voluntary employment contract termination agreements had been signed by the end of December. In addition, almost 1,800 posts were reduced following the sale of the Cirquent Group to NTT Data. The number of trainees at the year-end (4,102) remained at a high level (31 December 2007: 4,281).

  • JonPD

    Tough times are abounding, just hopping that BMW/Mini survives this better than most.

  • J Ryan

    Perhaps this will give them a chance to really think about making something people wants, and back to their root of a nimble, relatively affordable performance car maker. Instead of keep stuffing bigger engines into heavier, bigger, more bloated, more expensive, and less user friendly cars each year. It is good to make them work hard for marketshare by making their cars better and more innovative.

    While they have their free time, perhaps they would now bother to fix the engine cold start noise for current Cooper S owners, and perhaps even gut the current interior for a more functional dashboard that people likes.

    No longer a BMW fan after being a loyal owner for 15 years. I am impressed with what Nissan has done with the 370Z, more powerful, lighter, smaller, and keeping the price flat. Now, that’s progress.

  • tony

    I agree with JRyan. Concentrating on what made MINI such a popular choice would make more sense than trying to expand market share at the possible expense of alienating core clients.

    Fixing lingering problems (cold start rattle, melting hoodscoops, frozen throttle bodies, sticking sunroofs, etc) can only save money in the long run. If the downturn ends up dragging out, I’m sure dealers would appreciate not have to blow time and money on half hearted fixes for said problems for years.

    I don’t have a problem with BMWGroup positioning MINI to be a premium car. But with times the way they are, people are wary of purchasing big ticket items; especially those with questional reliablity.

  • viley

    Think back to the roots. BMW was always a premium brand that focused on exceptional performance. Not only has that been watered down, but they’ve gone that way with the MINI brand as well. Im waiting for whatever they’re cooking up GP style next, if anything at all. My main fear is the leasing program. I get the feeling a lot of people are overextending themselves on the relatively affordable leases, killing the premium brand image and causing loss. Basicaly people buying a brand they cannot afford and BMW allowing it. It worked on moving models off the lots, but what are the long term ramifications I wonder?

  • Mk1

    A sign of the times. If BMW/MINI can’t step up to the plate, and get back to what made MINI successful in the first place… expect this to continue. Co-worker, in the market for a new small car – asked my opinion as a MINI owner. After hearing me give an un-biased review of the typical mechanical issues, and design complaints, and pointing her to boards like this and NAM to do some research…… She bought a Honda today.

  • C4

    BMW/MINI…. Time to kill the R60/X1. You will thank me for it…

  • viley

    C4- I believe that the X1 has a place and a market. On the other hand, the R60 not only goes in direct competition with itself(X1) but also, as you’ve posted before, makes no sense as part of the MINI lineup. Interesting to see how it all plays out, since wether we like it or not, the X1 and R60 are coming.

  • C4

    @viley:

    Unless things dramatically improve from here until year’s end (Very doubtful) I just don’t see how BMW is going to sell $35K-$40K MINIs in volumes considered enough to turn profit.

    I read Jalopnik.com and Autonews.com. The car industry is in the tatters right now. I just don’t even now how manufacturers are managing to survive with just what they have now.

  • viley

    C4- we see eye to eye on a lot here. Im sayin that the X1 is a lot easier to swallow in the 35-40k BMW territory than the randomness that is the R60(look at the JCWs sitting on lots). I’ll be holding on to my gen1 until I see something like a speedster from MINI.

    Again, my main concern is the agressive leasing tactic BMW used to overtake Mercedes. Im sure we will now truly begin to feel the repercussions of that. I would never get a car I couldn’t afford, and im fearful the leases let a lot do just that. But that is really a BMW issue, not MINI. Sadly, it will affect us with the downturn of the economy.

  • C4

    @viley:

    Absolutely. BMW built their US business model on the foundation of 70%-80% consumer leasing. That model allowed them to aggressively gain market share in the near-luxury and luxury markets. It worked well for them until the financial market collapse. Now BMW has to survive on the 20%-30% of customer who can actually and comfortably are able to afford a new BMW vehicle.

    Interesting times ahead. I am sure a lot of future product plans have been sent back to the crushers. I suspect we will see more BMW 4 cyl and diesel offerings in the near future as well as lower priced entry models (Read: Series 1 3 and 5 door hatches) as well as other products that have been kept out of the US market until now.

  • JonPD

    I actually think the X1 has a place, it gives BMW and entry level SUV. I think designing for the low end of your market is a wise step right now. With the economic meltdown in place a lot of the solid BMW core customers have lost their shirt and I am betting they are going to be looking at the cost over the short term. Quite a paradox while BMW built a entry level car Mini is fascinated with the high end car, think one of these have a future while the economy is in tatters.