Ladies and Gentlemen, good morning.
The increasingly difficult market environment in the third quarter
has impacted earnings development across the entire automotive
industry, including at the BMW Group. In September, we therefore
adjusted our forecast for 2018. In line with this new guidance,
earnings for the first nine months are on track to reach our goals for
the year.
Group earnings before tax for the year to the end of September
totalled 7.88 billion euros. Although lower than the previous year,
this is still our second-best nine-month result ever. The EBIT margin
of 7.6% in the Automotive Segment is also on course to meet our
adjusted guidance of at least 7% for the full year. We are tackling
the current challenges and concentrating on our operating business as
well as gearing up for the future. The latter remains our absolute priority.
As previously announced, we will be investing a total of around one
billion euros more in research and development of new technologies
this year. As communicated at the beginning of the year, the RD
ratio increased to 6.9% in the third quarter. We knew from the start
that 2018 was never going to be easy.
In addition to high upfront investments in future projects, we are
also facing currency and commodity headwinds in the high
three-digit-million range, as expected. These already challenging
conditions intensified even further over the course of the summer. The
WLTP transition has thrown the European market completely off balance.
We had our vehicles certified early, ahead of the deadline – but have
still not been able to isolate ourselves from the overall market development.
We made a conscious decision early on not to follow every price war.
The BMW Group responded immediately to these changes, and we adjusted
our production volumes accordingly. Thanks to this careful planning,
we were able to reduce our inventories by nearly 20,000 units in the
third quarter.
The trade dispute between the US and China is straining the global
economy. With different production locations worldwide, not all
competitors are equally affected. The volatile trade situation also
unsettled customers in the third quarter. As previously announced, we
have increased our provisions for warranty costs and goodwill
significantly to ensure that we are appropriately covered in this
area. On the cost side, we began implementing countermeasures early
on. In addition to prioritising more strictly, we also decided on a
number of short and long-term measures in recent months.
In light of the challenges I referred to, additional efforts will be
needed to support our profitability targets. Let’s take a look at the
Group financial statements for the first nine months in more detail.
Revenues for the year to the end of September totalled 72.46 billion
euros – slightly lower than the previous year, due to currency
translation. Adjusted for this effect, revenues rose by 1.5%.
In view of the factors I just mentioned, pre-tax earnings were in
line with our expectations, reaching 7.88 billion euros at the end of
September. The figure for the third quarter was 1.85 billion euros.
Regardless of these challenging external conditions, the BMW Group
remains on course for the future. Upfront investments in continued
development of e-mobility and autonomous driving will be essential for
tomorrow´s success.
Research and development expenditure for the year to the end of
September increased accordingly to around 4.45 billion euros, as
planned. The RD costs recognised in the income statement were
nearly 400 million euros higher year-on-year.
The RD ratio for the first three quarters rose to 6.1%. Capital
expenditure for the same period reached 2.89 billion euros, with a
capex ratio of 4.0%. This mainly reflects product and structural
investments for the new X3, as well as preparations for the launch of
the X5 and the X7. As planned, capital expenditure will increase once
again in the fourth quarter, with the start of production of our new 3
Series and 8 Series models. At Group level, the EBT margin currently
stands at 10.9%.
Let’s take a brief look at the individual segments. The Automotive
segment saw a slight increase in deliveries in the first nine months
of 2018 to more than 1.83 million vehicles. Adjusted for currency
translation effects, segment revenues rose slightly by 2.9%. The
unadjusted figure was on a par with the previous year at around 62.63
billion euros.
Here, we are also feeling the effects of the difficult pricing
situation in Europe due to the WLTP transition. Higher expenses for
warranty and goodwill activities have raised our cost of sales. As
previously mentioned, RD costs will also be significantly higher
than the previous year. Higher tariffs, resulting from the current
trade tensions, have put earnings under further pressure. The
Automotive Segment’s operating earnings for the third quarter
decreased to 930 million euros. As a result, the figure for the year
to the end of September was also lower, at 4.73 billion euros. As I
already mentioned, the EBIT margin of 7.6% for the year to the end of
September is in line with our new guidance.
The financial result benefited from our BBA joint venture business in
China, which increased by 11.7% year-on-year. Pre-tax earnings in the
Automotive Segment totalled 5.35 billion euros for the first nine
months of 2018.
Let me say a few words about the cash flow statement: Our free cash
flow mainly reflects lower profits. For the year to the end of
September, it nevertheless amounted to around 2.04 billion euros.
In the third quarter, free cash flow amounted to about 100 million
euros. Despite the difficult conditions, we are still targeting a free
cash flow of three billion euros for the full year. But here I must
emphasize: In light of the current challenges this will not be an easy task.
In the Financial Services Segment, our business with retail customers
continues to perform well. At the end of the third quarter, we managed
a total of 5.14 million contracts: This is 4.4% more than at the start
of the year. China, in particular, posted significant growth of almost
17% in its total contract portfolio. The number of new financing
contracts rose significantly in the third quarter, with a slight
increase on the leasing side. At 1.7 billion euros, pre-tax earnings
for January to September were slightly lower year-on-year – reflecting
the negative impact of currency translation effects, among other
factors. As expected, the risk situation remained stable overall. In
Europe, as in the previous quarter, residual values trended slightly
downwards in a number of markets. In North America, on the other hand,
used car prices made a slight recovery. In Asia, we continue to see
stable development.
Let’s move on briefly to the Motorcycles Segment. Despite the model
changeover in the mid-size class, deliveries remained at the same high
level as the previous year. Operating earnings were at 208 million
euros. The EBIT margin was 12.5%.
Ladies and Gentlemen,
Conditions remain challenging for the automotive industry. Trade
barriers, the transition to WLTP, the debate over emissions and their
respective levels – all these factors are hampering our business
environment. The BMW Group responded promptly, of course, and has
launched both short and long-term measures within the company. We are
strengthening our sales side with targeted programmes.
At the same time, we are stepping up countermeasures on the cost
side. Thanks to our flexible international production system and high
level of capacity utilisation, we are able to adapt quickly to new
situations. We are watching trade developments, in particular, very
closely. If conditions deteriorate significantly, effects on our
guidance cannot be ruled out.
Against this background, our outlook for the full year is as follows:
Group earnings before tax are expected to show a moderate decrease
from the high level of the previous year. This adjusted outlook does
not reflect any positive earnings effects that may result, should the
planned mobility services joint venture receive regulatory approval
and close in 2018. In the Automotive Segment, deliveries are expected
to be slightly higher than the previous year, with an EBIT margin of
at least 7%. Revenues are now forecast to be slightly lower
year-on-year. In the Motorcycles Segment, we should see a slight
increase in deliveries, with an EBIT margin in the range of 8-10%.
And, in the Financial Services Segment, we are aiming for a return on
equity above our target figure of 14%.
Ladies and Gentlemen,
You know that the BMW Group has always been reliable and transparent.
We remain true to our values even in these challenging times. We
openly acknowledge risks and take appropriate action. We are facing a
highly volatile environment as we enter the final quarter of the year.
We cannot rule out that several of the factors I mentioned may
continue to impact our business beyond 2018.
However, we will see positive impetus next year from our rejuvenated
product line-up. There will be new generations of several key models.
At the end of the year, our plants will be ramping up the successor to
our successful 3 Series. Further 8 Series models will also go into
production before the end of the year. In recent months, the new X3
has also successfully ramped up at three separate plants. With the X5
and X7, we have two more vehicles with high contribution margins ready
to go. We expect these to give us fresh momentum in the next year. The
entire automotive industry is currently confronted with challenging conditions.
The BMW Group is, and will remain, a high-performance company. Even
in turbulent times, we never lose sight of our long-term goals and
continue to stay the course.
Thank you.