Statement and Presentation by Dr. Nicolas Peter, Member of the Board of Management of BMW AG, Finance, Annual Accounts Press Conference 2017

Good morning Ladies and Gentlemen,

 

A warm welcome from me as well. Before I start, I would like to
briefly introduce myself: As you know, I took over the Finance
Division from Friedrich Eichiner on the 1st of January.

 

In my 26 years at the BMW Group, I have been head of Sales Strategy,
Group Controlling and the European sales region, as well as other
functions. During this time, I have actively worked on both Strategy
NUMBER ONE and Strategy NUMBER ONE NEXT. I firmly believe that we
have chosen the right path.

 

I am delighted to be here today as the member of the Board of
Management responsible for Finance. I am confident we will be able to
continue the good and constructive cooperation we have enjoyed in
recent years.

 

But let’s move on now to the official part. I would now like to talk
in detail about key developments in the financial year 2016 and take a
look at the opportunities and challenges for the year ahead.

 

Profitability, stability, sustainability. That is what the BMW Group
has stood for for many years. In the 2016 financial year, the company
once again delivered on its promises. Deliveries, revenues and Group
earnings all reached new all-time highs – proof indeed of our
consistency and performance capabilities.

 

In its centenary year, the BMW Group proved once more that innovation
and profitability go hand in hand. The company again met all of its
targets. For the seventh consecutive year, the EBIT margin in the
Automotive Segment was within our target range of 8-10%.

 

Ladies and Gentlemen,

 

Let me emphasize: Our thinking is geared towards the long term – with
a clear strategic focus on the future. This means investing in
alternative drive trains, autonomous driving, enhanced mobility
services and digitalisation.

 

Step by step we are implementing the plans laid out in Strategy
NUMBER ONE NEXT. New and innovative products like the BMW 5
Series demonstrate the progress we have made in crucial areas of
innovation. At the same time, we are maintaining our strict focus on
profitability. In recent years, we have shown that bold innovations
and high profitability are not mutually exclusive. On the contrary:
Our financial strength today allows us to make the upfront investments
we need to secure our future success.

 

The BMW Group is performing well in all of its business segments.
Here, you can see the EBT margin at Group level over the past years.
Since 2011, it has consistently exceeded the 10% mark. The EBT margin
for the 2016 financial year stood at 10.3%.

 

In 2016, Group revenues totalled 94.16 billion euros. This is an
increase of 2.2% over the previous year – although this was impacted
somewhat by currency translation effects. Adjusted for these effects,
revenues rose by 4.3%. Group profit before tax reached a new peak of
9.67 billion euros. As forecast, this represents a slight increase of
4.8%. Compared to the previous year, the financial result primarily
benefitted from positive effects from the fair market valuation of
commodity derivatives.

 

Despite high upfront investments in the launch of the new engine
plant and new models, the Chinese joint venture BMW Brilliance
Automotive contributed 507 million euros to earnings. This slight
decrease from the previous year is solely due to currency translation
effects. The lower tax rate of 28.5% was partly due to transfer
pricing effects and revaluation of tax-related items. Consequently,
net profit for 2016 also reached a new all-time high of more than 6.9
billion euros – an increase of 8.0% year-on-year.

 

Group revenues for the fourth quarter stood at almost 25 billion
euros and were on par with the previous year. As expected, we saw a
moderate quarterly decrease in Group profit before tax, partly as a
result of upfront investments relating to implementation of our new
strategy in the fourth quarter. As is typical in the fourth quarter,
higher IT and marketing costs and increased research and development
spending impacted earnings – which totalled around 1.92 billion euros.
Despite these expenses, the BMW Group achieved an EBIT margin in the
fourth quarter of 8.3% in the Automotive Segment.

 

Ladies and Gentlemen,

 

The BMW Group is systematically investing in the future. We firmly
believe that strength in innovation is the key to long-term success
and profitability. The company invested a total of 3.73 billion euros
in products and equipment in 2016, not including capitalised
development costs. The main focus was on key high-volume model
launches and enhancing the competitiveness of our plants worldwide.

 

Our capex ratio of 4.0% was on par with the previous year and below
5% of revenue, as planned. We expect the ratio for 2017 to be somewhat
higher, but still in line with our target of below 5%.

 

On the product side, the main upfront investments last year were
related to the launch of the new BMW 5 Series. Production started in
late 2016. We are also making targeted investments to expand our
international production network. In 2016, this included construction
of new manufacturing facilities, as well as expansion and upgrading of
existing plants. We are continually investing in modernisation and
enhancing flexibility at our production sites.

 

Our Spartanburg plant in the US is currently being expanded to meet
strong demand for the BMW X models worldwide. Capacity will be raised
from currently 410.000 to 450.000 vehicles per year.

 

Construction of the San Luis Potosí plant in Mexico is proceeding
according to plan. The first 3 Series models for global export will
roll off the production line in 2019. The new plant will also
compensate for the reallocation of production capacity at the plant in
South Africa, which will build the new BMW X3 going forward, instead
of the BMW 3 Series Sedan.

 

In China, the BBA joint venture opened a new engine plant to supply
the local car production plants last year. The Dadong plant, which
builds the long-wheelbase version of the 5 Series Sedan, is currently
undergoing expansion.

 

Let’s move on to our research and development activities. RD
expenditure for 2016 totalled 5.16 billion euros and was therefore on
par with the previous year. The ratio of capitalised development costs
was at 40.5%. Our RD ratio of 5.5% lies within our target range
of 5-5.5%.

 

In 2016, the focus was on preparations for the launch of new models.
We will continue to renew our product line-up over the next few years.
As we continue to enhance our conventional engines, we will also be
driving development of a new generation of electric motors and
conducting intensive research into hydrogen fuel cell technology.

 

We are refining our rear and front-wheel drive architectures to make
them equally suitable for both conventional drive trains and
electrification. This will increase our flexibility. With the
additional driver assistance systems in the new 5 Series, we are also
taking another important step towards autonomous driving. We are
bringing technological innovations into series production, but only
once they achieve the right level of maturity and safety.

 

We will continue to focus on implementing our strategy in 2017. To
ensure the company is well prepared for the challenges ahead, we are
investing in the development of new technologies and optimising
existing ones. Due to necessary upfront investments, the RD ratio
for the next two years is likely to be slightly above our target range
of 5-5.5%.

 

Ladies and Gentlemen,

 

2016 was the BMW Group’s most successful financial year to date. The
company once again met its targets. Sharing this success with our
shareholders is an integral part of our Group culture. The Board of
Management and Supervisory Board will propose a dividend of 3.50 euros
per share of common stock and 3.52 euros per share of preferred stock
for 2016. The dividend will therefore be 30 cents higher than the
previous year – the highest the BMW Group has ever paid.

 

This adds up to a total dividend payout of 2.3 billion euros and
means that a third of our net profit for the year will be paid out to
shareholders. The payout ratio remains therefore within our target
range of 30-40%.

 

Now, let us take a look at performance in the individual segments.
First, the Automotive Segment. Automotive deliveries rose by 5.3% in
2016 to almost 2.37 million vehicles. This solid increase slightly
exceeded our guidance from the start of the year.

 

Automotive Segment revenues reached 86.42 billion euros in 2016. This
represents a slight increase of 1.0% over the previous year, as
forecast. Adjusted for currency effects, revenues were up 3.1%. EBIT
for the segment totalled 7.7 billion euros. This is slightly below
last year’s all-time high. The EBIT margin of 8.9% remained within our
target range of 8-10%, as planned, despite extensive upfront
investments in future projects.

 

Here you can see the 2016 EBIT bridge for the Automotive Segment.
Segment EBIT remained strong in 2016, despite challenging conditions
and political volatility. Currency and commodity effects produced a
tailwind of 200 million euros. Earnings also benefitted from higher
volume, mix and market effects. We expect the new BMW 5 Series to
provide further momentum this year.

 

In a highly competitive environment, we are constantly working to
optimise our sales performance. This includes gearing the structure of
our line-up even more towards customer needs in different regions of
the world. We will continue strengthening our market position through
intelligent technical features and pricing measures.

 

Depreciation of 143 million euros had a negative effect on EBIT. The
item “Other cost changes” represents the net balance of efficiency
improvements, upfront investments and personnel costs. This item
totalled negative 217 million euros. A high level of expenditure for
strategic projects as well as an expanded workforce impacted the
result. The BMW Group is investing today in its future business
success. At the same time, we are maintaining our long-term strategic direction.

 

Let us turn now to the cash flow statement. Free cash flow in the
Automotive Segment totalled 5.79 billion euros in 2016. This is 388
million euros more than the figure for 2015. Higher net profit and
sound management of working capital, among other factors, contributed
to this healthy free cash flow. Free cash flow for the current year is
expected to remain strong and we are targeting an amount of over 3
billion euros once again.

 

The BMW Group’s liquidity position remained solid in 2016. At the end
of the year, Group liquidity totalled 13.17 billion euros. This proves
once again that our company has a very solid financial footing.

 

In a volatile environment, the company possesses a high level of
flexibility and financial strength. The BMW Group maintains adequate
liquidity reserves to ensure its solvency at all times. This is also
recognised by the capital markets and rating agencies. In January,
Moody’s upgraded the BMW Group’s long-term rating to A1. This is the
best rating of any European auto OEM and the second-best of any car
manufacturer in the world.

 

Let’s continue with the Financial Services Segment. 2016 was another
successful business year for BMW Group Financial Services. A total of
1.81 million new contracts were concluded with retail customers – 9.4%
more than the previous year. Credit financing, in particular, reported
significant growth of 11.1%. The overall volume of new business
climbed 9.3% to around 55.33 billion euros. The segment’s total
portfolio of 5.11 million contracts exceeded the five million mark for
the first time. The penetration rate for 2016 – the percentage of new
BMW Group vehicles financed or leased by the segment – increased to 49.6%.

 

The growth in our financing and leasing business with retail
customers also had a positive impact on the serviced contract
portfolio. The biggest gains once again came from the Asia/Pacific
region, which reported growth of 18.0%. In this part of the world,
customers have traditionally preferred loan products. The
Europe/Middle East/Africa and Americas regions posted solid growth of
8.6% and 7.1%, respectively. The EU Bank, which comprises the BMW Bank
with its branches in Italy, Spain and Portugal and subsidiary in
France, also reported solid gains.

 

The positive business development in the Financial Services segment
is reflected in earnings as well. Pre-tax earnings exceeded 2 billion
euros for the first time. Due to successful business development and
the favourable risk situation, the segment’s return on equity was
slightly higher than anticipated, at 21.2%, and exceeded our minimum
target of 18%, as forecast.

 

Despite economic and political volatility, the risk situation for the
entire segment portfolio continued to improve. The net credit loss
ratio dropped to an all-time low of 0.32% – another five basis points
below the previous year’s figure.

 

Residual value losses increased moderately from the previous year, as
expected. This was partly due to higher volumes of used vehicles and
strong competition in North America.

 

BMW Group Financial Services makes comprehensive provisions to cover
its main business risks. From today’s perspective, the segment is well
prepared for residual value and credit risks. We expect the risk
environment to remain largely stable over the course of the year.

 

I would like to move on to our Motorcycles Segment. 2016 was a
successful year for BMW Motorrad. Deliveries climbed 5.9% to around
145,000 vehicles. In fact, sales growth was slightly higher than
originally forecast at the start of the year – due to strong product
momentum and positive market development. Revenues exceeded 2 billion
euros for the first time, reflecting the segment’s strong sales
performance. EBIT reached a new all-time high of 187 million euros.
The EBIT margin for the segment reached 9.0%.

 

BMW Motorrad continued to systematically implement its Fit-4-2
strategy in 2016. This includes expanding its line-up in new segments
and developing new markets. BMW Motorrad will continue its product
offensive in 2017. We are venturing into the segment below 500 cc with
the G310 R and its sister model, the G310 GS. This will provide access
to new customer groups and lay the foundation for future growth. With
the momentum from these important new models, BMW Motorrad can look
forward to the new season with confidence. We expect 2017 to be
another successful financial year for the segment.

 

Let’s now take a look at eliminations. This covers consolidation of
inter-segment transactions – primarily between the Automotive and
Financial Services segments. Pre-tax earnings within Group
eliminations for 2016 amounted to negative 772 million euros. The
negative amount therefore increased by 108 million euros year-on-year.
As in the previous year, eliminations of inter-segment profits
increased in the fourth quarter, partly as a result of strong new
leasing business. The end of the year traditionally sees the strongest
sales in markets with a high share of leasing.

 

Ladies and Gentlemen,

 

Even in a volatile environment, we have once again set ourselves
ambitious goals for the current year. Overall, we expect the positive
business development to continue in 2017. We are targeting new record
highs for deliveries, revenues and earnings.

 

Provided economic and political conditions do not change
significantly, we expect to achieve a slight increase in Group profit
before tax. We also forecast a slight increase in automotive
deliveries, assuming conditions remain stable.

 

We will rejuvenate our product line-up significantly over the next
few years. We are in a good position for 2017, with the new BMW 5
Series Sedan and Touring, the new X3, the MINI Countryman and a number
of other attractive new models. We therefore expect to report sales
growth in all the main regions of the world.

 

After the dynamic performance of recent years, sales in the European
markets should increase slightly in 2017. In China, the positive trend
should continue, thanks to attractive models like the long-wheelbase
versions of the new BMW 5 Series Sedan and the BMW X1. Local
production of the new BMW 1 Series Sedan for the Chinese market ramped
up earlier this year and will provide additional impetus for growth.
We anticipate a slight upturn in the Americas in 2017. The positive
development in deliveries is likely to be reflected in Automotive
Segment revenues. We therefore forecast a slight increase in this area
for the current year.

 

Despite the high level of upfront investment in future projects, we
are maintaining our ambitious profitability targets and aim for an
EBIT margin of between 8 and 10% in the Automotive Segment.

 

We expect to see a significant increase in motorcycle deliveries this
year. Expanding our product portfolio will enable us to reach new
customer groups and tap growth potential in the major motorcycle
markets. In recognition of the segment’s growing strategic importance,
the Motorcycles Segment will also report EBIT margin as a financial
performance indicator from 2017 on. As in the Automotive Segment, we
will be targeting an EBIT margin of between 8 and 10%.

 

The positive business development in the Financial Services Segment
should continue in 2017. Faced with growing equity capital
requirements and normalisation in the risk situation, return on equity
is expected to decrease slightly – although it will remain above our
target level of at least 18%.

 

Our guidance assumes that economic and political conditions will not
deteriorate significantly.

 

Ladies and Gentlemen,

 

The BMW Group remains on course for growth. The company has delivered
an EBIT margin within or above our target range of 8-10% every year
since 2010. We have worked hard to earn the trust of our stakeholders.
As recent years have shown: We set ourselves clear goals – and deliver
on our promises. I can promise you: In future, we will continue to
look at how we measure up to these goals – and know that we will be
measured by them.

 

Future competitiveness will be determined by flexibility – I firmly
believe that. What this means for us is constantly refining our
business processes and adapting to changing conditions. At the same
time, we will use our resources intelligently, with a clear focus on
what is essential. We intend to retain our leading position – both in
future technologies and in terms of profitability.

 

We are actively driving the change in our industry and making
targeted investments in future technologies with a key focus on
e-mobility. This is to secure our future business success.
Profitability is firmly rooted in our company. I was also committed to
this goal in my previous roles.

 

The new BMW 7 Series marks the start of our product offensive in the
upper segments. And with the X7, we will continue to expand our
portfolio and strengthen our presence in this segment.

 

We are clearly focused on the future. Our broad spectrum of premium
products and services provides the best possible foundation for our
success moving forward.

 

I’ll now hand back to Harald Krüger.

 

Thank you.