Statement by Dr. Friedrich Eichiner, Member of the Board of Management of BMW AG, Finance, Conference Call Interim Report to 30 June 2016

MIL OSI – Source: BMW Group – English – Press Release/Statement

Headline: Statement by Dr. Friedrich Eichiner, Member of the Board of Management of BMW AG, Finance, Conference Call Interim Report to 30 June 2016

Good morning Ladies and Gentlemen,

The BMW Group’s positive business performance continued in the second
quarter of 2016. It was the company’s strongest-ever quarter – sales
grew by 5.7%, with more than 605,000 BMW, MINI and Rolls-Royce brand
vehicles delivered to customers. Group pre-tax earnings also reached a
new all-time high for a single quarter. Thanks to this positive
business development and a healthy outlook for the second half of
2016, we continue to confirm our guidance for the full year.

Despite increasing volatility in all regions of the world, the BMW
Group remains highly profitable. The EBIT margin for the Automotive
segment stood at 9.5%. This was the 25th consecutive quarter in which
our operating EBIT margin was within or above our target range of
8-10%. The BMW Group’s strength lies in profitability and stability at
a high level. This shows clearly that the company has the resources it
needs to shape mobility of the future.

The sustainable profitability of our core business lays the
foundation for us to invest in the future of the company. The Strategy
Number ONE > NEXT we presented in the spring emphasised this and is
now being implemented step by step. Initial signs of success are
already visible, confirming our approach. We continue to
systematically implement our strategy.

The strategy of profitable growth and globally balanced sales
continues to pay off for the BMW Group. This allows us to compensate
for volatility in individual markets and regions of the world.

I would first like to say a few words about the sales situation in
the second quarter. In Europe, the positive trend continued. Both
Northern and Southern European markets contributed to the increase in
deliveries. The referendum in the UK had not yet impacted sales in the
second quarter.

The BMW Group also had a good second quarter in China. This was
partly due to the stable macroeconomic environment and our attractive
model line-up. The locally-produced long-wheelbase version of the X1,
which has been available since the end of May, will generate further
momentum in the second half of the year. In the premium segment of the
US automobile market, new vehicle registrations for the first
half-year trended slightly lower. Competition has further intensified
– partly due to the strong dollar. Having optimised our inventories,
we expect the sales situation to stabilise over the course of the
year. Nevertheless, the market will remain challenging in the second
half of 2016.

Higher global sales volumes were also reflected in revenues. Group
revenues for the first half-year reached € 45.87 billion – up 2.3%
year-on-year. Adjusted for currency translation effects, revenues
increased by 4.7%. Quarterly revenues were also slightly higher at €
25.01 billion. BMW Group pre-tax earnings for the first six months
exceeded € 5 billion for the first time, at € 5.17 billion. This
represents a solid increase of 6.5% over the previous year. Group EBT
for the second quarter climbed 8.4% to € 2.80 billion. At Group level,
the EBT margin for the second quarter stood at 11.2% and therefore
remains at a very high level.

The BMW Group is making targeted investments to secure our future
competitiveness. The company invested around € 1.04 billion in
products and equipment in the first half of 2016. Capital expenditure
was higher last year due to the ramp-up of new models. The capex ratio
for the first six months stood at 2.3%. In the second half of the
year, capital investment is likely to be higher, due to model launches
and the usual seasonal factors. In addition, the upfront investments
for strategic projects I mentioned earlier will mainly have an impact
in the second half of 2016. We expect the capex ratio for the full
year to be on par with last year and below our 5% target as planned.

Research and development spending for the first half of 2016
(according to the HGB – German Commercial Code) totalled € 2.10
billion and was therefore at the same level as the previous year.
R&D activities mainly concentrated on the development of new
vehicle projects and architectures. Additional focus areas include the
further development of our Connected Drive offering, new
driver-assistance systems, and investment in alternative drive
technologies. The R&D ratio for the first half-year was 4.6% –
slightly below our long-term target range of 5- 5.5%, due to ramp-up
costs and seasonal factors. We expect the ratio for the full year to
be on par with that of last year.

BMW Group liquidity stood at € 12.63 billion at the end of June 2016,
confirming that the company has solid financial resources. Let’s now
take a look at earnings performance in the individual segments,
starting with the Automotive Segment.

In the first six months, deliveries of our BMW, MINI and Rolls-Royce
brands rose by 5.8% to more than 1.16 million vehicles. Sales growth
was also reflected in higher revenues of € 41.69 billion. This
represents a slight increase of 2.8% compared with the previous year.
Adjusted for currency translation effects, revenues rose by 5.2%. In
the second quarter, segment revenues climbed by 5.6% to € 22.87
billion. The increase in revenues was however dampened by currency
translation effects.

Automotive EBIT climbed 9.1% to reach € 3.94 billion in the first
half of the year. Second-quarter EBIT also increased significantly to
€ 2.18 billion. As already mentioned, the EBIT margin remained in the
upper half of our target corridor of 8-10%. The figure for both the
first half-year and second quarter was at 9.5%.

Earnings benefitted in particular from higher sales volumes. The BMW
Group continues to invest in future projects, such as automated
driving and mobility services, and is recruiting qualified specialists
for these areas. Over the six-month period, the BMW Group workforce
increased by 3.4% to a total of 123,597 employees, which has also
increased the cost base. Pricing on the global auto markets remains
challenging. Competition is intense – especially in the US. In
response, the BMW Group continues to focus on sustainable, profitable growth.

The segment’s financial result for the first half-year improved by €
205 million from the previous year – mainly due to the positive effect
of the mark to market valuation of commodity derivatives.

Our Chinese joint venture BBA contributed € 241 million to the
at-equity result for the six-month period. This figure is € 43 million
lower than the previous year due to launch costs of new models.

And now a few words about the financial situation in the Automotive
Segment. Free cash flow totalled € 2.52 billion at the end of the
second quarter and is therefore on par with last year. We expect free
cash flow for the full year to remain above our target of € 3 billion.
At the end of the second quarter, net financial assets in the
Automotive Segment totalled € 16.49 billion.

Let’s move on to the Financial Services Segment. The segment
performed well in the first six months, concluding more than 874,000
new leasing and financing contracts with retail customers. This
represents a solid increase of 9.1% over the first half of last year.
The volume of new business climbed 7.0% to € 26.35 billion over the
same period.

The increased number of contracts also reflected the positive
development of new business. As of the 30th of June, BMW Group
Financial Services maintained nearly 4.5 million contracts with retail
customers, 8.3% more than the previous year. Both leasing and
financing contracts contributed to this solid growth. The strongest
growth was once again reported in the Asia/Pacific region, where the
total number of contracts climbed by 17.4%. The Europe/Middle
East/Africa and Americas regions and the EU Bank also posted solid growth.

The penetration rate – the percentage of new BMW Group vehicles
financed or leased by the Financial Services Segment – stood at 47.4%
for the first six months of the year. This is an increase of 2.3
percentage points over the previous year.
Demand for financial services products remains dynamic. BMW Group
Financial Services continues to strive for a good balance between
leasing and financing.

The positive business development of the first half-year lifted
pre-tax earnings slightly to € 1.07 billion. The figure for the second
quarter was € 503 million. Pricing on the international used-car
markets remained mostly stable in the second quarter. The credit loss
ratio of 0.29% for the first half-year remains very low.

The Financial Services Segment adopts a proactive approach to risk
management and has made appropriate risk provisions. We expect the
segment’s positive business development to continue throughout the
rest of the year. Let’s now take a look at the Motorcycles Segment:
BMW Motorrad posted record half-year sales for the fourth time in
succession – selling more than 80,000 motorcycles for the first time
in a six-month period. Europe was a strong growth driver, with Asia,
particularly China, also achieving dynamic sales increases. The
popular R 1200 GS enduro is still the undisputed top-selling BMW
Motorrad model: more than 14,000 were delivered to customers. Its
sister model, the R 1200 GS Adventure, also remains highly successful.
Sales figures for the R NineT Roadster continue to exceed expectations.

Segment revenues for the first half of 2016 reached € 1.20 billion.
EBIT for the same period totalled € 192 million. This decrease from
last year’s record figure mainly stems from higher costs for strategic
projects. In the second half of the year, we expect a further sales
boost from strategically-important new models like the G 310 R, which
will take BMW Motorrad into the segment below 500 cc. The
R NineT Scrambler is also receiving very positive feedback from the
public ahead of its market launch. We expect to see this positive
development continue in the Motorcycles segment in the second half of
the year, backed by its young and attractive model line-up.

I would now like to talk about the outlook for the second half of the
year. Profitable growth is the focus of our Strategy Number ONE >
NEXT. We are steering the company based on key performance indicators
and the guidance we issued at the start of the year – which assumes
that economic and political conditions do not deteriorate significantly.

Upfront investments for future projects and measures to implement our
Strategy Number ONE > NEXT will have a greater impact on earnings
in the second half of the year than in the first six months. Higher
personnel costs from the collectively bargained pay increase in
Germany as of the 1st of July will also have a dampening effect. In
view of the uncertainty surrounding political developments worldwide,
the business environment is likely to be more cautious.
The company remains committed to its ambitious targets for 2016.
The BMW Group expects to see a slight increase in pre-tax earnings
for the full year.
The Automotive Segment is targeting slight increases in both sales
and revenues.
We intend to keep the EBIT margin for the Automotive Segment
within our 8-10% target range.
Since deliveries of BMW motorcycles in Europe, Latin America and
Asia were higher than expected in the first half of the year, we now
forecast a solid increase in sales for the full year 2016.    
In the Financial Services Segment, we expect return on equity to
remain at last year’s level – and therefore above our target of at
least 18%.
Naturally, actual business performance may deviate from our present
forecast, depending on global conditions. The BMW Group remains
optimistic about the second half of the year. With its strategy of
globally balanced sales, the company is well positioned for the future.

Once again, our strong business performance in the first six months
confirms the factors which set this company apart: high profitability,
stability and sustainability.

This level of performance provides the BMW Group with the financial
flexibility to develop new business areas and drive innovation. This,
in turn, secures our future competitiveness and long-term success.

Thank you.