BMW Group on Course Despite Exceptional Expenses

Official BMW AG Press Release: The effects from the international financial crisis resulted in the recognition of exceptional expenses in the first quarter. Thanks to the strong operating performance, the BMW Group nevertheless remains on course towards achieving its ambitious targets for the full year. “Adjusted for the exceptional gain on the settlement of the exchangeable bond on shares in Rolls Royce in 2007, we are still aiming to post higher pre-tax earnings than last year” stated Norbert Reithofer, Chairman of the Board of Management of BMW AG on Tuesday in Munich. The BMW Group is still heading towards sales volume records for all three brands in 2008.

Exceptional expenses totalling euro 236 million cast a shadow over the strong first-quarter operating performance. Compared to the previous year, group revenues increased by 11.2% to euro 13,285 million (first quarter 2007: euro 11,951 million). The profit before financial result (EBIT) fell by 9.3% to euro 827 million (first quarter 2007: euro 912 million). The pre-tax profit amounted to euro 641 million (first quarter 2007: euro 852 million), down by 24.8%. The profit after tax decreased by 17.0% to euro 487 million (first quarter 2007: euro 587 million). Adjusted for exceptional items, however, EBIT improved by 16.6% to euro 1,063 million, corresponding to an EBIT margin of 8.0% (first quarter 2007: 7.6%).

First-quarter reported earnings were adversely affected by a number of factors, in particular the weaker US economy. The international financial crisis worsened and the climate for consumer spending became gloomier. As a consequence, pre-owned car prices — and hence the level of revenues that can be generated on vehicles at the end of lease contracts — fell. This development had been expected to a large extent in risk provisions recorded at the end of the financial year 2007 on the basis of the situation at that time. The situation has, however, worsened during the period under report, particularly in March, necessitating additional measures in the first quarter. Unfavourable developments on the used car market in the USA during the first three months of 2008, including the expense for an additional risk provision recognised in the Automobile segment, had a total negative impact of euro 157 million on first-quarter earnings. Expenses were incurred by both the Automobile and Financial Services segments in conjunction with a shared business process aimed at optimising the remarketing of vehicles at end of lease contracts. The additional expense for risk provision recorded by the Financial Services segment in the first quarter was euro 79 million. Based on its latest assessment of the situation, the BMW Group considers that the risk provision recognised in the first quarter will be sufficient for the remainder of the year.

In addition, an expense of approximately euro 40 million was recorded during the period under report in conjunction with the planned reduction of the workforce.

The BMW Group is confident that it will be able to continue its successful business performance over the full year. Earnings contributions will be generated by achieving the targeted sales volume increases for all three brands. Alongside the benefits from continuous efficiency and productivity improvements, additional measures will also be taken on both the sales and expenditure sides.

Further additions to model range

The BMW Group continues to expand its model range in 2008. The BMW 1 Series Convertible has been available since March. The BMW M3 Convertible has been on sale since April. The new BMW X6 was introduced on the US market in mid-April and will be launched in Europe in May. Two new MINI brand cars — the MINI John Cooper Works and the MINI John Cooper Works Clubman — were presented during the quarter, both of which will be available from the summer onwards. The first units of the Rolls-Royce Phantom Coupé, announced in autumn 2007, will also be handed over to customers during the second half of 2008.

The new model initiative in the Motorcycle segment is also being continued in 2008. The revised models of the R 1200 GS and of the Adventure variant have been available on the market since January. The new F 800 GS and F 650 GS models followed in March. The new G 450 X will be launched during the second half of the year.

First-quarter sales volume record

The BMW Group sold more vehicles in the first three months of the current year than ever before in a first quarter. The total number of BMW, MINI and Rolls-Royce brand cars sold increased by 5.6% to 351,787 units (first quarter 2007: 333,276 units).

BMW brand sales increased by 2.6% to 293,550 units (first quarter 2007: 286,185 units). The BMW 1 Series registered a significant growth in sales volume. Partly thanks to the new 1 Series Coupé and Convertible, the number of cars sold jumped by 52.3% to 49,829 units (first quarter 2007: 32,726 units). The BMW X5 also continues to sell very well, with the sales volume rising by 78.4% to 31,148 units (first quarter 2007: 17,459 units).

The MINI brand also recorded good growth with the first-quarter sales volume up by 23.6% to 58,054 units (first quarter 2007: 46,978 units). The launching of the new MINI Clubman was a great success: almost 16,000 units have been handed over to customers since its market introduction in November 2007. The MINI brand continues to generate a very high-value product mix. In total, 14.1% of customers opted for the MINI One, 59.6% purchased the MINI Cooper and 26.3% chose the MINI Cooper S.

Rolls-Royce Motor Cars also registered strong growth, with the sales volume rising by 61.9% to 183 units (first quarter 2007: 113 units). The entire production for the current year for the Phantom Coupé, which celebrated its world debut at the Geneva International Automobile Show in March, is already fully covered by customer orders. The order-book for the Phantom Drophead Coupé is covered as far forward as mid-2009.

The number of vehicles sold in Germany increased by 4.3% to 65,488 units (first quarter 2007: 62,789 units). Sales figures for the remaining European markets also developed positively in the first three months of 2008. Retail sales volume rose in France by 23.7% to 16,754 units (first quarter 2007: 13,546 units), in Italy by 9.8% to 27,112 (first quarter 2007: 24,686) and in Great Britain/Ireland by 9.0% to 42,081 units (first quarter 2007: 38,624).

Despite the financial crisis, the USA remained the largest market for the BMW Group with 68,586 units (first quarter 2007: 75,475/-9.1%) sold. The introduction of new models during the second half of the year – including the BMW 1 Series Coupé and Convertible, the BMW X6 and the diesel variants of the BMW 3 Series and X5 — should create some momentum for growth on the US market. The BMW Group continues to forecast that it will achieve sales volume growth on this market for the year as a whole.

Above-average growth rates were also recorded in India, where the sales volume increased by close to 900% to 868 units (first quarter 2007: 88 units), in Russia, up by 40.0% (4,217 units/first quarter 2007: 3,012 units) and in China, up by 43.2% to 14,588 units (first quarter: 10,188 units).

As well as being adversely affected by the financial market crisis referred to above, the first-quarter profit before tax of the Automobile segment was again held down by adverse currency factors and higher raw material prices. EBIT fell by 6.4% to euro 619 million (first quarter 2007: euro 661 million) and the profit before tax decreased by 11.5% to euro 539 million (first quarter 2007: euro 609 million). Revenues rose by 6.5% to euro 12,162 million (first quarter 2007: euro 11,418 million). Adjusted for exceptional items, EBIT increased by 17.4% to euro 776 million. The first-quarter adjusted EBIT margin, at 6.4%, was therefore well ahead of the previous year (5.8%).

Motorcycle business affected by difficult market conditions

The Motorcycle segment sold 21,046 units during the period under report (first quarter 2007: 23,029/-8.6%). The drop was partly due to unfavourable market developments in March on key European motorcycle markets, notably in Italy, France and Spain, in the 500 cc plus and 750 cc plus classes. The BMW Motorcycle segment expects the March launching of the new two-cylinder F 650 GS and F 800 GS enduro models to create strong sales momentum in the second quarter. Despite the divergent trends on the motorcycle markets, BMW Motorcycle is again striving to achieve sales volume growth for the full year.

First-quarter segment revenues totalled euro 345 million (first quarter 2007: euro 367 million /-6.0%), with the profit before tax (euro 34 million) and EBIT (euro 36 million) both unchanged compared to the first quarter last year.

Earnings from financial services business adversely affected by credit crisis

The Financial Services segment was again able to expand the volume of new business generated in the first quarter 2008. Earnings, however, were adversely affected by the impact of the financial crisis. The total business volume as disclosed in the balance sheet increased by 10.4% to euro 50,474 million (31 March 2007: euro 45,727 million). The number of lease and financing contracts in place with dealers and retail customers rose by 15.6% to a total of 2,701,860 contracts (31 March 2007: 2,337,645 contracts). The proportion of new cars of the BMW Group financed by the Financial Services segment was 46.7%, 2.5 percentage points above the proportion recorded one year earlier. Segment revenues climbed by 25.1% to euro 3,857 million (first quarter 2007: euro 3,083 million). The pre-tax profit fell by 54.1% to euro 84 million (first quarter 2007: euro 183 million) as a result of the higher risk provision expense. Segment EBIT decreased by 58.0% to euro 79 million (first quarter 2007: euro 188 million). Excluding exceptional items, the first-quarter segment EBIT was euro 158 million, 16.0% lower than in the previous year.

Slight decrease in workforce

The worldwide workforce at the end of the first quarter decreased marginally to 106,662 employees (31 March 2007: 106,855 employees/-0.2%). At the end of the year 2007, the BMW Group had 107,539 employees.