BMW 2003 Annual Report Download - page 47

001 BMW Group in figures
004 Report of the Supervisory Board
008 Supervisory Board
011 Board of Management
012 Group Management Report
12 A Review of the Financial Year
29 Outlook
30 Financial Analysis
44 Risk Management
047 BMW Stock
050 Corporate Governance
054 Group Financial Statements
118 BMW AG Principal Subsidiaries
120 BMW Group10-year Comparison
122 BMW Group Locations
124 Glossary, Index
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–The financing and lease business is refinanced as
a general rule in each of the markets in the relevant
currency so as to avoid currency risks.
–A major part of financing and lease business within
the Financial Services segment is refinanced on the
capital markets. The excellent credit-standing of
the BMW Group, reflected in the long-standing first-
class short-term ratings issued by Moody’s (P-1) and
Standard & Poor’s (A-1), allows the BMW Group to
obtain competitive conditions.
Risks relating to the measurement of financial
assets
–Fluctuations on the international securities mar-
kets can lead to a lasting decline in value of financial
assets. In this situation, IAS 39 (in conjunction with
IAS 36) requires that impairment losses are recog-
nised with income effect. A review, which also took
account of external analyses, came to the conclu-
sion that no impairment losses were required to be
recognised at 31 December 2003.
Legal risks
– The BMW Group is not involved in any court or
arbitration proceedings which could have a signifi-
cant impact on the economic position of the Group.
–Like all enterprises, the BMW Group is exposed
to the risk of warranty claims. Adequate provisions
have been recognised in the balance sheet to cover
such claims. Part of the risk, especially relating to
the American market, has been insured up to eco-
nomically acceptable levels. The high quality of
BMW Group products, underpinned by regular quality
audits and on-going improvement measures, helps
to reduce this risk.
Personnel risks
–As an attractive employer, the BMW Group has a
strong position in the intense competition for quali-
fied technical and management staff. Employee
satisfaction and a low level of employee fluctuation
also help to minimise the risk of know-how drift.
–The general increase in life expectancy and
changes in the age structure of the population at
large also have an affect on the pension obligations
of the BMW Group.
BMW AG recognises full provisions for pension
obligations to employees in Germany based on
actuarial valuations. The funds remain in the com-
pany and thus help to finance on-going operations.
Pension entitlements in the USA and the re-
maining pension obligations in the United Kingdom
are funded mainly by fixed-income securities with a
high level of creditworthiness and, to a minor extent
,
by investment in shares. Overall, this contributes to a
reduction in the risk of a possible short-fall in coverage
as a result of a poor performance of the stock mar-
kets.The amount of obligations not recognised in
the balance sheet in accordance with the corridor
approach of IAS 19 is minimal. The relevant amounts
are being recognised over period of up to 15 years.
The short-fall in 2003 leads to additional payment
obligations to the pension funds of euro 24.6 million.
IT risks
–In the area of information technology, the BMW
Group undertakes various measures relating to
employees, organisational procedures, applications,
systems and networks in order to protect itself from
unauthorised access or misuse of data.
Internal rules for handling data and for the
safe use of information systems apply throughout
the Group. Internal communications reinforces the
awareness of employees for security issues.
Amongst the technical measures taken are
certain standard activities such as the use of virus
scanners, firewall systems and access controls at
operating system and application level. These
measures serve to protect confidentiality, integrity
and authenticity.