BMW 2004 Annual Report Download - page 32

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as result of the fact that certain legal proceedings
were completed during the year. The increase in in-
come from the reversal of write-downs was attribut-
able to the higher level of income from unwinding
the discounting effect on receivables. Other operating
expenses fell by 13.6% as a result of lower losses
on currency transactions and lower sundry operating
expenses. By contrast, there was an increase in the
expense for allocations to provisions, in particular for
new risks of litigation.
The net financial result (net expense) increased
by 29.1% compared to the previous year. This was
due to losses arising on the fair value market meas-
urement of derivative financial instruments and to
the fair value loss recognised on the exchangeable
bond option relating to the BMW Group investment
in Rolls-Royce plc, London. These, together, re-
duced other financial result by euro 143 million com-
pared to the previous year. The fair value loss on the
exchangeable bond option of euro 58 million was re-
lated to the increase in the share price of Rolls-Royce
plc stock. The fair value gain on the BMW Group’s
investment in Rolls-Royce plc in 2004 was euro 154
million, which was recognised directly in equity with-
in accumulated other equity and cannot be accounted
for by offsetting the fair value gain on the investment
against the fair value loss on the exchangeable bond
option. The deterioration of other financial result
was partly compensated by the net result on invest-
ments, which improved by euro 97 million to give a
positive net result of euro 94 million in 2004. Net
interest expense increased by euro 3 million, and
remained therefore approximately at the previous
year’s level. The net expense arising from the ex-
pense from reversing the discounting of pension
obligations and from the income from the expected
return on plan assets increased by 11.2% compared
to the previous year.
The Group profit from ordinary activities im-
proved by 10.9 %. It is stated after a one-off expense
of euro 49 million relating to the increase in pension
benefits. This expense has been allocated to the
relevant expense lines by function in the income
mainly as a result of currency factors. Revenues
generated in the markets of Africa, Asia and Oceania
fell overall by 0.4%, the decrease being largely at-
tributable to the reduction in sales volume in specific
Asian markets, in particular the Chinese market.
The increase in group cost of sales was 0.6 per-
centage points lower than that of revenues. The
gross profit rose by 8.9% and represented 23.2%
(2003: 22.7%) of revenues. The gross profit per-
centage for the industrial operations sub-group fell
by 0.2 percentage points and that of the financial
operations sub-group improved by 0.2 percentage
points. Further details of the entities consolidated
in each of the sub-groups are provided in Note [1].
Sales and administrative costs increased by
4.7% as a result of the expansion of business vol-
umes; the rate of increase was, however, less than
that of revenues. Sales and administrative costs
represent 10.5% of revenues, 0.2 percentage points
lower than in the previous year.
Research and development costs rose by 8.8%
compared to the previous year and represent 5.3%
(2003: 5.2%) of revenues. Research and develop-
ment costs include depreciation and disposals of
euro 637 million (2003: euro 583 million) on develop-
ment costs recognised as assets. Total research
and development costs (i.e. research costs, non-
capitalised development costs and investment in
capitalised development costs) amounted to euro
2,818 million (2003: euro 2,559 million). At this level,
the research and development ratio was 6.4%
(2003: 6.2%).
Depreciation and amortisation included in cost
of sales, sales and administrative costs and research
and development costs amounted to euro 2,672
million (2003: euro 2,370 million).
The positive net amount of other operating in-
come and expenses fell by 9.6% compared to the
previous year. Other operating income was down
by 11.8 % mainly as a result of the lower level of
exchange gains, gains on disposals of non-current
assets and sundry operating income. By contrast,
income from the release of provisions went up mainly