BMW 2004 Annual Report Download - page 45

Group Management Report 8
A review of the Financial Year 8
Outlook 29
Financial Analysis 30
--Earnings performance 30
--Financial position 33
--Net assets position 34
--Events after the
Balance Sheet date 37
--Value added statement 37
--Key performance figures 39
--Comments on the financial
statements of BMW AG 40
Risk Management 44
BMW Stock in 2004 48
44
Risk management in the BMW Group
As an enterprise with worldwide operations, the
BMW Group faces a variety of risks. Business risks
are only consciously entered into when it is consid-
ered that the value of the business can be increased
and when the potential outcome can be controlled.
The Board of Management and Supervisory Board
are regularly informed about risks which could have
a significant impact on business development.
In order to identify, evaluate and document
the main risks which could pose a major threat, the
BMW Group uses a comprehensive risk manage-
ment system which is characterised by the following
processes:
– Business decisions are reached after considera-
tion of in-depth project analyses which present
potential risks and opportunities in detail. In addition,
as part of the long-term planning strategy and short-
term forecasting procedures, the risks and opportu-
nities attached to specific business activities are
evaluated and are used as the basis for setting tar-
gets and implementing appropriate risk-mitigation
measures.
– The Group reporting system keeps all decision-
makers fully informed and up-to-date about perform-
ance against targets and highlights changes affecting
the market and competitors. By monitoring critical
success factors on a continual basis, variances are
identified at an early stage, thus allowing appropriate
counter-measures to be implemented.
– Overall risk management is supervised by the cor-
porate controlling department and is reviewed by
external auditors and by the Group’s internal audit
department for appropriateness and effectiveness. A
network of risk managers, appointed throughout the
Group, regularly carries out risk reviews, identifying and
analysing all significant risks. The results of the re-
views are summarised in a separate risk report which
is then presented to the Board of Management.
– By regularly exchanging experiences with other
enterprises, the BMW Group is constantly ensuring
that innovative ideas and approaches flow into the
risk management system and that operational risk
management is continually being developed.
At present, no risks have been identified which
could threaten the existence of the Group or which
could have a significant negative impact on the net
assets, financial position and results of operations
of the Group. However, risks can never be entirely
ruled out.
In the course of business activities, the BMW
Group is exposed to various types of risk:
Risks relating to general economic factors
– As a result of its global activities, the BMW Group
is affected by global economic factors such as
changes in currency parities and the development
of the financial markets. The US dollar represents
the main single source of risk of all the currencies
in which the BMW Group does business; fluctua-
tions can therefore have a major impact on reported
revenues and earnings. Exchange rate fluctuations
of the British pound and the Japanese yen in relation
to the euro can also impact earnings significantly.
Based on group forecasts, these three currencies
account for some 80% of the foreign currency ex-
posure of the BMW Group. Currency risk is mitigated,
amongst other measures, by close observation of
the markets, manufacturing products outside the
euro zone, purchasing material and equipment
around the world and hedging currency exposures
on the financial markets. Hedging transactions are