BMW 2005 Annual Report Download - page 57

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Risk management in the BMW Group
As an enterprise with worldwide operations, the
BMW Group faces a variety of risks. At the same
time, opportunities can arise from changes in cir-
cumstances, which the BMW Group endeavours
to anticipate in order to improve its competitive
position. Business risks are only consciously entered
into when it is considered that the value of the busi-
ness can be increased and the potential outcome
can be controlled. The Board of Management and
the Supervisory Board are regularly informed about
risks which could have a significant impact on busi-
ness 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 involves the following processes:
– Business decisions are reached after in-depth
project analyses with detailed information about
potential risks and opportunities have been taken
into consideration. In addition, as part of the long-
term planning strategy and short-term forecast-
ing procedures, the risks and opportunities at-
tached to specific business activities are evaluated
and used as the basis for setting targets and im-
plementing appropriate risk-mitigation measures.
– The Group reporting system keeps all decision-
makers fully informed and up-to-date about per-
formance against targets and highlights changes
affecting the market and competitors. By con-
tinuous monitoring of critical success factors,
variances are identified at an early stage, thus
allowing appropriate counter-measures to be im-
plemented.
– Overall risk management is supervised by the
corporate controlling department and is reviewed
for its appropriateness and effectiveness by exter-
nal auditors and by the Group’s internal audit de-
partment. Throughout the BMW Group, a network
of risk managers is in place, regularly carrying
out risk reviews to identify and analyse significant
risks. The results of the reviews are summarised
in a separate risk report which is then presented
to the Board of Management.
– By regularly sharing experiences with other enter-
prises, the BMW Group ensures that innovative
ideas and approaches flow into the risk manage-
ment system and that operational risk manage-
ment is subjected to continual improvement.
At present, no risks have been identified which
could threaten the existence of the Group or which
could have a material 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 the general economic
environment
– As a result of its global activities, the BMW Group
is affected by global economic factors such as
changes in currency parities and changes on the
financial markets. Of all the currencies in which
the BMW Group does business, the US dollar
represents the main single source of risk; fluctua-
tions in the value of the US dollar could 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 have a material impact on earnings. Based
on group forecasts, these three currencies account
for some 80% of the foreign currency exposure
of the BMW Group.
Currency risk is mitigated, amongst other meas-
ures, by close observation of the markets, manu-
facturing products outside the euro zone, pur-
chasing material and equipment around the world
and hedging currency exposures on the financial
markets. Hedging transactions are entered into
only with financial partners of first-class credit
standing. The nature and scope of such measures
Risk Management
Group Management Report 8
A Review of the Financial Year 8
The General Economic Environment 11
Review of operations 15
BMW Stock in 2005 38
Financial Analysis 41
--Internal Management System 41
--Earnings performance 42
--Financial position 45
--Net assets position 46
--Subsequent events report 49
--Value added statement 49
--Key performance figures 51
--Comments on BMW AG 52
Risk Management 56
Outlook 60