BMW 2008 Annual Report Download - page 13

14
14 Group Management Report
14 A Review of the Financial Year
16 General Economic Environment
20 Review of Operations
42 BMW Stock and Bonds
45 Disclosures pursuant to § 289 (4)
and § 315 (4) HGB
47 Financial Analysis
47 Internal Management System
49 Earnings Performance
51 Financial Position
52 Net Assets Position
55 Subsequent Events Report
55 Value Added Statement
57 Key Performance Figures
58 Comments on BMW AG
62 Risk Management
68 Outlook
Group Management Report
A Review of the Financial Year
BMW Group’s performance adversely affected by
economic crisis
The economic climate deteriorated drastically in .
Towards the end of the reporting year, the situation on the
international financial markets reached an unprecedented
pitch. At the same time, the effects of the crisis also spilled
over onto the world’s markets for goods and services.
The
rapid pace of the economic downturn and ongoing
uncertainty as to how the economic crisis might proceed
took a heavy toll on the BMW Group’s performance in .
Especially during the second half of the year, consumer
uncertainty resulted in a cutback in spending, affecting
nearly all of the world’s major car markets. In many coun-
tries, car sales volumes plummeted compared to the pre-
vious year. The ongoing weak state of the used car mar-
kets also had a negative impact on the reported figures of
the BMW Group. The situation was further exacerbated
by the significant increase of refinancing costs on the
in-
ternational capital markets. The weakness of the US dol-
lar
– particularly during the first half of the year – and the fall
in value of the British pound also had a negative impact.
Despite the sharp drop in raw material prices in the second
half of the year, price levels on the commodity markets
remained above-average for the year as a whole. In addi-
tion to the negative impact of external factors, it was also
necessary for the BMW Group in  to recognise the
cost of implementing previously announced measures to
reduce the size of the workforce. Model life cycle factors
also contributed to a reduction in the number of cars sold
by the BMW Group compared to the previous year. In total,
the BMW Group sold ,, BMW, MINI and Rolls-Royce
cars during the year under report, .  fewer than in the
previous year.
In its motorcycles business, the BMW Group almost
reached the previous year’s level with , motorcycles
sold in  – . , thus strengthening its competitive
position in a generally contracting market.
Financial services business was also severely affected by
the knock-on effects of the global economic and financial
crisis. In particular, the tense situation on the international
used car markets and the higher level of bad debts incurred
necessitated the recognition, over the course of the
year,
of substantial expenses for risk provision. In addition,
refinancing costs on the international capital markets in-
creased to reflect higher net interest spreads.
Revenue and earnings hard hit by financial crisis
The BMW Group was unable to avoid the effects of global
economic developments in . A slump in revenues in
the final months of the year meant that Group revenues for
 fell by .  to euro , million. Excluding the ex-
change rate impact, automobile business revenues would
have fallen by .  and Group revenues would have slipped
by .  .
The enormous impact of the economic downturn can be
seen most clearly in the change in reported earnings for
the year. In , the BMW Group recognised an additional
risk provision expense for bad debts and residual value
risks amounting to euro , million. In addition to this,
expenditure in conjunction with previously announced
measures to cut back the size of the workforce reduced
Group earnings by euro  million. Under the weight of
these negative factors, the profit before finance result (EBIT)
decreased by .  to euro  million. These substantial
expenses are also reflected in the profit before tax which
dropped by .  to euro  million.
In line with its sales volume performance, automobile
busi-
ness revenues in  did not come up to the previous
year’s high level. Revenues generated by the Automobiles
segment fell by .  to euro , million. The high level
of risk provision expenses for residual value risks in the auto-
mobiles
line of business and expenditure incurred in
conjunction with previously announced measures to
cut
back the size of the workforce meant that the profit before
finance result (EBIT) of the Automobiles segment, at euro
 million, was .  down on the previous year. The
seg-
ment profit before tax for  was euro  million

– . .
The Motorcycles segment generated revenues totalling
euro , million in , similar to the previous year’s level
+ . . In the face of difficult business conditions, the
segment profit before finance result
(EBIT) fell by .  to
euro
 million and the segment profit before tax came in
at euro  million – . .
The total business volume of the Financial Services seg-
ment rose again in . Revenues increased to euro ,
million, .  up on the previous year. Particularly during
the second half of the year, increasingly adverse business
conditions had a massive impact on earnings in this line
of business. The Financial Services segment reported a
loss before tax of euro  million (: profit before tax of
euro  million) primarily as a result of the risk provision
expense recognised for residual value and bad debt risks.
The effective tax rate for the Group, at .  , was approxi-
mately  percentage points lower than in the previous
year. The income tax expense, at euro  million, was down
by .  . The Group net profit for the year declined by
.  to euro  million.