BMW 2009 Annual Report Download - page 70

68
12 Group Management Report
12 A Review of the Financial Year
14 General Economic Environment
18 Review of Operations
42
BMW Group – Capital Market
Activities
45 Disclosures pursuant to § 289 (4)
and § 315 (4) HGB
48 Financial Analysis
48 Internal Management System
50 Earnings Performance
52 Financial Position
54 Net Assets Position
56 Subsequent Events Report
56 Value Added Statement
58 Key Performance Figures
59 Comments on BMW AG
63 Internal Control System
64 Risk Management
70 Outlook
resulting revaluation of the portfolio of vehicles exposed to
residual value risks and losses incurred selling pre-owned
cars had an additional negative impact on the earnings of
the Financial Services and Automobiles segments. Expected
risks are covered in the balance sheet either by provisions
or by write-downs on the lease vehicles concerned.
The BMW Group strives to mitigate declining residual values
by actively managing the life-cycles of current models, op-
timising reselling processes on international markets and
implementing targeted price and volume measures. Re-
sidual values in the leasing business are reviewed regularly
and adjusted to take account of the latest market conditions
and expected future developments.
Interest rate risks are measured initially at country level and
then aggregated at Group level. Maximum risk exposures
are also initially managed at country level in the form of
risk limits. The overall exposure from interest rate risks is
managed at Group level.
Operational risks relating to financial services business in-
clude the risk of damage caused by inappropriate or failed
internal procedures and systems, human error or external
factors. The scope of procedures applied in each country
to manage operational risks is set out in a Group manual
which, amongst other things, addresses the requirements
of Basel II. This manual stipulates the rules for identifying
and measuring potential risk scenarios and for computing
key risk indicators on an ongoing basis. It also sets out
the Group’s systematic approach to recording losses and
the nature of any agreed risk-mitigation measures. Both
qualitative and quantitative aspects need to be taken into
account in the decision process. The latter is backed up by
various system-based solutions, all of which follow the
principles of operational risk management, such as segre-
gation of duties, dual control, the documentation of system
changes and transparency. In addition, the effectiveness
and efficiency of the internal control system are tested
regularly.
Legal risks
The BMW Group is not currently involved in any court or
arbitration proceedings which could have a significant im-
pact on its financial condition.
Compliance with the law is one of the basic prerequisites
for our success. Current law provides the binding
frame-
work for our wide range of activities around the world.
The growing international scale of business and the huge
number of complex legal regulations increase the risk of
laws being broken, simply because they are not known or
fully understood. We therefore take all necessary measures
to ensure that our management bodies, managers and
staff always act in compliance with the law. It is essential
for all employees to know and to comply with current legal
regulations. The extent of those regulations is set out in
corporate guidelines and in the BMW Group’s stated set
of core principles. However, wrongdoing by individuals can
never be entirely ruled out. Our objective is to keep such
risks to a minimum and to systematically uncover any cases
of corruption, bribery or blackmail. Further information on
compliance within the BMW Group is included in the “Com-
pliance Report” on page 158 et seq.
Like all enterprises, we are exposed to the risk of warranty
claims. Adequate provisions have been recognised in the
balance sheet to cover such claims. Part of the risk, espe-
cially where the American market is concerned, has been
insured externally up to economically acceptable levels.
The high quality of our products, additionally ensured by
regular quality audits and ongoing improvement measures,
helps to reduce this risk. In comparison with competitors,
this can give rise to benefits and opportunities for the
BMW Group.
Changes in the regulatory environment may impair our sales
volume, revenues and earnings performance in individual
markets or in individual economic regions. Further informa-
tion is given in the section on sector-specific risks.
Personnel risks
As an attractive employer, we have for many years enjoyed
a favourable position in the intense competition for quali-
fied technical and management staff. A high level of em-
ployee satisfaction helps to minimise the risk of know-how
drift. An international trainee programme will start again
in
spring 2010, aimed at finding well-trained staff and de-
veloping their skills further. A bachelor programme will also
be offered that will create a wealth of opportunities for
high
school leavers who have achieved top marks and for
those who have finished their apprenticeships and gone on
to qualify to attend a university.
The ageing and shrinking population in Germany will have
a lasting impact on the conditions prevailing in the labour,
product, services and financial markets. Demographic
change will give rise to risks and opportunities which will
affect enterprises more and more in the coming years. We
see demographic change as one of the main challenges
and are taking an active approach to planning for its effect
on operations. The focus is on the following areas of action,