BMW Posts 36% Decline in Net Profit for 2009; "Cautiously Optimistic" for 2010

The BMW Group has announced its full-year financial results for 2009 during which it managed to post a modest net profit of 210 million euro, which represented a 36.4% year-on-year (y/y) decline on the figure recorded in 2008. However, the company posted a profit before tax (EBIT) which actually rose by 17.7% y/y to 413 million euro, in comparison to the figure of 351 million euro in 2008. The company's overall revenue figure posted a moderate decline of 4.7% y/y to 50.7 billion euro, compared to the previous year's 53.2 billion euro. In stark contrast to BMW's biggest rival in the premium car market Daimler, the company also maintained that it would award a dividend to its shareholders, albeit a modest one of 0.30 euro per share of common stock, while 0.32 euro per share will be offered on preferred stock. Commenting on the results the chairman of BMW's executive board Norbert Reithofer said, "We performed well in 2009 despite difficult market conditions worldwide. Our cost management and efficiency improvement measures had a positive impact, even though the effects of the worldwide financial and economic crisis were still being felt. We are proposing a dividend for 2009 despite the difficult economic climate, demonstrating the confidence we have in our operating strength, and we also want our shareholders to participate in the company's performance."

BMW said that the earnings it derived from the automotive sector fell as a result of the weaker global passenger car market, with the premium segment in particular being hit hard as it did not benefit markedly from the numerous scrappage schemes that were rolled out across the world in 2009. However, the market improved marginally in the last quarter of the year, which allowed the automobile division to post an EBIT figure of 93 million euro. For the full year the automotive division, which of course represents the vast majority of BMW's revenue, actually posted negative EBIT of 265 million euro, in comparison to positive EBIT of 690 million euro in 2008. The unit also recorded a full-year loss before tax of 588 million euro (2008: profit before tax of euro 318 million euro). Revenues from the automotive division declined to 43.737 million euro in comparison to the 2008 figure of 48.782 million euro.

The losses made by the main automotive division were offset by the strong performance of BMW's financial services unit, which saw its earnings rise considerably with EBIT up to 355 million euro in comparison to a negative EBIT of 216 million euro last year. The unit was not hit by additional charges resulting from the write-down in second-hand vehicle values and bad debt incurred for the full year in 2008. The unit saw its revenues rise very marginally to 15.798 billion euro (2008: 15,725 million euro). The proportion of new BMW and Mini brand cars financed by the Financial Services segment amounted to 49.0%, up by 0.5 percentage points compared to the previous year.

Sales of BMW-branded passenger cars declined by 11.1% to 1,068,770 million units (2008: 1,202,239 units), which maintained the brand's position as the world's leading premium nameplate. The company experienced strong volume growth form some of its more niche models and higher segment models such as the 7-Series 52,680 units/+35.7%), the BMW X6 (41,667 units/+56.8%) and the BMW Z4 (22,761 units/+26.4%). This higher level of model mix would account for the fact that revenue has declined at a slower rated than the company's overall sales volume in 2009. The Mini brand experienced a decline in sales volume of 6.8% to 232,485 units. Mini's model mix also remained at a high value level with 53.6% of customers opting for the Mini Cooper and 26.2% choosing the Mini Cooper S. Rolls Royce sold 1,002 units, a decline of 17.3%, as the ultra-premium segment suffered a sizeable decline in sales during 2009. In combined terms the BMW Group's vehicle sales volume declined by 12.6% y/y to 1.26 million cars.

Outlook and Implications

The BMW Group's financial performance in 2009 can be viewed as reasonably solid given the very difficult conditions experienced in the premium passenger car market during the year. The premium passenger car market did not benefit markedly from the scrappage schemes which were introduced across Western Europe, the "cash for clunkers" scheme that was rolled out in the United States, or the purchase tax breaks that influenced the Chinese market so positively in 2009. However, it should be said that irrespective of this, premium passenger car sales in China grew massively anyway with the market being the real bright spot for all premium passenger car makers in 2009. The Group actually posted record sales in China, with a rise of 37.5% to 90,536 units, and also posted record volume, albeit at much lower level in Brazil and India. Only Russia did not record positive growth in terms of this market category as a result of the catastrophic decline posted in that market in 2009.

Moving into 2010 BMW is expecting a very gradual improvement in the state of the global premium vehicle market and this, coupled with ongoing efforts to control costs and an highly important new model launch in the shape of the new BMW 5-Series, should see a further improvement in the company's financial results for the full-year 2010. The relatively high price of the 5-Series will also further boost BMW's sales and model mix and should further boost profitability. BMW says it will look to increase Group sales in the single digit range in 2010 to over 1.3 million units. BMW will also be looking to get the automotive division back into profit having effectively relied on the financial services division to generate the modest 2009 net profit.

However, with BMW still maintaining efficiency savings and strict cost management it must also ensure that it does not fall behind its rivals in the field of research and development (R&D), especially in the field of alternative powertrain investment. It appears highly committed to its Project I initiative which will provide BMW with a new city car, or as BMW puts it, a new solution for urban mass transportation, and the company also continues to develop its electric powertrains, which will form part of the Project I strategy. However, there is little doubt that BMW will face even tougher competition in the coming years from Audi, which has openly stated its goal of surpassing BMW and becoming the world's leading premium brand by 2015. Audi also has the critical advantage of being part of the wider VW Group, with the economies of scale and enormous R&D resources that that entails.