BMW says it ‘remains on course’ despite Q2 profit dip

Hes not too fazed by a slight dip in BMW profit

He's not too fazed by a slight dip in BMW profit

BMW Group has reported a dip in profits for the second quarter but maintains that it remains firmly on course as it prepares to 'meet the demands of tomorrow'.

BMW Group posted Q2 earnings before income and taxes of EUR2.75bn, down some 6.3% on last year. Net profit was down 6.1% to EUR2.1bn, on revenue off 2% from last year's pace at EUR25bn.

Despite the earnings dip, automotive segment EBIT margin in the second quarter was, at 8.6%, within the target range of 8-10%.

"We continue to focus on following our own path and remain firmly on course. We are consistently preparing ourselves to meet the demands of tomorrow. This approach enables us to remain a reliable partner – all the more important during challenging times," said CEO and board chairman Harald Krüger. "The BMW Group has more than 100 years of experience in dealing with volatility in a changing world. Our vision remains clearly on long-term prospects. It is crucial that we remain focused on the key issues of profitability, growth and innovation to ensure our competitive edge going forward."

BMW Group says it has significantly increased its 'upfront expenditure on future mobility'. Research and development expenses over the first six months of 2018 were more than EUR300m higher than in the corresponding period one year earlier and totalled EUR2,610m (+13.6%). As previously reported, full-year R&D expenses are likely to reach up to 7% of group revenues in the current year (2017: 6.2%).

In addition to ramping up production to drive the new model offensive, the BMW Group is focusing on expanding its activities in the fields of electric mobility and autonomous driving. In both cases, the BMW iNEXT will serve as a technological spearhead that sets new standards, it says. It will be presented to the public as a vision vehicle during the second half of 2018 and will be built at the Dingolfing plant from 2021 onwards. This – it points out – underlines the significance of Germany as a key location for future technologies and a centre of competence for electric mobility.

Commitment in China 'taken to a new level'

BMW also highlighted its commitment to China, where it is experiencing slower sales this year (sales in the first half down 2.2% year-on-year). There are also concerns over the impact of tariffs on BMW X models imported from the US. The BMW Group and Brilliance Automotive Group have agreed to further expand their joint venture BMW Brilliance Automotive (BBA) and, from 2020 onwards, to export the all-electric BMW iX3 (which will be manufactured by BBA) to markets outside of China.

BMW said it welcomes China's commitment to a further opening of its markets and initiating reforms by lifting the foreign shareholding limit for automotive joint ventures for passenger vehicles as from 2022. However, it also said 'it remains the BMW Group's policy not to comment publicly on ongoing discussions with partners'. There have been speculations in the media.

In addition to expanding the BBA joint venture, the BMW Group has signed an agreement with the Chinese manufacturer Great Wall Motor to produce electric MINI vehicles in China through a mutual 50:50 joint venture. As well as electric MINI vehicles, the "Spotlight Automotive Limited" joint venture will also produce electric vehicles for Great Wall Motor. The establishment of the new company is subject to approval by the relevant Chinese authorities and the finalisation of business registration procedures.

The BMW Group is also investing in Europe, adding a new plant in Hungary to its existing production network and thereby 'maintaining a good balance in terms of global manufacturing between Asia, America and Europe.

"The decision to construct this new plant highlights the BMW Group's prospects for growth," said Krüger. "This new location will also produce vehicles powered by combustion engines and electrified drivetrains on the same production line."

BMW Group 'on course' after first half of year

Second-quarter deliveries edged up by 0.7% to 637,878 units (2017: 633,582 units). Group revenues for the three-month period totalled EUR25,023m (2017: EUR25,765m; -2.9%, currency adjusted +0.1%). Profit before financial result (EBIT) finished at EUR2,746m (2017: EUR2,932m; -6.3%) due to a significant increase in upfront R&D expenditure. The EBT margin came in at 11.5% (2017: 11.9%), above the target of 10 percent set for the Group. Group net profit amounted to EUR2,082m (2017: EUR2,217m; -6.1%).

At EUR22,192m, second-quarter Automotive segment revenues were at a similarly high level to the previous year (EUR22,165m; +0.1%, currency adjusted +3.2%). In addition to considerably higher R&D expenses, second-quarter EBIT was also negatively impacted on a low- to mid-three-digit million-euro scale by exchange-rate effects and higher raw materials prices. BMW said that additional costs were offset by efficiency improvements. Overall, Automotive EBIT for the three-month period amounted to EUR1,919m (2017: EUR2,244m, -14.5%), resulting in an EBIT margin for the Automotive segment of 8.6% (2017: 10.1%), which lies within the unchanged target range of between 8 and 10%. Profit before tax reached EUR2,062m (2017: EUR2,391m; -13.8%).

BMW said the ramp-up of production of the BMW X3 in China and South Africa will enable the BMW Group to meet the high market demand for its X models. This increased availability means the company expects sales growth to accelerate during the second half of the year.

BMW said the conversion of BMW models to the new WLTP test procedure is 'proceeding according to plan and has been largely completed'.

A total of 1,059,296 BMW brand vehicles were delivered to customers worldwide (2017: 1,038,030 units; +2.0%) during the first half of the year. The BMW 1 Series (98,396 units; +7.2%), the BMW X1 (152,866 units; +11.8%) and the BMW 5 Series (191,185 units; +14.9%) were among the models that have contributed to sales volume growth since the beginning of the year. The BMW 5 Series Sedan took first place in the business sedan segment over the six-month period. Improved availability resulted in a 24.6% jump in monthly deliveries of the BMW X3 to 17,584 units in June.

At 181,430 units (+0.1%) worldwide deliveries of MINI brand vehicles during the first six months of the year matched the high level recorded one year earlier. The MINI Countryman was particularly popular, with 48,692 units (+39.8%) delivered to customers during the first half of the year.

Six-month deliveries of Rolls-Royce brand vehicles rose by 13.1% (1,781 units) year-on-year. Rolls-Royce models remain in high demand in most regions, including a positive upward trend in China. Market conditions in the Middle East, however, remain volatile. In addition to excellent sales figures for the new Phantom, demand for the Black Badge versions of the Dawn, Ghost and Wraith models is surpassing expectations. The new Rolls-Royce Cullinan was presented in May to great acclaim and has generated a sizeable order book stretching well into next year.

BMW Group reaffirms targets for 2018

The BMW Group says it is confident of achieving its projected targets for the current financial year.

The BMW Group reaffirms its targets for the full year. Deliveries and revenues for the Automotive segment are both forecast to grow slightly to achieve new highs in 2018. Group profit before tax is being targeted at the previous year's level. The EBIT margin for the Automotive segment is expected to remain within the target range of between 8 and 10%.

Forecasts for the current financial year are based on the assumption that worldwide economic and political conditions will not change significantly.

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