Annual Accounts Press Conference 2016: Statements and presentation by Harald Krüger, Chairman of the Board of Management of BMW AG, Dr. Friedrich Eichiner, Member of the Board of Management of BMW AG, Finance, and Klaus Fröhlich, Member of the Board of Management of BMW AG, Development

 

 

 

 


Harald Krüger, Chairman of
the Board of Management of BMW AG

 

Review of the business year 2015

 

Good morning, Ladies and Gentlemen,

Welcome to our Annual Accounts Press Conference.

 

On March 7, we celebrated our centenary here in Munich: 100 Years of
Bayerische Motoren Werke. Our staff at all locations around the globe
had a chance to participate via live stream in the celebration. We are
using the occasion of our centenary as a springboard for “The next 100 Years”.

 

We are convinced individual mobility will remain a fundamental human
need. According to forecasts, new car registrations worldwide are
expected to reach around 100 million by 2020, including a growing
premium segment. At the same time, mobility is going to change
dramatically thanks to new technological advancements.

 

Our BMW VISION NEXT 100 offers a vision how we believe mobility in
the next 30 years and beyond will develop. The BMW i Vision Future
Interaction here on stage shows you the first steps to realizing this.
Both these vehicles embody a new era of mobility – a time that will be
characterized by sustainability, connectivity and automated driving.

 

Our aim is to continue to claim a leading position in the premium
segment. However, as we see it, the mere number of vehicles sold is no
sufficient measure of an automaker’s future viability. Rather we must
include other key indicators to achieve a meaningful overall view of a
company’s performance potential and competitiveness.

 

 

For us, these key indicators include:

  • sustainable high profitability,
  • innovative capacity,
  • customer satisfaction and
  • our attractiveness as an employer.

 

This is the direction in which we are taking the BMW Group. But more
about that later. First off, let me give you a review of the business
year 2015.

 

I’ll be addressing the following points:

  1. Our performance in the business year 2015.
  2. New models at BMW, MINI and Rolls-Royce.
  3. Our goals for the business year 2016.

 

Our business environment in 2015 was characterized by intense
competition, volatile markets, political challenges and the public
debate about diesel technology. Within this challenging environment,
we pursued our goals with determination – and achieved them.

 

Our premium brands are the backbone of this success. For the first
time, we delivered more than 2.24 million vehicles to customers in
2015. This corresponds to a solid growth rate of 6.1 percent
year-on-year. It is also a new sales record. Our brands BMW, MINI and
BMW Motorrad also posted new records.

 

In a globalized world, we are right where the customer is. We pursue
a balanced distribution of value creation for both sales and
production. At approximately
45 percent of total sales, Europe
is still our principal sales region. Asia accounted for about 30
percent of sales and the Americas for 22 percent.

 

We are strategically expanding our global production network of
currently 30 sites in 14 countries:

  • Our second engine plant in Shenyang opened in January 2016.
  • In Mexico, preparations for the construction of our new plant in
    San Luis Potosí are proceeding on schedule.
  • We are also significantly expanding our company’s biggest
    production site in Spartanburg, USA, to be able to satisfy the
    demand for our premium sports activity vehicles.
  • And we continue to invest in our German plants and the expansion
    of the FIZ Research and Innovation Center. Around 700 million euros
    alone will be invested in our home plant in Munich by 2018.

 

The positive retail development is also reflected in the Group’s key
financials for the business year 2015. We generated new record highs
for Group revenues, Group profit before tax and Group net profit.

 

  • As forecast, the Group
    profit before tax
    grew considerably by 5.9 percent to a new
    peak of 9.2 billion euros.
  • The net profit
    increased by 10 percent to around 6.4 billion euros.
  • The EBIT margin in the
    Automotive Segment
    stands at 9.2 percent and therefore
    within our anticipated target range.
  • Generating a profit before tax of over 1.9 billion euros, the
    Financial Services
    Segment
    once again made a significant contribution to the
    Group result.

 

The past year was marked by the new BMW 7 Series. This sixth
generation of our flagship model is being well received by both
customers and the media. From its market launch in October 2015 to the
end of February 2016, we sold more than 9,000 BMW 7 Series vehicles.
The 7 Series is our beacon of innovation.

Its Carbon Core received the EuroCarBody Award 2015, the world’s most
prestigious recognition for innovations in car body construction. In
Germany, it was honored with the Golden Steering Wheel Award in the
luxury segment.

These two models were each awarded a Golden Steering Wheel as well:
The new BMW X1 in the segment of mid-size SUVs and the BMW 2 Series
Gran Tourer for best family car. Both models represent the expansion
of our portfolio in the growing compact segment.

 

Since its launch in October, the new MINI Clubman has demonstrated
how the brand is developing further alongside the lifestyles of its
target group. The Clubman has all it takes to be the primary car in a
household. Mobility services are by now standard in today’s market for
premium mobility.

 

Our car-sharing service DriveNow is growing at a rapid pace. The
fleet already consists of over 4,000 vehicles in Europe. Since
DriveNow was launched in 2011, our customers have driven over 133
million kilometers – or to put it another way, around 170 times to the
moon and back. By the end of 2015, a total of almost 580,000 users
were registered. This year our customers can once again look forward
to a whole range of exciting new models.

 

Alternative drives play a prominent role. At last year’s event, we
had BMW’s first series vehicle with a plug-in hybrid here on stage.
Since its market launch in late October 2015, the X5 xDrive40e shows
how we are transferring BMW i’s ‘born electric’ technologies to our
BMW core brand. We are now integrating the hybrid technology in
additional model series, such as the BMW 2 and 3 Series. Hybrid drive
also makes sense in the large vehicle classes. The new BMW 740e
iPerformance is a dear example of this.

 

 

 

This car’s figures are truly impressive:

  • Fully electric range: 40 kilometers.
  • Fuel consumption in the current EU test cycle: 2.1 liters per 100 kilometers.
  • Carbon emissions per kilometer: 49 grams.

 

And we are about to extend the BMW M range of the new 7 Series,
something many customers have been waiting for. As early as this year,
we will put the first M Performance variant of the BMW 7 Series on the
road. Now M is also in the luxury class. Thanks to its supreme dynamic
driving experience,

M Performance is very successful with the BMW 1 and 2 Series, the X5
and the new X4.

 

In 2015, we initiated the realignment of MINI with a young portfolio.
MINI just launched its new convertible a few days ago. It is the only
premium offering among convertibles in the compact segment.

 

In the ultra-luxury segment, Rolls-Royce will launch the world’s
quietest convertible in the first half of this year. Rolls-Royce is
and will remain the very pinnacle of luxury. With regard to market
share, Rolls-Royce dominates the segment above 200,000 euros. The
brand is strategically expanding its portfolio, also addressing
younger target groups. At the Geneva Motor Show, Rolls-Royce presented
the Ghost and the Wraith in a special bespoke variant – as Black Badge
models. We are planning to launch a new, all-terrain Rolls-Royce model
– project name: Cullinan – before the end of this decade. This model
will be built on a new aluminum structure, the future basis of all
Rolls-Royce models.

 

Let us move on from four wheels to two wheels. At present, BMW is the
world’s most successful premium manufacturer of motorcycles and
maxi-scooters. Today’s product range is more varied and more
individual than ever. By 2020, BMW Motorrad is planned to grow to
200,000 units.

To achieve this, we are tapping into new markets, launching
motorcycles below 500 cc which are ideal for urban environment. With
the G 310 R roadster, BMW Motorrad will launch its first product below
500cc in the second half of this year. Spring will see the launch of
the R NineT Scrambler, a lifestyle motorcycle based on the very
successful R NineT.

 

We have had a very good start to the year with our young and
attractive product portfolio: In January and February, we sold 7.7
percent more vehicles than in the same period of the previous year.
BMW Motorrad grew by 12.1 percent. Experts expect for 2016 a positive
development of the world economy and growth in the car markets.

 

The political and economic environment continues to be significantly
affected by substantial risks and uncertainties, namely:

  • the high public debt in many countries;
  • the current instability within Europe,
  • the normalization of the Chinese market;
  • the difficult economic situations in some emerging markets.

 

This is counterbalanced by positive expectations for 2016 regarding
global economic trends and a growing automotive market.

 

We have set ourselves ambitious goals for the business year 2016:

  • a slight increase in automotive sales;
  • a slight increase in Group EBT;
  • an EBIT margin in the Automotive Segment again within the range of
    8 to 10 percent.

 

To shape the future, an innovative and highly skilled team is
essential. We continue to invest in our employees. Since 2007, we have
spent more than 2.1 billion euros on training and development. In
2015, we recruited over 5,900 new people. And in our centenary year,
all permanent employees in Germany will receive the highest
profit-sharing bonus for 2015 within the German premium auto industry.

 

Our shareholders provide us with a stable foundation on which to
develop the company. For the first time in our history, we are going
to propose a total dividend payout of over two billion Euros.

 

We will strive to achieve all our targets and ensure 2016 is another
successful year for the BMW Group.

 

Thank you.

 

 

 

 

 


Dr. Friedrich Eichiner,
Member of the Board of Management of BMW AG, Finance


 

Annual accounts business year 2015

 

Ladies and Gentlemen,

A warm welcome from my side as well.

 

Today’s success is more important than ever: It lays the foundation
for the continued development of the BMW Group. We achieved our
guidance targets again this year – despite a number of challenges in
our business environment.

 

At the start of 2015, the Chinese market initially normalized faster
than expected. There was also uncertainty over development of the US
economy and interest rates – and massive volatility in many emerging
markets and currencies. The BMW Group’s success in this volatile
environment reinforces its position as the world’s most successful
premium manufacturer. We aim to maintain and expand this leadership
through further development of the Group. This is particularly
important in light of the significant changes facing our industry. The
BMW Group sees itself as a driving force. Our new strategic alignment
was therefore a focus of attention in 2015 alongside our operating activities.

 

Let’s first take a look at the Group’s operating business
performance: Higher deliveries lifted revenues over € 92 billion for
the first time. This is an increase of almost 15% over the previous
year. This record high was supported by currency translation effects.
Adjusted for these effects however, Group revenues still rose by 7.7%.
Both earnings and Group profit crossed the next billion euro
threshold: The BMW Group’s pre-tax earnings topped 9 billion euros for
the first time at € 9.22 billion – an increase of 5.9% year-on-year.
At Group level, we achieved an EBT margin of 10.0%. Group net profit
also reached new levels at almost € 6.40 billion.

High profitability will continue to remain a priority in the future.
With a view to the challenges ahead, we have already implemented
measures in 2015 that will allow us to continue to meet profitability
targets in the future. We have carefully managed the company’s capital
employed and optimized our processes. This gives us the flexibility we
need to invest in relevant future projects.

 

In the fourth quarter, helped by currency tailwinds, Group revenues
reached almost € 25.0 billion – an increase of 10.2% year-on-year.
Adjusted for currency effects, revenues increased by 5.4%. Group
pre-tax earnings were 11.8% higher than the same quarter of the
previous year at € 2.11 billion. Fourth-quarter profitability remained
solid, with an EBT margin of 8.4%, despite high seasonal burdens.

 

The Automotive segment reported an EBIT margin of 9.6% for the same
period. We achieved this level of profitability despite extensive
expenditure on products and technology, and market volatility. This
was partly due to the aforementioned efficiency improvements, as well
as a solid increase in volumes.

 

Let’s talk about our investments in future projects. The BMW Group
reported total capital expenditure of € 5.89 billion in 2015 –
focusing on new vehicle projects, such as the 7 Series, the X1 and the
MINI Clubman. Additional upfront investments were made for the ramp-up
of further new products, including the new iPerformance models, as
well as in our European production network and for the plant expansion
in the United States.

 

Through targeted investment, the company is creating the necessary
conditions for future growth and the strengthening of its
competitiveness. Total investment included capitalized development
costs of € 2.06 billion. At 39.9%, the ratio of capitalized
development costs was higher than the previous year. This increase
resulted from the higher number of vehicle projects I already mentioned.

 

The BMW Group’s capex ratio for 2015 stood at 6.4% of revenue – and
therefore back in line with our target of below 7% of revenue. The BMW
Group has developed significantly over the last years. These
investments are preparing our production network for a higher total
capacity and new models for our attractive portfolio. At the same
time, we are concentrating on the introduction of new and innovative
technologies such as automated driving, the next phase of

e-mobility and digitalization.

 

The significant increase in research and development expenses
reported according to the German commercial code (HGB) underlines our
continued focus on the future: The BMW Group invested a total of €
5.17 billion in research and development in 2015. This represents an
increase of 13.2% from the previous year. As previously announced, our
RD ratio (HGB) decreased to 5.6% – or just outside our target
range of 5-5.5%.

 

RD spending was concentrated on ramp-ups and new vehicle
projects, hybridization and lightweight design. With these
investments, we are preparing our product portfolio for growing
regulatory requirements. Our focus is on even more efficient
combustion engines and drive train electrification. Additional points
included driver assistance systems and connectivity.

 

The BMW Group will maintain its leading position in technology and
efficiency. This remains a key aspect of our premium concept. We
expect the RD ratio for 2016 to remain on the same level as 2015.

 

Our investors also benefit from our business success. In this, our
centenary year, the company will pay the highest dividend in its
history. Subject to the resolution of the Annual General Meeting, the
company will pay a total dividend of more than € 2 billion for the
first time. A dividend of € 3.20 per share of common stock and € 3.22
per share of preferred stock will be paid. The dividend will be
30 cents – over 10% – higher than the previous year.

In total, 32.9% of our net profit for the year will be paid out to
shareholders. This means that our shareholders are currently earning a
dividend yield of nearly 4% on common shares – and almost 5% for
preferred shares.

 

Now, let us take a look at business development in the segments.

 

First, the Automotive segment. Automotive segment revenues for 2015
climbed to € 85.54 billion. This increase of 13.8% reflects higher
sales volumes and positive currency translation effects. Adjusted for
currency effects, revenues were up by around 6%. BIT for the
Automotive segment rose 8.2% year-on-year to € 7.84 billion. The EBIT
margin of 9.2% remained within our target range of 8-10% as forecast.
Here you can see the bridge from 2014 to 2015 EBIT. We were able to
increase our operating result, despite challenging conditions.

 

Higher volumes and the net result of raw materials and currency
effects had a positive impact. Pricing and the vehicle mix had a
slight negative effect compared with the previous year. These items
led to € 982 million additional EBIT over the previous year.

 

This year, we expect full availability of the 7 Series Sedan to
improve the mix.

In addition, higher depreciation had a negative effect of € 479
million on earnings last year. The item “Other changes” represents the
net balance of efficiency improvements and upfront investments and
higher personnel costs. Measures to improve efficiency and
cost-steering more than compensated for high upfront investments in
future projects and other charges.

 

And this will remain our course in the future – as we continue to
optimize our cost base. In this way, we will be ready for future
challenges and opportunities. As in recent years, this will take place
in a consistent and structured manner.

Let us now turn to at the cash flow for the Automotive segment:

Higher net profit and the effect of increased depreciation boosted
free cash flow in 2015. In fourth quarter, we reduced working capital
by significantly lowering inventories. Free cash flow totaled € 5.40
billion at the end of 2015. This performance shows just how attractive
and effective our business model is.

 

For 2016 and the medium term, we maintain our target of more than € 3
billion. Our financial strength enables us to develop new technologies
and strengthen our competitiveness. It also provides a solid
foundation in case the economic environment deteriorates.

 

The BMW Group’s liquidity position once again remained extremely
solid in 2015. At the end of the year, Group liquidity totaled € 11.38 billion.

The BMW Group therefore has sufficient funds and flexibility for its
business activities and further growth. This also provides our
financial services business with a solid footing.

 

Continuing with the Financial Services segment: BMW Group Financial
Services continued to expand its financing business in in 2015. Almost
1.66 million new contracts were concluded with retail customers in
this segment in 2015 – 9.7% more than in the previous year. The total
business volume, as shown in the balance sheet, climbed 15% to € 111
billion. This is driven by business development – especially in the
US, China and the UK. In these markets, new contracts benefitted from
positive translation effects. Overall, 46.3% of new BMW Group vehicles
were leased or financed by Financial Services.

 

The penetration rate is therefore 4.5 percentage points higher than
the previous year. We benefitted from attractive refinancing costs in
2015 and will continue to do so this year.

 

Earnings before tax reached € 1.98 billion – an increase of 14.6%
from the previous year.

Earnings were further driven by the high number of new contracts and
portfolio from previous years. This was offset by upfront investments
in future growth and further development of our IT infrastructure.
Financial Services made targeted investments to support continued
growth. The main increases came from workforce expansion and
investment in large-scale IT projects, including measures needed for
fulfilment of regulatory requirements, as well as further expansion of
business structures in China.

 

The return on equity for the segment increased nevertheless by 0.8
percentage points to 20.2%. Our balance sheet equity ratio stood at
8.2% at the end of the financial year, maintaining our solid equity base.

 

BMW Financial Services also benefitted from a largely unchanged risk
situation in 2015. The segment’s risk portfolio saw stable development
overall. The credit risk situation varied between markets, but
remained largely unchanged on the whole. The credit loss ratio for our
credit portfolio further improved to 0.37%. This is 13 basis points
below the previous year’s figure. Overall, there were no major changes
in residual value risks. The individual markets for our off-lease
vehicles however developed unevenly. Due to the high volume of used
cars, pricing in the US has – as expected – deteriorated slightly
recently. This development will likely continue in 2016.

 

In our second-largest leasing market, Germany, however, Financial
Services achieved higher used car prices. The improvement in residual
values here has partly offset the trend in the US. We are confident
that Financial Services has recognized an adequate level of risk
provisions. The segment conducts detailed risk analyses on a regular
basis and adjusts its risk provisions accordingly. We expect the risk
environment to remain largely stable in 2016, but cannot rule out
increased volatility. From today’s perspective, we believe the segment
is well prepared for credit and residual value risks.

 

I would now like to move on to our Motorcycles segment.

 

2015 was the fifth consecutive record year for BMW Motorrad. The
brand delivered almost 137,000 motorcycles to customers – 10.9% more
than the previous year. BMW Motorrad is the only German motorcycle
manufacturer and market leader in 26 countries in the segment for
premium bikes above 500 cc. With higher volumes and better
profitability, BMW Motorrad reported significantly higher pre-tax
earnings of € 179 million. This represents an increase of 67% over the
previous year. The segment achieved an EBIT margin of 9.1% for 2015.
BMW Motorrad is targeting further growth this year with its new and
attractive models.

 

Finally a look at Eliminations.

 

Eliminations cover the consolidation of inter-segment transactions –
primarily between the Automotive and Financial Services segments.
Pre-tax earnings were negative € 664 million. This negative balance
increased by € 501 million from the previous year, due to higher
eliminations of intercompany profits from stronger leasing business
and mix changes. The previous year had also benefitted from positive
effects that were not repeated in 2015 and therefore resulted in a
more negative balance compared with the previous year.

 

The BMW Group will continue to capitalize on selected opportunities
in 2016 and prepare itself for the future. We will use our financial
strength to implement change including necessary capital expenditure
and other upfront investments. Despite these burdens, we intend to
maintain our profitable growth to remain the world’s leading premium
manufacturer. We anticipate an overall positive business development
for 2016. Provided conditions do not deteriorate, the BMW Group is
targeting a slight increase in pre-tax earnings compared with the
previous year.

 

Assuming conditions remain unchanged, we also expect to see a slight
increase in automotive deliveries. Our new and revised models will
provide the momentum for this in a positive market environment.
However, should these development assumptions not be fulfilled, our
guidance could change.

 

We also anticipate a slight increase in Automotive segment revenues
in line with deliveries. We continue to aim for an EBIT margin within
our target range of 8-10% for the Automotive segment. We maintain this
target despite high capital expenditure and upfront investments.
However, actual margins could be below the targeted range if political
or economic conditions turn unfavorable.

 

In the Financial Services segment, we expect return on equity to
remain on a par with last year– despite growth-related investment and
(fixed) costs in the segment.

 

BMW Motorrad is also expected to continue its positive business
development in 2016. With our attractive new models, we expect to see
a slight increase in deliveries compared with the previous year.

 

The guidance assumes that political and economic conditions remain
stable. We expect increasing volatility and will respond in a flexible manner.

Ladies and Gentlemen,

 

Our financial strength creates the right conditions for the company’s
future competitiveness. We will continue to make the necessary
investments for this in 2016 and the following years. In the future,
the BMW Group’s leading position should additionally be measured by
its strength in innovation and profitability.

 

Thank you.

 


Harald Krüger, Chairman of
the Board of Management of BMW AG

 

Strategy Number ONENEXT

 

Ladies and Gentlemen,

 

The individual mobility of the future is an exciting but also highly
complex endeavor. Ultimately, what we do is inspire people,
accompanying and supporting them and making their daily lives more
convenient. The BMW Group is a company that has focused on the long
term for the past 100 years. And this will continue to be our approach
in the future. With our Strategy Number ONENEXT, we are looking
ahead to the year 2020 and beyond that, up to 2025.

 

Our corporate strategy guides our actions. It allows us:

  • to identify trends in our business environment early on;
  • to set ourselves ambitious goals and swiftly determine the actions
    necessary to achieve them;
  • to improve our existing operations continuously and to tap into
    profitable new business areas;
  • to ensure a corporate culture within the company which provides
    the ideal basis to implement strategic measures successfully.

 

Since 2001, the BMW Group has focused solely on premium with its
three brands BMW, MINI and Rolls-Royce. Since 2007 and the
introduction of Strategy Number ONE, the company has grown to a new
level. We have developed successfully from being the leading
manufacturer of premium vehicles to becoming the leading provider of
premium mobility and services.

 

Over the past few years, however, our world has continued to change –
even faster and more dramatically than ever before.

Today, we are operating within a completely different setting. The
update of our Strategy is based on the transformation taking place in
our industry. Our starting point was a comprehensive analysis of
trends. Consequently, we have identified seven fields of action
relevant to the BMW Group. One of them is digitalization. New
technologies create new opportunities for the automotive industry, but
also pose major challenges. The value creation is shifting from the
actual hardware toward software and services.

 

We can feel the changes in all business areas along the entire value
chain. Mastering them requires new skill sets. This development is
also changing the new competitive situation in our industry. In
addition to the very intense competition in the premium segment,
established carmakers are now confronted with competitors from outside
the industry. These companies are characterized by a highly dynamic
structure, an aggressive approach and substantial financial leeway.
They focus exclusively on future technologies and work with the data
of their customers.

 

As a result, there are changes at the customer interface, which is so
vital to us. In this digital day and age, a decisive role is played by
data and the added value for customers which can be generated from
that data. How data is handled has a major impact on the overall
customer experience. This is an opportunity for established carmakers
to set themselves apart from new competitors. In the past we have
always adjusted to customer-specific needs.

 

Within a complex competitive environment, the cost competition will
only intensify. Operational excellence is imperative to being able to
increase efficiency further and to invest in the future. When it comes
to drive train technologies, for instance, we will continue to follow
a multi-track approach that allow us to comply with the increasingly
strict legal regulations on emission reductions all around the globe.

We will have to succeed in these efforts within a highly volatile
environment. Maximum flexibility is needed to stay our course in an
uncertain environment.

We have taken into account all the trends I’ve just listed. The
update of our strategy has followed a dynamic, evolutionary approach –
including disruptive elements. It’s simply called Strategy Number ONENEXT.

 

The transformation of traditional mobility is a process – one that
will extend over a longer period of time, even though the pace will
increase exponentially over the course of this development. We are
leading the BMW Group into a new era. To this end, we leverage
innovative technologies, comprehensive connectivity and zero-emission
mobility. All of these need to be industrialized, bearing in mind our
business responsibilities, and in a sustainable manner, which in
itself is another great challenge.

 

Previously Strategy Number ONE was depicted by a house with four
columns. Strategy Number ONENEXT is represented by a more dynamic
structure – this arrow. Its asymmetrical form illustrates the need to
think out of the box. The arrow pointing to the future consists of
four elements: Vision, competitive advantage, strategic compass,
corporate culture.

 

Our new vision is: We are Number ONE. We inspire people on the move.
We shape tomorrow’s individual premium mobility.

 

In a competitive environment, we rely on our inherent strengths: We
unite excitement, responsibility and success. We have the most
emotional products and attractive services. We offer the best customer
experience with the most aspirational brands in the premium segment.

 

We aim to secure our long-term success and to set standards amongst
our competitors.

 

To this end, we have defined six key focus areas:

  • Brands Design;
  • Products;
  • Technologies;
  • Customer Experience Services;
  • Digitalization;

 

These elements are derived from the trends I mentioned earlier, and
anticipate a fundamental transformation of our industry. Let me
comment on Brands Design, Products, Customer Experience and Digitalization.

 

Premium is to a large extent defined through the presence and
strength of the brands. Design plays a vital role here as it is a
differentiating feature. Our goal remains unchanged: to lead in terms
of brands and design. A comprehensive brand orchestration management –
including clearly defined roles – is the basis for our operations. In
the future, we will secure the ideal outcome by applying a Group
perspective to all our decisions on new products and services.

 

This is the prerequisite for taking our design to the next level and
for determining the ideal time for the market launch of new products.
This Group-wide interaction will enable us to achieve much more. We
already occupy a future-oriented position in the market with our
brands and products, covering all requirements in the premium segment.

 

With Strategy Number ONENEXT, we will expand our product
portfolio in all brands and all segments.

 

 

 

This includes:

  1. The market leadership in the upper segments.
  2. The expansion of the BMW M product program.
  3. The expansion of the BMW i lineup.

 

Let me be clear: BMW is and will remain our core brand. Leadership in
the luxury class strengthens the BMW brand’s premium positioning. Over
the course of the next few years, we will strategically launch new BMW
products in the market, accompanied by BMW M and BMW i models. A good
example is the BMW 7 Series with its iPerformance and M Performance variants.

 

They demonstrate: how our technologies are charting the future course
of the luxury segment, that we are responding to the different wishes
expressed by our customers and that we offer Sheer Driving Pleasure in
many different forms.

The luxury class will remain a high-margin segment, so we intend to
enhance our presence by adding another new model.

 

Our BMW X model range is becoming more and more popular with
customers. We have already announced a new addition to this lineup:
the X7, due out in 2018.

 

On to my second point:

 

BMW M is another example where high demand and profitability come
together. Since 2010, sales of M and M Performance vehicles have
approximately quadrupled. It is not only an obvious choice from a
business perspective to continue investment in this field, but it will
also benefit our customers. New M and M Performance models will be put
on the road as early as this year. One example is the new BMW M2 Coupe
to be launched in April, which is geared especially toward younger
customers. The new BMW M4 GTS comes in a limited edition of 700 units
and has already sold out.

We are planning to close any gaps in the M portfolio. We also see
growth potential in M Performance. In the future, M Performance will
have a significantly wider share in our model portfolio. As you can
see, we are taking advantage of the growth potential in the
high-margin segments. After all, the evolution will continue to fund
the revolution in the coming years.

Let’s move on to the third point:

 

The expansion of BMW i. With BMW i, we have managed to very quickly
create a globally known brand that embodies sustainability. Since its
introduction in 2013, we have delivered more than 50,000 BMW i
vehicles to customers. Today, the BMW i lineup has a larger market
presence than any other electric vehicle. BMW i assumes a key role as
an enabler for our BMW core brand: BMW i attracts new customers to
BMW. BMW i gives people easy access to electromobility as part of
DriveNow. 20 percent of our car-sharing fleet is already fitted with
an electric drive. BMW i is also instrumental in tapping new sales
strategies via new channels or internet orders.

 

Our viewpoint on e-mobility is clear: Electro-mobility delivers a
solution to the demands of urban mobility, today and tomorrow. We are
charting a clear course, and we will continue to do so. We are further
expanding the BMW family.

An additional i3 model will be offered from the second half of this
year on: Its battery capacity has increased by 50 percent. And we have
also revised the design.

 

In 2018, we will launch an emotional brand shaper based on the i8 –
the BMW i8 Roadster. The next few years will see further progress in
terms of the vehicles’ range, for both BEVs and PHEVs.

 

The knowledge and experience we gain through BMW i flows as
appropriate into our entire range. That’s what iPerformance stands
for. In the future, we will offer all BMW models with a plug-in hybrid
drive under this label. From July onward, customers will be able to
choose from a total of seven BMW models that are either fully electric
or fitted with a plug-in hybrid drive. Additional electrified models
are due out in the following years. One of them will be a MINI with a
plug-in hybrid drive. And of course our iPerformance customers will
also benefit from the BMW 360° ELECTRIC offering, including a
wall-mounted rapid-charge box and ChargeNow, the world’s largest
network of public charging stations.

 

A completely new i model is scheduled to follow early in the next
decade. We call it BMW i NEXT. This highly innovative model will be
BMW i’s new spearhead of innovation and technology. It will enable us
to take BMW i to the next level. In doing so, we rely on our
experience in electro-mobility. The i NEXT will cover all aspects
relevant in the future: autonomous driving, digital connectivity,
intelligent lightweight construction, a trendsetting interior and the
next generation of electro-mobility.

 

One key strategic approach is Technologies. Digitalization has
brought about technological possibilities that can make driving more
comfortable and most of all safer. On top of that, they connect
mobility with all other areas of life. We are determined to assume the
leading role in the digital transformation of the automotive industry.
More about this essential topic from Mr. Fröhlich in a moment.

 

But for now, let’s move on to the strategic approach of
Digitalization. Digitalization is the most effective driver of the
transformation in the automotive industry – as it impacts all areas of
our company. This is why we have decided to focus on three priorities:
Digital customer experiences, connected and autonomous driving and
business processes.

 

Digitalization means we will be better able to anticipate and meet
our customers’ needs. In the future, we want to offer people
tailor-made products and services along the entire customer lifecycle.
These features will increase customer loyalty and the customer
lifetime value.

 

In this context, it doesn’t matter if our customers’ point of contact
is real or virtual. Because in the future, the crucial point is to
have a diverse and innovative offering of premium services for
individual mobility. The BMW Group has incorporated mobility services
and digital services in its business model early on. Just think of
DriveNow, ParkNow and ChargeNow. And we will continue to expand our
offerings in these fields – to make them more convenient and thereby
simplify our customers’ mobile life. One option would be to complement
our existing car-sharing program with a premium ride-sharing service.

 

I’d now like to invite Klaus Fröhlich to explain more about our plans.

 

 

 

 


Klaus Fröhlich, Member of
the Board of Management of BMW AG, Development

 

Ladies and Gentlemen,

 

Harald Krüger has already explained to us the challenges and
opportunities in our business environment and the focus of Strategy
Number ONENEXT. What I would like to do is outline the four
strategic directions we will adopt as we implement our strategy. Why
do we think this is important?

 

  1. 1. Implementing our technologies will give us a competitive
    advantage over other manufacturers and new players entering the
    automotive business. And in terms of Digital Services, we are going
    to lay the foundations required to offer our customers a superior
    service range that exceeds their needs.

 

  1. For those of us who work in BMW Group Research and Development,
    the future is already here today. We first took to the road with
    autonomous driving in 2011 – and even used our systems on public
    roads. Right now, we are already developing our fifth generation of
    electric motors, due for launch in 2020.

 

  1. From highly emotional design to the interaction with and use of
    our vehicles, we want to be even more rigorous in adopting the
    customer’s perspective on our products. That’s why we have
    redesigned the way we work.

 

For Research and Development at the BMW Group, this means: We are
evolving from a mechanical engineering business to a tech company.
That’s why I would like to start by taking a brief look at the
technologies we are already offering today to address two key
megatrends: alternative drivetrain systems and digitalization.

 

Strategy Number ONE, which we launched in 2007, laid the foundations
for sustainable drivetrain systems with EfficientDynamics and project
i. Today, the BMW Group has the most extensive portfolio of electric
motor drivetrains in our competitive field.

 

With iPerformance, we have been able to make these drivetrains an
integral part of our architectures. As modular systems, they ensure
maximum flexibility for our range of conventional and alternative
drivetrain systems for the next ten years – so we can meet not only
customer needs but also the legal requirements that are developing.

 

Our new 7 Series is the first model to feature our highly flexible
cluster architecture. The digitalization features in it are impressive
evidence of our innovativeness and include: Remote Control Parking,
the Active cruise control and Steering and lane control assistant,
which can take over from the driver to control longitudinal movement
as well as lateral movements to 210 km/h. Various control options like
natural speech recognition, gesture, touch, and iDrive units, the
broadest spectrum of ConnectedDrive Services, right through to
over-the-air updates for various vehicle functions.

 

However, at the BMW Group, when we look ahead to the future, we look
far beyond what’s around the next corner. As stress and traffic levels
rise and time becomes increasingly scarce, how are we going to deliver
sheer driving pleasure in the future?

 

At this year’s CES, I presented our vision of connected, autonomous
driving – with this car right next to me, the BMW i Vision Future
Interaction. Before it even sets off, this vehicle has set its
interior temperature to the ideal level. It also knows the best way to
go, and suggests various parking space available to reserve. It also
has all the latest information, fed to it from the Cloud – such as
real-time maps from HERE – or from its own sensors.

So the journey is not only simpler but also safer. In autonomous
mode, the interior transforms into a spacious state-of-the-art office
for comfortable communication. In this concept car, we realized the
interior of the future – because when vehicles are connected and drive
themselves, our customers will experience and use the interior in a
completely new way.

 

We come now to Strategy Number ONENEXT: Our development division
wants to ensure the BMW Group remains technology leader:

 

To achieve that, we are going to restructure our operations with a
strong focus on two key future topics:

 

  1. Powertrain technologies with EfficientDynamics NEXT and the
    development of electric vehicles powered by battery or fuel cells.
  2. Digitalization with enhanced connectivity, artificial intelligence
    and the development of self-driving premium vehicles.

 

Let’s take a closer look at the first of these two points: powertrain technologies.

 

Regulations and society are changing faster and faster, so this point
is of major importance to us. Efficient Dynamics is all about
combining power and efficiency in equal measure. Over the last few
years, we have consistently enhanced our Efficient Dynamics technology
package, and still see a number of areas with significant potential
for us. With EfficientDynamics NEXT, we are making the benefits of
this technology package even easier for customers to experience in our
combustion-engined vehicles. We’re doing so through additional
functions to enhance emotive dynamics and efficiency. Two examples are
the Boost function, for extra-dynamic acceleration, and the
comfortable engine Start-Stop function as well as intelligent,
anticipatory assistance systems that help our customers manage their
personal mobility even better – by predicting changing traffic
signals, for example.

 

There’s one thing I am sure of: Over the next 20 years, we will still
have more than just one type of drivetrain system. Another reason why
we will still need to offer our customers a range of drivetrain
systems is the different requirements in the different markets around
the world. These mean we will need revolutionary alternative systems
just as much as evolutionary conventional ones, and hybrids.

 

The BMW i3 and BMW i8 have made us a trendsetter in electric
mobility. Over the next few years, we will be adding to our i family,
with iPerformance ensuring technology transfer into our series models.

 

To do this, we will offer electric models in nearly every BMW series.
Our latest plug-in hybrids incorporate our third generation of modular
electrification systems. And development work is already under way on
our fifth generation for 2020+.

 

Enhancing and electrifying our conventional engines will allow us to
continue meeting, our CO2 targets even in the future. However, our
customers also expect us to offer larger vehicles with alternative
drivetrains and far more range. To meet their demands, we are
enhancing not only our battery cell technologies but also hydrogen
fuel cell technologies. At the moment we are testing a small fleet of
hydrogen-powered BMW 5 Series GTs. These cars accelerate from
standstill to 100 km/h in 8.4 seconds, with a top speed of 180 km/h.
They have a range of between 450 and 700 km, depending on their tank technology.

 

Customer focus means two things to us: One the one hand, it means
continuing to offer customized drive train solutions. On the other, it
means viable implementation of those solutions, with maximum synergies
and minimum complexity between technology paths. One example of this
is the fuel-cell, which is an electric drivetrain in which the battery
has just been largely replaced by a fuel cell system.

 

That’s why we have taken deliberate steps to broaden our core
expertise in the field of powertrain development.

 

We come now to our second future topic: Digitalization.

 

‘Digitalization’ is the word of the moment. Everybody is talking
about it. Translated quite simply into the context of the automotive
industry, three strands of action emerge:

 

  1. Business processes: these are the processes by which we develop,
    produce and sell our vehicles. In the future these are going to
    change fundamentally – not only within the BMW Group but also in the
    way we network with our partners from suppliers to service providers.

 

  1. Competition for customers: the internet, with its minimal
    transaction costs and wealth of data, is making competition tougher
    all the time. So for our Digital Services, we need to develop the
    best possible understanding of the customer and superior technical
    solutions, for example through artificial intelligence.

 

  1. The vehicle of the future will be fully networked and self-driving.

 

Today, allow me to focus on this last point:

 

Connectivity is a key prerequisite for the vehicle of the future. Our
products already have their own integrated SIM cards today, making
them an integral part of the Internet of Things. And our digital
services and apps, called BMW ConnectedDrive, are already connecting
our customers with various areas of their lives. What we now want to
do is seamlessly interconnect our customers with their cars,
customized services and the world around them. Direct interactions
with our customers are of key importance.

 

However, one thing is perfectly clear: Vehicle and data security are
our top priority. That’s why, moving into the future, we will link
every vehicle with a BMW backend server to keep customers’ details
secure, with firewalls, encryption and anonymization. From our
customers’ perspective, future connectivity will have a name: BMW
Connected – the name of their customized digital companion.

 

In years to come, our customers will have all the important mobility
information they need – at home, in the car, when they are out and
about on foot, or using public transport. It will always be up to date
and constantly accessible via any end device. Moreover, with the help
of the integrated Mobility Cloud, we will learn more and more about
what they want and need, and be able to customize our mobility
services accordingly. This will allow us to offer the best services in
our field of competition. That’s our goal.

 

BMW Connected will launch before the year is out. In the future,
vehicles will be intelligent and able to drive themselves. For us,
this is once again a question of customer benefit – because we want
our customers to decide for themselves how they will drive. Without
freedom of choice there can be no sheer driving pleasure. We have been
working on autonomous driving for more than ten years.

 

Our first test vehicle autonomously completed a lap of the
Hockenheimring race track in 2006. In 2009, a test vehicle navigated
the 73 bends on the Northern Loop of the Nürburgring – autonomously
and at racing speed. In 2011, a test vehicle drove on the A9 from
Munich towards Nuremberg – without any driver intervention. And now,
starting with the new 7 Series, we are gradually introducing elements
of highly autonomous driving into our series vehicles.

 

However, we firmly believe that this decade will not see large-scale
production of an autonomous vehicle that meets the premium needs of
our customers. The most we foresee is pilot tests in a restricted
setting. We believe that, at the moment, the technical and social
challenges involved are still too great.

In addition, adjustments must be made to the legal implications for
customers and manufacturers.

 

The BMW Group has a clear goal: To be the leader in the field of
autonomous driving. This is a goal we are rigorously pursuing, and we
are working systematically to establish the conditions that are
needed. Our high-precision map service, HERE, offers real-time data to
all customers, with millions of anonymized data items enhancing map
quality all the time. This will allow the BMW of the future to move
around using the latest digital environment model with an augmented
digital horizon. The intelligent vehicle will warn the driver of
danger ahead and prepare well in advance. We are also improving our
vehicle sensors to pick up even more detailed information about the
immediate surroundings. And to interpret the data we collect, we will
make comprehensive use of artificial intelligence, not only in the
vehicle but also in the BMW backend server. In addition, we will work
proactively to help clarify the general conditions necessary for
autonomous driving. Our goal is to realize autonomous driving within a
holistic end-to-end approach. And that sets us apart from other companies.

 

I said at the beginning of my speech today that: We are working to
ensure that the BMW Group remains technology leader. We know what we
need to do. We are going to develop the vehicles of the future. And we
are going to develop and enhance our own division as well.

 

Project i brought us sustainable mobility – with breakthrough
innovations in the fields of electrification, lightweight engineering
and sustainability. Strategy Number ONENEXT marks the launch of
Project i 2.0. Our goal is to achieve a sustainable, fully networked,
self-driving vehicle. That’s why our development division has now been
restructured and enhanced – to consistently reflect digitalization.

 

Harald Krüger mentioned the i NEXT. This vehicle will take our
strategy out onto the road with convincing results: Developed with
consistent lightweight engineering, alternative drivetrains, fully
connected and highly autonomous driving and a futuristic interior.

 

In the years ahead, the i NEXT will be what our BMW 7 Series is
today: individual mobility in its finest and most contemporary form.

 

Thank you very much.

 

 

 


Dr. Friedrich Eichiner,
Member of the Board of Management of BMW AG, Finance

 

Ladies and Gentlemen,

 

We want to maintain our leadership – both in terms of our strength in
innovation and competitiveness.

 

The digital transformation of our industry offers huge potential. To
seize these opportunities, we will need to invest in the future –
using our own resources and simultaneously maintaining our profitability.

 

We have already begun to become more efficient: in development and
production as well as at our customer interface. Our clear strategy
and our employees’ outstanding expertise and commitment provide a
solid foundation for our future success.

 

Nevertheless, we also have to consider external factors that could
impact our future success. The main challenges we see currently are
stricter regulatory requirements, as well as difficult market and
competitive conditions. We also have to contend with increased
volatility in the global economy and other key areas, such as
currencies and raw material pricing.

 

Our strategy is designed to achieve a balance between investment in
the future and profitability. We want both: to maintain our current
high level of profitability whilst laying the groundwork for the future.

 

By focussing on profitability, and the measures needed to achieve it,
we aim to keep profitability within our target range over the long term.

After a period of strong growth, we are now optimising our core
business. We want to ensure our business model remains fit by
accelerating decision-making processes and building leaner structures.
Our experience in new business fields like BMW I provides valuable
input to this end.

 

This will give us the flexibility to really focus on the future. We
plan to refine our business model, so that we can continue to offer
our customers the most attractive, most desirable products and
services in the future. That is our vision and our motivation!

 

I would like to give you some examples for measures and initiatives
that are in implementation. On the performance side, we aim to
strengthen profitability: Our product strategy is focused on expanding
our vehicle portfolio in the higher-margin segments.

 

The BMW brand, for example, will make the biggest gains in the luxury
class and the dynamic M market. This will be complemented by new
offerings in the fast-growing SUV segment. The higher-quality product
mix will support our level of profitability.

 

We also expect digital, customer-centric technology solutions to make
a growing contribution to earnings: Attractive, user-friendly
solutions for of automated driving and innovative services will make
our customers’ lives easier and safer. These kinds of solutions add
value and, therefore, have their price.

 

We will also optimise our cost structures by increasing productivity
and enhancing our operational excellence – beyond the usual annual
increases in efficiency.

 

A great deal has been achieved in recent years through diverse
profitability initiatives in all divisions. That is driven by
standardisation, process improvement and prioritisation.

 

Our approach is based on uniform, optimised processes starting from
the development phase.

 

In addition, we will enhance our use of product and process modules,
as well as shared vehicles and drive systems architectures – making
development and production more efficient.

 

By way of an example, the new rear-wheel-drive architecture
introduced with the new 7 Series provides the basis for cost
optimization across multiple future models.

 

At the same time, we will also make a conscious effort to reinforce
the high quality and innovative character of our portfolio. Both are
important purchase criteria for our customers and an integral part of
our premium standards.

 

In the mid-term we expect to become more efficient by starting
cooperation between our purchasing, production and sales and marketing
divisions at an even earlier stage, which will help better deliver on
the requirements of each division.

 

A good example of this is the Simplify Initiative, based on the idea
of consistent simplification. Its main aim is to

reduce both costs and complexity.

 

We are currently identifying potential to further optimise our
vehicle portfolio. Starting with true customer requirements, we will
take a hard look at both variants and equipment options.

This will allow us to lower costs and reduce complexity in
development, production and aftersales –without detriment to the customer.

 

The new positioning of the MINI brand, with five core models, is one
example of how we can reduce complexity. Going forward, MINI will
offer fewer, more independent models, with a sharper profile. In line
with this thinking we have decided not to offer successors to three
existing models.

 

Based on our Simplify approach, we expect an overall significant
reduction of complexities and one-off expenditures. In figures, we
anticipate savings in the three-digit-million euro range over the
coming years.

 

In production, the structures and processes we use are increasingly
standardised. We are now able to use virtually uniform production
processes, systems and machines worldwide.

 

Standardised processes will lead to efficiency improvements and
result in economies of scale in purchasing as well as a higher
manufacturing quality.

 

Furthermore, our new production systems can also be used for longer –
beyond a single lifecycle. All of this has a positive effect on both
capital employed and capital expenditure.

 

We also anticipate cost benefits from the digitalisation of
production and logistics. Developments in Industry 4.0 will enable new
and less cost-intensive production methods. Such efficient methods and
processes have already been realized in the planning of new production
sites, such as in Mexico, thus serving as a best-practice solution for
all our international plants.

 

One example you are probably familiar with is the lightweight robot
that works alongside employees without a safety guard. We expect the
application of new robots and modern development and production
methods, such as virtual reality, data goggles and 3-D printing, to
yield further efficiency potential in the future.

 

The BMW Group is growing on a global scale. The company is pursuing a
targeted approach to establish production capacity and supplier
relationships in countries with growth potential. This not only makes
us more robust and more flexible, but also enables us to exploit the
competitive advantage of international locations. China and NAFTA are
a particular focus.

 

We will implement both – a long-term, profitable, traditional
business model and a shift towards new technologies and business
segments. We will achieve this within our own financial means. This
two-pronged approach requires even greater operational excellence,
productivity and efficiency from the BMW Group. Not to mention a high
level of agility, a willingness to change and a passion to embrace new
technologies and processes.

 

We will naturally set ourselves ambitions financial targets to assure
the company’s long-term profitability – with clear milestones up to 2020.

In recent years, the BMW Motorrad segment and Financial Services, in
particular, have made a growing contribution to earnings and improved
the company’s profitability as a whole. This will remain our focus in
the future.

 

In acknowledging this development, the BMW Group will introduce
additional key performance indicators from the year 2017 onwards: At
Group level the company will target an EBT margin of at least 10%. The
Motorcycles segment will adopt an EBIT margin target range of 8-10%.

 

In the Financial Services segment, we will maintain our target of a
return on capital employed of at least 18%.

Our target ratio for RD activities remains within the 5-5.5%
range of revenue, as before.

There has been a change in the definition of our capex ratio, which
will no longer include capitalised development costs. The target for
this ratio will be less than 5% of revenue. In 2015, this ratio was at
4.2%. We will drive cost discipline, hand-in-hand with extensive
investment in future projects.

 

However, securing our innovative strength, it is possible that we
could exceed the targeted range by exception in selected years.

 

And finally: the free cash flow for the Automotive segment is
targeted to be over € 3 billion per annum.

 

These financial targets assume that overall political and economic
conditions remain stable.

 

The BMW Group is embarking on the next 100 Years with a clear
strategy towards future growth and success.

 

We will transform our business based on our independence and
strength. We have the financial power, the relevant know-how and we
are ready to embrace change.

 

Thank you.

 

 

 

 


Harald Krüger, Chairman of
the Board of Management of BMW AG

 

Ladies and Gentlemen,

 

The implementation of our Strategy Number ONENext relies heavily
on a well-functioning/excellent corporate culture that supports and
perpetuates this further development.

 

The BMW Group has a strong corporate culture. It is characterized by
solidarity and our people’s strong identification with the company and
its brands. However, to prepare for future challenges we have to
develop further. We respond to our highly dynamic environment by
applying our strengths. At the same time, we will significantly step
up the momentum when it comes to being more flexible and agile during
the transformation of our industry.

 

All of that must be reflected in our corporate culture – and by that
I mean: in our structures and processes, but first and foremost in our
actions. So we have defined five values, which will be vital in our
future cooperation: Responsibility, appreciation, transparency, trust,
and openness.

 

These values provide a sound foundation for our implementation of Number ONENEXT.

 

Thank you!