BMW Group has maintained stronger margins during the second quarter as sales revenues increase.
IHS Markit perspective
- Significance: BMW Group has maintained stronger margins during the second quarter as sales revenues increase.
- Outlook: The results build on its performance in the first quarter of 2017, which was bolstered by an increased valuation.
- Implications: The automaker has maintained its expectations for the full year despite the demands expected to come from expenditure in research and development. IHS Markit also anticipates that the automaker's global sales volumes will increase by 3.3% y/y to around 2.44 million units during 2017.
BMW Group has announced its results for the second quarter of 2017 in which its margins have increased further. For the three months ending 30 June, the company revealed that its revenues had reached EUR25,799 million (USD30,589 million), a gain of 3.1% year on year (y/y). From this its earnings before interest and taxes (EBIT) have grown by 7.5% y/y to EUR2,929 million, resulting in its margin increasing from 11.2% to 11.8%. Furthermore, profit before tax for the quarter stood at EUR3,055 million, a gain of 9.2% y/y, while its net profit reached EUR2,214 million, an increase of 13.6% y/y.
The company's key Automotive division – which represents around almost 90% of its revenues – contributed modestly to this improvement. During the quarter, its sales revenues increased by just 0.5% y/y to EUR22,976 million. This was despite a 4.6% y/y increase in its volumes to 633,582 units, with the BMW brand making up 534,585 units (+5.3% y/y) and Mini standing at 98,155 units (+1.6% y/y). It added that its EBIT had increased by 2.8% y/y to EUR2,238 million, leading to a margin of 9.7%, close to the upper end of its 8–10% target for the unit. Furthermore, its profit before tax increased by 4.7% y/y to EUR2,385 million.
Its Motorcycles unit's revenue increased by 12.8% y/y during the quarter to EUR696 million. This was achieved on the back of a 12.3% y/y gain in volumes to 52,753 units, setting a new record for the company. Its EBIT increased by 6.1% y/y to EUR104 million, which resulted in a fall in its margin from 15.9% to 14.9%. Profit before tax also gained by a similar amount, increasing 6.2% y/y to EUR103 million.
Its Financial Services business revenues have grown by 8.3% y/y to EUR7,044 million. This came as it generated 1.7% more credit financing and leasing contracts with customers to 468,603 during the quarter. EBIT has grown by 11.2% y/y to EUR588 million and profit before tax stood at EUR589 million, an increase of 17.1% y/y.
The performance this quarter has contributed to an even stronger performance for the OEM during the first half of 2017. During this time, revenues of the group have grown by 7.4% y/y to EUR49,247 million. EBIT has also grown by 7.6% y/y to EUR5,575 million, taking its margin from 11.3% to 12.3%. Profit before tax jumped by 17.3% y/y to EUR6,060 million, while its net profit stood at EUR4,363 million, a gain of 21.5% y/y.
Outlook and implications
The latest financial results builds on the BMW Group's performance put in during the first quarter which was bolstered by a positive valuation of its stake in mapping company. However, the recent performance of its core business has been underpinned by the launch of the latest generation of BMW 5-Series which is said to mark the largest product offensive in the automaker's history until the end of 2018. The brand will pursue growth at the upper end of the passenger car market with the forthcoming 8-Series and larger, more luxurious X7 sport utility vehicle (SUV). However, it will also expand its presence in China with the new 1-Series sedan. Elsewhere, the Mini brand is starting to derive some benefit from the new Countryman while Rolls-Royce will benefit from the Phantom 8, which looks set to be even more luxurious than its illustrious predecessor.
The focus on widening its portfolio and introducing models even further upmarket will go some way to maintaining margins of the Automotive business within its target range. Achieving sustainable profitability is one of the main goals of the automaker's Strategy NUMBER ONE > NEXT plan. This will need to be achieved in the face of growing demands from its research and development (R&D) to bring to market new technologies. This is not only those technologies that consumers are expected to demand in future, like connectivity and autonomous driving, but also those that will be needed to meet regulatory pressures such as electrification or even making existing technologies meet forthcoming rules. Indeed, in the first half of 2017, BMW Group has spent EUR2,650 million on R&D, putting its ratio at the top end of its 5.0% to 5.5% target.
Looking forward to the remainder of the year, BMW Group has maintained its targets for the current financial year. Chairman of the Board of Management of BMW Group, Harald Krüger said that the company forecasts slight increases and new record figures for automotive segment deliveries and profit before tax in 2017. He noted, "With the first half-year now behind us, we are confident of achieving the targets set for the full year. We can therefore begin the second half of the year with cautious optimism. That said, we also continue to expect higher expenditure over the course of the year in connection with key technological and strategic projects on the one hand and the roll-out of the largest model offensive in the history of the BMW Group on the other. Other factors to bear in mind are the politically volatile environment and high upfront expenditure for electric mobility and autonomous driving." The company also believes that the EBIT margin for the Automotive segment in 2017 will remain within its targeted range, and that due to positive translation effects, the BMW Group now forecasts a solid increase in automotive segment revenues for the full year.
IHS Markit also anticipates that the automaker's global sales volumes will increase by 3.3% y/y to around 2.44 million units during 2017, of which the BMW brand will make up over 2.06 million, a gain of 3.5% y/y.
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