During the company’s annual accounts press conference that took place yesterday, the BMW Group had two important points to make clear, both confirmations of already known plans. First, BMW will switch to a single rear-wheel-drive platform in the near future, starting with the upcoming 2016 BMW 7 Series. Second, an array of plug-in hybrids is expected in the next couple of years, starting with the recently unveiled X5 eDrive.

"The new rear-wheel-drive architecture is virtually ready for series production and will be implemented in our future models." said Dr. Friedrich Eichiner, Member of the Board of Management of BMW AG, Finance, during the presentation. In translation, the aluminum-intensive platform used by the upcoming 7 Series will trickle down to the 2017 5 Series, the next-generation 3 Series, and large BMW SUVs. In short, BMW will base its entire lineup on just two architectures – RWD-based models on the same platform as the upcoming 7 Series and FWD-based models on the UKL platform from Mini.

BMW is preparing a series of plug-in hybrids following the X5 eDrive. A 3 Series eDrive will follow by the end of the year, and the next-generation 5 Series and 7 Series after that.

Continue reading to learn more about BMW’s future plans.

Why it matters

With BMW hard at work to keep its luxury sales crown by 2020, it’s no wonder that it is looking to simplify the way it builds cars, especially since a major lineup increase is expected in the upcoming years. A reduction in the number of platforms used translates into efficient use of resources, but there could also be a downside.

With most of BMW’s models using similar parts, there is an increased possibility that if a supplier messes something up, a greater number of cars could be affected, possibly resulting in recalls or a even stop-sales notices to rectify the problem. As Audi and Mercedes-Benz are hot on BMW’s tail in terms of sales, I’m actually not much of an optimist concerning BMW’s near future, although it has never been short on surprises over the years.

Press Release

Good morning, Ladies and Gentlemen!

A warm welcome from my side as well.

Innovation, flexibility and continuity – these are the key factors to our success.

Our approach has always been to drive innovation forward, and adapt flexibly to volatile conditions: Our long-term strategic targets keep us on track.

The BMW Group achieved its earnings and profitability targets last year.

The Automotive segment achieved an EBIT margin of 9.6%, which was at the upper end of our target range of 8-10%.

At Group level, the EBT margin increased to 10.8%.

The company remained on course despite economic and political challenges – especially in the second half of the year.

BMW Group revenues reached a new all-time high in 2014 and exceeded € 80 billion for the first time. This increase of 5.7% over the previous year was generated by all operating segments. Revenues were primarily sales-driven. Adjusted for currency translation effects, revenues increased by 6.8%.

Group earnings before tax reached € 8.71 billion and were therefore significantly higher than the previous year, in line with our guidance – with an increase of 10.3% year-on-year.

In the final quarter of 2014, the BMW Group reported its highest-ever fourth-quarter retail sales, with significant gains over the previous year. Higher volumes and currency tailwinds resulted in a significant increase in revenues to € 22.66 billion.

As expected, various product and technology projects led to higher fourth-quarter costs. Expenses for sales and marketing activities and expansion of IT infrastructure also increased. Group pre-tax earnings therefore remained on par with the previous quarter at € 1.87 billion.

For the final quarter of 2014, the Automotive segment reported an EBIT margin of 8.2% – which remains within our target range of 8-10%, despite the high level of expenditure.

Securing the future of the company is extremely important to us – which brings me to our research and development activities and capital expenditure for last year.

The BMW Group reported capital expenditure of € 6.10 billion for property, plant and equipment and intangible assets – primarily in the Automotive segment.

The main focus was on structural investment in plants and product investment in new models, such as the future 7 Series Sedan, the 2 Series Active Tourer and the upcoming 2 Series Gran Tourer. The MINI core model was newly launched as a 3- and 5-door model.

Through expansion of its model line-up and production capacity worldwide, the BMW Group is paving the way for further sales growth.

We expand our global production network with investments in the Americas, Asia and Europe. In 2014, we continued to expand our American plant in Spartanburg, South Carolina, where we intend to increase capacity to 450,000 units by 2016.

At the same time, we continue to expand our production footprint with plants in Brazil and Mexico.

The expansion of our production structures in China is also proceeding well. Last year, structural investment mostly benefitted the new engine plant being built by our joint venture, BMW Brilliance Automotive. The plant will be ready for our extended model line-up in 2016, as previously announced.

Last year, we announced an early contract extension for our successful joint venture in China, together with our decision to build three additional, locally-produced vehicles. In Germany, investment focused on our Dingolfing and Leipzig plants.

The capex ratio for 2014 stands at 7.6% - which is clearly lower than the 8.8% of the previous year. This year, the ratio should continue to move closer to our target of below 7% of revenue.

The BMW Group continued to renew its line-up in 2014, with no fewer than 16 new models and life-cycle impulses launched last year. As the largest premium manufacturer, the company drives technological innovation forward. Research and development remained focused on innovative drive concepts, lightweight design and connectivity between the vehicle and its surroundings.

In 2014, the BMW Group rolled out the new Efficient Dynamics engine generation, further reducing new vehicle fleet emissions. The modular engine system comprises highly-efficient three, four and six-cylinder drive trains with lower weight and turbo technology to ensure driving pleasure and dynamic driving performance. Commonalities within the ultra-efficient engine family enable economies of scale and a high level of flexibility.

Plug-in hybrid technology, combining both combustion engine and electric motor, was implemented in a series-produced vehicle for the first time in 2014 in the BMW i8. Additional models will be fitted with the innovative eDrive system this year.

Our model line-up has undergone a significant expansion: In 2014, the 2 Series Active Tourer introduced front-wheel-drive architecture in a series-produced BMW vehicle. Like our X models, these new compact models are geared towards new customer target groups – which includes many for whom the BMW brand had not yet the right offer.

The new rear-wheel-drive architecture is virtually ready for series production and will be implemented in our future models.

Developments in the area of connectivity and driver assistance systems – all the way to highly-automated driving – expanded our innovation portfolio in 2014.

The BMW Group once again pioneered new technology: for example, by testing the first highly-automated driving prototype under high-performance conditions last year. The test car proved on the racetrack that it could drive to the limit even without a driver.

The company’s total research and development expenditure for 2014 totalled almost € 4.57 billion. This is 4.7% lower than the previous year, as planned, but still at a high level.

This total included investment in capitalised development costs of nearly € 1.5 billion. At 32.8%, the ratio of capitalised development costs was lower than the previous year.

The R&D ratio of 5.7% was also lower than the previous year’s figure of 6.3% and just outside our target range of 5-5.5%. The company plans to maintain this ratio at the same level again this year.

We also want our shareholders to have an appropriate share in the success of BMW AG. At this year’s Annual General Meeting, the Board of Management and Supervisory Board will propose a dividend of € 2.90 per share of common stock and € 2.92 per share of preferred stock for the 2014 financial year. In each case, this represents an increase of 30 cents over the previous year. This is the highest dividend the company has ever paid.

The resulting dividend payment totals € 1.90 billion. Nearly 33.0% of our net profit for the year will be paid out to shareholders. The pay-out ratio is therefore within our target range of 30-40%.

I would now like to talk about earnings performance in the segments – first, the Automotive segment.

With almost 2.12 million deliveries, the BMW Group sold more than two million vehicles for the first time last year – and met its strategic sales target for 2016 early. Thanks to its attractive line-up, the company has been able to share in the global automotive market growth.

The Automotive segment benefitted from solid sales gains of almost 8%. Higher BMW and Rolls-Royce vehicle sales improved the vehicle mix last year and contributed to higher profitability. Due to the MINI model change brand sales remained nearly on par with the previous year.

Automotive segment revenues for 2014 totalled € 75.17 billion. This represents a solid increase of 6.4% over the previous year.

EBIT for the Automotive segment climbed 8.9% year-on-year to reach € 7.24 billion. The EBIT margin of 9.6% remains at the upper end of our target range of 8-10% and higher than the previous year.

The 2013 to 2014 EBIT walk shows an additional € 1.67 billion in earnings from higher volumes and positive mix and market effects. The balance from currency effects and changes in raw material prices dampened earnings slightly – due to depreciation of the rouble, for example, and other non-core currencies.

Higher depreciation had a negative effect of € 423 million on EBIT. Higher capital expenditure after commissioning of new equipment and production ramp-ups for new models increased depreciation year-on-year.

Under the item “Other changes”, with a balance of negative € 663 million, positive efficiency gains in the several hundred-million euro range were offset against additional expenditure – in particular, personnel and marketing costs.

The focus on future projects and global capacity expansion generated higher personnel costs. New employees were hired at the Spartanburg and Leipzig plants, for example, as well as for the new plant in Brazil. The company also recruited experts for expansion of new technology areas. At the end of 2014, the BMW Group employed a total workforce of 116,324.

Let’s take a look at the cash flow statement: Free cash flow in the Automotive segment totalled € 3.48 billion in 2014. Free cash flow for 2014 was € 478 million higher than the figure for 2013.

We will be able to pay this year’s dividend from our free cash flow – which testifies to our company’s financial and operating strength.

We aim to generate a strong free cash flow once again in 2015. A decreasing capex ratio and continued sales growth should support this goal. We are maintaining our target of more than € 3 billion.

The BMW Group’s liquidity position remained extremely strong in 2014. At the end of the year, Group liquidity totalled € 11.66 billion. The company has excellent credit ratings and good access to capital markets. This assures the BMW Group the financial flexibility it needs for its operating business and growth – even in a volatile environment.

Let’s move on to the Financial Services segment. BMW Group Financial Services overcame growing competition to reach new heights in 2014. New business with retail customers increased 2.6% to almost 1.51 million contracts.

The volume of new business – the total volume of all new financing and leasing contracts – climbed 5.3% to almost € 41.32 billion.

At the end of 2014, BMW Group Financial Services managed a total portfolio of 4.36 million contracts with retail customers and dealers.

Compared with the previous year, the number of new vehicles leased or financed by Financial Services decreased by 2.3 percentage points. At the end of the year, the penetration rate stood at 41.7%. This reflects deliberate management of business in a highly competitive environment.

As in the previous year, the Asia/Pacific region was the main growth driver, with a 20.1% increase in the local contract portfolio. In the Europe/Middle East/Africa region, the segment posted growth of 6.5%; while business in the Americas increased by 4.0%. Financial Services now has operations in more than 50 countries worldwide.

The segment’s business areas performed well in the year under review. Our fleet services provider Alphabet increased its fleet portfolio to more than 555,000 contracts. In the area of multi-brand financing, the contract portfolio grew by 3.0% to almost 466,000 units. Insurance business also saw significant growth – with more than 2.87 million insurance policies in place at the end of the year.

The segment reported pre-tax earnings of € 1.72 billion in 2014 – an increase of 6.4% over the figure for the previous year.

Financial Services earned a return on equity of 19.4% in 2014, meeting our RoE target of at least 18%. Our balance sheet equity ratio stood at 8.8% at the end of the financial year, maintaining Financial Services’ solid capital equity position and providing adequate coverage for unexpected risks.

The segment’s risk situation continued its stable, positive development in 2014.

Mirroring economic developments, used car prices for off-lease vehicles were robust. In the main leasing markets of the US, the UK and Germany, average residual value losses were largely unchanged from the previous year and therefore lower than expected.

The net credit loss ratio for our credit portfolio remained at the same comparatively low level as in 2013.

Financial Services makes comprehensive risk provisions to hedge business-related risks. Global risk management based on tested, uniform methods is a key element of our risk prevention strategy and will be further expanded worldwide.

From today’s perspective, the BMW Group looks to be in a good position to deal with business risks in 2015. We expect the risk environment to remain largely stable, but cannot rule out the possibility that cyclical fluctuations of the economy will affect our Financial Services business.

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