Statement Walter Mertl, Member of the Board of Management of BMW AG, Finance, Annual Conference 2025 – AutoMart Canada

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Statement

Walter Mertl

Member of the Board of Management of BMW AG, Finance

Annual Conference 2025

BMW Welt in Munich, 14 March 2025, 08:00 a.m. CET

 

Ladies and Gentlemen,

Good morning!

 

SLIDE: BMW Group in Full-Year 2024

 

As Oliver emphasized, we continue to follow our course and implement
our long-term strategy. At the same time, we are focused on our
operational business to consistently deliver on what we say.

 

The BMW Group proved this once again in Q4 2024:

We successfully reduced inventory impacted by the Integrated Braking
System or IBS. And we achieved a sequential improvement in retail
sales and profit versus Q3.

 

For the full year, we achieved our revised guidance in all parameters.

 

As anticipated, we reached peak levels of R&D and capital
expenditure in 2024, particularly to prepare for models of the NEUE
KLASSE. Starting this year, both the R&D and capex ratios will
decrease meaningfully, as we start production of the NEUE KLASSE and
lay the foundation for the long-term success of our company with over
40 new and updated models by 2027.

 

Through our global positioning and the flexibility of our operations,
we can adapt to the geopolitical landscape and short-term market
dynamics, proving our resilience.

 

Let’s take a look at the financial figures for the full year.

 

2024 was a year of two halves:

While the first half-year was in line with our original planning,
sales performance in the second half of the year was impacted by
delivery stops in connection with IBS, as well as persistent subdued
demand in China. As expected, Q4 marked an improvement on the Q3 result.

 

SLIDE: BMW Group KPIs in FY24

 

Group revenues totaled 142.4 billion euros. The moderate decrease
compared to 2023 was mainly driven by the decline in sales volume and
intense price competition in the Chinese market.

 

Earnings before Tax at Group level amounted to 11 billion euros –
significantly under 2023, but as expected in our adjusted guidance.
This resulted in a Group EBT Margin of 7.7% for the year.

 

SLIDE: BMW Group Segment Performance in FY24

 

If we look at the key financial results of the individual segments:

Automotive delivered an EBIT of 7.89 billion euros and EBIT margin of 6.3%.

 

Motorrad had an EBIT of 198 million euros, representing a margin of 6.1%.

 

Financial Services saw an EBT of 2.54 billion euros and a Return on
Equity of 15.1%.

 

And, finally, Other Entities generated 837 million euros in EBT,
while eliminations amounted to a negative 146 million euros.

 

SLIDE: Automotive Retail Units, BEV Units, Auto Revenue and
Auto EBIT in FY24

 

So, let’s take a look at the Automotive Segment in detail:

 

For the full year, the BMW Group delivered 2.45 million BMW, MINI and
Rolls-Royce vehicles to customers worldwide. This represents a slight
decrease of 4% from the previous year, in line with our adjusted guidance.

 

Market dynamics in China remain weak, which impacted sales
performance. However, the BMW brand achieved growth in every other
major region.

 

In Europe, order intake in Q4 improved month by month. In the US, we
experienced a strong recovery from IBS in Q4 with growth
quarter-over-quarter of just over 50% and year-over-year of 8.9%.

 

Worldwide BMW Group sales performance in Q4 saw sequential
improvement over Q3. Global deliveries grew by nearly a third
quarter-on-quarter including double digit growth coming from the mid-
and upper-segment together. 

 

All-electric vehicles remained a key growth driver for us. BEV
deliveries totaled over 426,000 units for the year, significantly
above 2023 by 13.5%. Overall, BEVs therefore made up 17.4% of total sales.

 

Our plug-in hybrid vehicles also remained very popular, with over
166,000 units sold in 2024. Electrified vehicles – meaning
all-electric vehicles and plug-in hybrids – made up nearly a quarter
of total sales.

 

Revenues in the Automotive segment amounted to nearly 125 billion
euros, a decrease of 5.6% from 2023.

 

Earnings before interest and taxes reached 7.9 billion euros. This
resulted in an EBIT margin of 6.3%, which was within our adjusted
guidance corridor of 6 to 7 percent for the full year.

 

Excluding the 1.3 billion euros depreciation resulting from the
purchase price allocation of BBA, the Automotive EBIT margin came in
at 7.4% for the year.

 

SLIDE: Automotive EBIT Development in FY24

 

Looking to the operating result in detail:

 

Compared to 2023, EBIT for full-year 2024 saw a tailwind of 1 billion
euros from the net balance of currency and raw material positions.

 

Year on year, the net effect of volume, model mix and pricing weighed
on Automotive EBIT. The headwind resulted partly from the volume
decrease, particularly in China. Pricing headwinds, including the
effects of a highly competitive Chinese market and dealer compensation
in China, amounted to more than half of the overall decrease of 4.4
billion euros.

 

The headwind of 1.4 billion euros from Other cost changes was driven
by inflation in material costs and supply chain support.

 

The effect from warranty expenses was a tailwind year-on-year.
Overall, lower additions to warranty provisions for specific topics
were necessary in every quarter throughout 2024 compared to the
previous year. An exception was Q3, due to the impact of IBS. For the
full year 2024, the P&L impact of quality issues trended in a
positive direction year-on-year, as planned.

 

SLIDE: R&D Expenditure in FY24

SLIDE: Capital Expenditure in FY24

 

Our R&D activities and investments focused on our ongoing
electrification and digitalization strategy across the entire
portfolio. As anticipated, R&D and capital expenditure reached
peak levels in 2024 – both in absolute terms and in ratio.

 

Group expenditure for research and development for the full year
reached 9.1 billion euros, compared to 7.8 billion euros in 2023. The
R&D ratio according to the German Commercial Code was 6.4%, 1.4
percentage points more than in 2023.

 

Group capital expenditure totaled 9.1 billion euros, an increase from
8.8 billion euros in 2023. This resulted in a capex ratio of 6.4%,
compared to 5.7% in 2023.

 

As we begin to rollout models of the NEUE KLASSE, we will see a
decline in R&D and capex. This means in both absolute and relative
terms, back towards our strategic corridors of between 4 to 5% for
R&D and less than 5% for Capex by 2027 at the latest.

 

SLIDE: Automotive Segment Free Cash Flow in FY24

 

Turning to free cash flow – as you know, we steer this on an annual basis.

 

Starting with EBT delivering a full year result of 7.5 billion euros,
working capital contributed positively with 200 million euros to free
cash flow. Whilst inventory levels had risen due to sales stops
related to IBS in Q3, we managed to successfully reduce stock by 5
billion euros in Q4. As a result, year-end inventory reached nearly
the same level as it was at the beginning of the year.

 

For the full year, the net effect from capital expenditure and
depreciation reduced free cash flow by 3.3 billion euros.

 

The development of provisions reduced free cash flow by 700 million euros.

 

The position “Other” reflects several positive effects, including
interest received.

 

In line with our adjusted guidance, free cash flow reached 4.9
billion euros in 2024.

 

This is even after we invested 18.2 billion euros: 9.1 billion euros
in CapEx and another 9.1 billion euros in R&D, paving the way for
our future, and demonstrating our financial strength.

 

This strength is underscored by our Automotive net financial assets,
which benefitted from the strong development of free cash flow in the
fourth quarter. At year end, the Automotive NFA came in at almost 46
billion euros, which is around the same level as the start of the year.

 

SLIDE: Financial Services Segment in FY24

 

Moving on to the Financial Services Segment.

 

New business development in the segment remained robust throughout
the year. A total of almost 1.7 million new financing and leasing
contracts were concluded, a solid year-on-year increase of nearly 10%.

 

Overall, new business volume even increased significantly by 12.5% to
64.5 billion euros, due to higher average financing volume per vehicle.

 

Penetration rates for lease and loan offerings rose by 4.4 percentage
points, reaching 42.6%. Without China, the penetration rate was over
50%, with growth in particular in the US and the UK.

 

Segment earnings before tax amounted to 2.54 million euros and were
therefore significantly lower than the previous year. This was mainly
due to higher credit and residual value risk costs than in 2023, but
well within our expectations. We continue to see gains from the sale
of off-lease vehicles, yet at lower levels due to market dynamics.

 

The credit loss ratio of 0.26% across the entire credit portfolio was
well within our expectations and below industry levels.

 

Return on Equity for the full year reached 15.1%, within our adjusted
guidance range of 15 to 18%.

 

Ladies and Gentlemen,

 

In our BMW Group Report, you will note that we have voluntarily
adopted the full European Sustainability Reporting Standards for the
first time as the framework for reporting all sustainability-related
disclosures in our combined non-financial statement.

 

The BMW Group only reports on sustainability topics that have been
assessed as “material” according to ESRS. However, this does not mean
that topics which are assessed as “not-material” are necessarily less important.

 

We view sustainability holistically and as a competitive advantage.
That is why we disclose our sustainability performance to our
investors and customers.

 

You will note that the implementation of ESRS requirements have
contributed over 100 additional pages to our Report. Due to the
company-specific materiality assessment, comparability between
companies remains limited – even within the same industry.

 

Indeed, it can be questioned how much value the additional scope and
limited comparability offer to stakeholders. Accordingly, we welcome
the proposed regulatory changes in the draft of the so-called Omnibus
package and look forward to the draft updates and reduced scope of the ESRS.

 

Ultimately, we want added value for our stakeholders – meaning
relevant and concise information. It’s not just about reporting and compliance.

 

SLIDE: Proposed Dividend and Payout Ratio

 

One important element of our stakeholder orientation is our
shareholder return strategy, which the BMW Group remains committed to.

 

The Board of Management and the Supervisory Board will propose a
dividend of 4.30 euros per share of common stock and 4.32 euros per
share of preferred stock to the Annual General Meeting. This results
in a total dividend payout of 2.7 billion euros. 

 

The proposed dividend for 2024 represents a payout ratio of 36.7%.
This is within our long-term strategic target range of 30-40% and
notably higher than the payout ratio in 2023.

 

On January 2nd, we began the final tranche of our ongoing second
share buyback program, which should be completed by latest April 30th.
This will conclude the second program – with 2 billion euros – more
than half a year earlier than initially planned.

 

By this point in time, we will have reduced a total of 47 million
shares in circulation since the start of the share buyback
authorization in 2022. This corresponds to over 7% reduction in share capital.

 

At the upcoming AGM, the Board of Management of BMW AG plans to
propose an agenda item, seeking a new five-year authorization to
acquire treasury shares amounting to up to 10 percent of share capital.

 

You will have noted that we have made a step change in our approach
since 2021. Starting in 2022, we added share buybacks as an additional
instrument alongside dividend payments. We have also increasingly used
the range of dividend payout corridor. And we increased the share of
Automotive free cash flow distributed to shareholders from the
previous years’ levels to almost 100% this year.

 

So, let’s move to the Outlook for 2025.

 

Looking to the market development:

Due to stabilizing inflation and declining interest rates in many
countries, we expect to see a rise in demand.

 

How will the BMW Group’s sales performance develop this year?

 

Given the robust economic situation, we anticipate a solid market
development in the US. In Europe, we do expect growth driven by
electrified vehicles. The market dynamics in China, however, will
remain challenging.

 

For the full year, revenues per vehicle in the Automotive segment are
expected to be in the same range as 2024.

 

Our guidance reflects the current status of our planning, including
all the tariff increases in force as of March 12th, 2025.

 

SLIDE: Outlook 2025

 

What do we expect for our key performance indicators in 2025?

 

Let me focus on selected guidance parameters.

 

In the Automotive Segment we are forecasting a slight increase in
deliveries of BMW, MINI and Rolls Royce vehicles.

 

In terms of profitability, the total impact of the tariff increases
in place as of March 12th amounts to approximately 1 percentage point
on the Auto EBIT margin. As a result, the EBIT margin is now expected
between 5 to 7%. Consequently, Return on Capital Employed in the
Automotive segment should be within a range of 9 to 13%.

 

In the Financial Services segment, we anticipate a Return on Equity
of 13 to 16%.

 

The Group’s pre-tax profit is expected to remain at the previous
year’s level.

 

Starting January 1st, 2025, we have adjusted the outlook range for
Group EBT guidance. The existing bandwidth was too narrow to reflect
the underlying movements in the segments. For details, please refer to
the glossary of the BMW Group Report.

 

The full outlook for 2025 for all key performance indicators is also
available in the BMW Group Report.

 

For the full year 2025, we expect a free cash flow in the Automotive
Segment of over 5 billion euros.

 

SLIDE: Closing

 

Ladies and Gentlemen,

 

The BMW Group remains fully focused on achieving our short-term
results without compromising our long-term strategic objectives.

 

We remain committed to our long-term target corridor of 8 to 10% EBIT
margin in the Automotive Segment.

 

To that end, we are constantly enhancing our operational business to
ensure we achieve our strategic priorities and optimize our returns.

 

So, after the peak in 2024, we not only expect to see a turnaround in
R&D expenditure and CapEx in 2025, but also a turnaround in
operational costs. And here I mean a cost decrease in nominal terms,
covering the effects of inflation. This will become visible over the
course of the year.

 

At the BMW Group, strong brands and emotional products have long
built the foundation of our success.

 

With the technological boost from the NEUE KLASSE across the entire
portfolio, we look forward to seeing the benefits from our investments
start hitting the road later this year.