BMW expects pre-tax profits to decline “significantly” in 2019

BMW expects pre-tax profits to decline “significantly” in 2019

BERLIN (Rahnuma) : Pre-tax profits of BMW are expected to decline “significantly” due to higher production costs as well as negative currency effects and higher raw material prices in 2019, the German luxury car maker announced during its annual press conference on Wednesday.

BMW’s results in 2019 will also be burdened by the absence of positive valuation effects, which were recorded in 2018, and the ongoing issue of international trade frictions which remained a “source of uncertainty”, according to BMW.

In its automotive segment, BMW is expecting a margin of earnings before interest and taxes (EBIT) of only 6 to 8 percent in 2019, after 7.2 percent in 2018. According to BMW, the company’s own claim was to achieve a margin of between 8 and 10 percent “in a stable environment”. However, the company would only have “limited influence on numerous external conditions”.

“Our industry is witnessing rapid transformation. In this environment, a sustained high level of profitability is crucial,” said Nicolas Peter, chief financial officer (CFO) of BMW.

BMW’s German competitors in the premium car segment Daimler and Audi also announced lower EBIT margins for 2019. While Audi is slightly more optimistic about its EBIT margin and is anticipating 7 to 8.5 percent, Daimler is expecting a similar margin as BMW of between 6 and 8 percent.

Already last week, BMW announced that its net profits declined by 16.9 percent to 7.2 billion euros (8.2 billion U.S. dollars) while total sales fell slightly by 0.8 percent to 97.5 billion euros in the fiscal year 2018.

“2018 was a challenging year for the automotive sector as a whole. Nevertheless, we achieved the second-highest group profit to date,” said Harald Krueger, chief executive officer (CEO) of BMW.

BMW had already curbed its annual business expectations in September 2018. Back then, the introduction of the new Worldwide harmonized Light Vehicles Test Procedure (WLTP) emissions test procedure has been expected to lead to “considerable supply distortions” in Europe and an “unexpectedly intense competition”. Business of the German car maker was also burdened by global trade frictions in 2018, according to BMW.

During the annual accounts press conference, BMW announced to tighten up its cost-cutting measures to “improve structural efficiency along the entire value chain”. By the end of 2022, the German car maker is intending to save more than 12 billion euros by “leveraging potential efficiencies”.

To achieve cost reductions, BMW is seeking to reduce the time required for the development process for new vehicle models by up to one third. In addition, BMW intends to eliminate up to 50 percent of the current drivetrain variants “in the transition to more sophisticated and flexible vehicle architectures”.

Investors were not satisfied with the bleak outlook for 2019 that was presented at BMW’s annual press conference. Immediately after the publication of the annual figures, shares of the German luxury car maker fell by around 5 percent and are among the biggest losers in the German stock index DAX.

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