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UPDATE: BMW Cautious On Profit Margins As It Advances 2-Mln Car Sales Target

Published: March 13, 2012 | 11:35 am
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-BMW notched up record sales in January and February
-Sticks to 8%-10% forecast for operating profit margin in 2012 despite 11.8% in 2011
-Fourth-quarter net profit falls partly on launch costs of revamped models
-Capital spending on the rise as group considers opening factories in emerging markets
-Shares fall in early trading

MUNICH (Dow Jones)–BMW AG (BMW.XE) Tuesday said sales and profits will rise this year but stuck to conservative guidance for its operating profit margin despite forecasting it will sell more than two million cars in 2016, four years earlier than planned.

“This is the best start to any year we have had,” Chief Executive Norbert Reithofer told reporters at BMW’s headquarters in Munich.

BMW’s full-year operating profit margin at its core automotive segment would be “at the upper end of our 8%-10% target range” in 2012 compared with 11.8% in 2011 if the strong sales growth the group notched up in January and February continues, Chief Financial Officer Friedrich Eichiner said.

BMW’s capital costs are on the rise, Eichiner said. Up front investment in electric cars and ramping up production capacity abroad will increase in 2012 compared with last year.

BMW, like its peers, is investing heavily to increase production capacity in growing markets outside Europe partly to reduce exposure to currency fluctuations.

“We will raise capacities in China, the US, South Africa and India. At the same time, we are evaluating potential locations… in Brazil, Russia, India, Korea, Turkey,” Reithofer said.

The group, the world’s biggest producer of luxury cars, reported relatively weak fourth-quarter results despite a record performance for a year as whole, figures for which it released last week.

Fourth-quarter net profit declined 34% to EUR804 million despite a 9.6% rise in revenue to EUR18.3 billion as launch costs for the new version of the BMW’s 1-series and 3-series models weighed on earnings before interest and taxes which fell 12% to EUR1.54 billion.

BMW reported a 51% jump in full-year net profit to EUR4.91 billion in 2011. Ebit rose 57% to EUR8.02 billion on a 14% rise in revenue to EUR68.82 billion on record sales of 1.67 million vehicles.

BMW’s conservative outlook for this year’s profitability weighed on the company’s shares in early trading. The stock was down 0.8% at EUR70.50 around 1030 GMT on the Frankfurt stock exchange, under performing the broadly higher benchmark DAX 30 index. “The market had expected 11%,” one trader said, referring to BMW’s operating margin target.

BMW does have a reputation for giving investors conservative guidance on its results.

Eichiner said favorable currency effects will provide “strong tailwind” for earnings in 2012 and should offset rising costs for raw materials such as oil. BMW has a relatively large exposure to swings between the euro, the dollar and the yuan as it exports many cars from Europe to the U.S. and China. Eichiner said last year the net earnings impact from currency swings and raw material prices was a EUR92 million gain.

Meanwhile, underlying demand for BMW cars is robust. “We anticipate new sales records from all three brands” in 2012, Eichiner said. He added that all three brands should grow faster than the global premium market. BMW benefits from a relatively young product range following the launch of new versions of its 5-series and compact 1-series as well as the introduction of new sports-utility-vehicles.

BMW’s 2011 earnings mirror those of rivals Daimler AG (DAI.XE), the maker of Mercedes-Benz cars, and Volkswagen AG’s (VOW.XE) Audi brand. The world’s three largest premium car makers posted record sales volumes and profits last year, driven by surging demand across the globe.

But as well as investing to keep up with booming demand, BMW is developing new engine technology to meet tightening environmental regulations in the EU and elsewhere as the authorities tighten standards for carbon-dioxide and other emissions.

“Looking ahead at 2015, the EU has set a new CO2 target of 130 grams per kilometer for all European cars. We are totally confident we will meet the target set for the BMW group,” Reithofer said.

-By Christoph Rauwald, Dow Jones Newswires; +49 69 29 725 512; christoph.rauwald@dowjones.com

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