Tuesday, February 19, 2019
BMW Group Essay
Bayersiche Motoren Werke company (BMW convocation) is a German company whose ope rations ar foc wasting diseased on the premium segments of the international automobile securities industrys (BMW root). BMW meeting was founded in 1916 and established its main plant and headquarters in Munich, Ger many a(prenominal) just after(prenominal) World War I in 1922. Those facilities exist as BMWs headquarters and flagship plant to this day (BMW free radical). BMW conference coordinates its activities in more than one hundred fifty countries on 6 continents and operates 29 manufacturing facilities in 13 of those countries (BMW throng). Those manufacturing facilities atomic number 18 toilsome in Western Europe with 9 in Germany, 2 in Austria, and 3 in the UK. Its other manufacturing facilities and joint-owned plants are scattered abroad with 3 in North America, 2 in southmost America, 2 in Africa, and 7 in Asia (BMW sort). With BMW, MINI, and Rolls-Royce, the BMW group owns thr ee premium stigmatises in the international automobile industry. In addition to its strong position in the motorcycles market with the BMW brand, the BMW root also offers a successful range of pecuniary function which make up a relatively small portion of BMW themes entireness gross (BMW Group). BMW Group reports its segmented revenues according to geographic gross revenue. The graph below breaks BMW Groups overall yearly revenues into 4 geographic categories with 3 subcategories act 1 Overall Revenue branch by Geographic Operating SegmentExpressed in Euros. cum BMW Groups 2012 yearbook Report As shown in systema skeletale 1, the European and Asiatic markets in particular make believe shown impressive sales growth since 2009 with CAGRs of 7% and 44%, respectively. BMW Groups revenues from China whole have increased from 2.76 gazillion to 14.44 billion in 4 geezerhood (CAGR51%). Huge sales growth in the Asian market has proven actually lucrative for BMW Group wh o forecasts further growth, especially in developing markets. understand 2 Business Segments as % of Total Revenues escort 2 shows BMW Groups segmented revenue as it relates to total annual revenue. This chart emphasizes, again, the growth of BMW Groups Asiansegment, the relatively flat helpering of sales in the Americas, and the slight decrease in total revenue coming from Europe. With the majority of BMW Groups manufacturing facilities in Europe, we readiness see more facilities being built in Asian countries like China as BMW Group shifts its focus to lucrative emerge markets in the future.Figure 3 Revenues by Segment for Reporting PurposesFor report purposes, BMW Group breaks their statements into categories Automotive and separate (Motorcycles, fiscal Services, Other Entities, and Eliminations). Figure 3 offers an example of the precise breakdown with subcategories included. See Appendix A for further details.Source BMW Group yearbook StatementAs a percentage of tota l revenue, Figure 3 indicates that automotive sales made up 91.4% of BMW Groups revenue in 2012 and 91.9% in 2011. This slight down trend send away be attributed to the growth of BMW Groups financial services sector which is relatively newly having begun in 1993 (BMW Financial Services).Figure 4 Growth of Balance Sheet ComponentsSource BMW Group one-year StatementFigure 4 offers an insightful glance at BMW Groups Asset/Liability balance. One valuable note is the debt/ lawfulness ratio shown on the right side of the graph. BMW Group states its equity ratio at 23.1% in 2012 and 22% in 2011 (BMW Group). This means BMW Group chooses to pay its operations mostly with debt. To aid that decision, BMW Group has an S&P short-run credit rating of A-1 and a long-term credit rating of A+ allowing BMW Group to borrow at lower rates (BMW Group). This will be discussed further in our essayiness management policy overview. Another important note is the ratio of current assets/non-current assets which sits just about 33%. BMW Groups current assets consist mostly of receivables from sales financing and inventories while their larger non-current assets consist mostly of long-term receivables from sales financing and leased products. As a measure of liquidity, BMWs current ratio for 2012 is 1.04 which signifies that BMW Group reserves an efficient in operation(p) cycle and is capable of handling its financial obligations, even though 32 billion are tied up innon-current receivables. BMW Groups Foreign Exchange (FX) Risk Management PolicyIn order to achieve growth, profitability, and sustainable levels of business in the future, BMW Group understands that it moldiness expose itself to a degree of calculated gamble. In its most fresh quarterly statement to its stockholders, BMW Group recognized that, Managing risks is a fundamental obligatory for being able to deal successfully with the constant flow of changes in the relevant political, legal, technical and econo mic landscapes (BMW Group). BMW Groups discussion in its annual report around the many risks it faces is extensive. The report includes risk topics around sales and marketing, pension obligations, information technology, new(a) materials, and many other detailed business components. For this discussion, we will focus on financial risks and those relating to their international risk management.The first division of financial risk is convert risk. For BMW Group, the sale of vehicles foreign the Eurozone gives rise to exchange risk beca enjoyment changes in exchange rates, especially surrounded by the US dollar, Chinese renminbi, British pound, Russian rouble, and the Japanese yen, subject BMW Group to performance exposure. BMW Group claims to manage currency risks at devil contrasting levels strategic (medium and long-term) and operating (short and medium-term) (BMW Group). For medium and long-term risks, foreign exchange risks are managed by natural hedging, or by increasing the mint of purchases denominated in foreign currencies or increasing the volume of local take (BMW Group). An example of strategic risk mitigation in this context might be the opening of a new plant in South Carolina, USA in 2012 to help reduce foreign exchange risk in a major sales market. For short and medium-term risks, hedging minutes are entered into with financial partners of excellent credit standing to mitigate operating risk. In its most recent annual statement, BMW Group clarifies that they only use derived financial instruments for hedging purposes in order to reduce currency, enliven rate, neat value, and market set risks from operating activities and related financing requirements (BMW Group). BMW Group operates under International Financial Reporting Standards (IFRS) whichrequires all derived function financial instruments ( enkindle, currency swaps, in front currencies, forward commodities contracts, etc.) to be measured at fair value, regardless of the int ention for which they are held.At year end, 2012, BMW Group held derivative instrument instruments (mostly interest rate swaps) with terms of up to 25 months to hedge interest rates arising on financial instruments with variable interest payments over the forecasted two years. BMW Group also held derivative instruments (mostly commodity swaps) with terms of up to 60 months to hedge raw material price risks machine-accessible to future transactions over the next quintuple years. Lastly, BMW Group held derivative instruments (mostly option and forward contract options) with terms of up to 72 months to hedge currency risks attached to future transactions. As stated in a previous segment, BMW Groups debt ratio is carefully manipulated to achieve what BMW Group feels is its optimal bully structure. BMW Groups debt ratio has averaged about 78% for the past five years with no indication of a future change in their annual statement. An important aspect of risk management as it relates t o their great(p) structure is the careful selection of financial instruments with the objective to achieve interconnected maturities for their debt requirements and other financial obligations (BMW Group). BMW Group seems to do a good business enterprise of timing their payments and managing the risks associated with those payments to make sure they can shoulder the burden of their nigh 70 billion in total financial liabilities (Q3 2013 Report).Another category for discussion is the risk around BMW Groups procurement of raw materials. Since the availability and price of certain groups of raw materials are subject to change, BMW Group pays close attention to commodities markets to stay aware of changing landscapes (BMW Group). According to their annual statement, BMW Group utilizes financial derivatives to hedge against price risks for essential metals like platinum, palladium, aluminum, copper, and lead.BMW Group also recognizes the risk they face because of the indirect impact changes in the price of crude oil have on their production costs. Oil prices concern customers behavior around purchasing BMW Groups products because consumers will a great deal search out a substitute instead of absorbhigher(prenominal) fuel costs. BMW Group feels that a proper response to this risk is only to develop and sell efficient and economical engines to reinforce their value advise (BMW Group).BMW Group is concerned about the creditworthiness of its lenders, borrowers, and derivative instruments partners. Every borrowers creditworthiness is tried for all credit financing and lease contracts entered into by the BMW Group (Annual Report). Retailers creditworthiness is assessed development validated scoring systems integrated into the purchasing process (BMW Group). BMW Groups overall credit risk related to derivative financial instruments is lessen by the fact that BMW Group will only consider contracts with parties of resplendent credit standing. Because of BMW Grou ps close attention to detail and war-ridden management of its international risk, the general credit risk on derivative financial instruments utilized by BMW Group is considered to be insignificant (BMW Group).Figure 5 Breakdown of Other Comprehensive IncomeSource BMW Group Annual StatementFigure 5 presents a detailed breakdown of Other Comprehensive Income including the gains/losses on financial instruments used for hedging purposes and the exchange differences on translating foreign operations for 2011 and 2012. Since BMW Group claims it only utilizes derivative financial instruments as a risk management tactic, this segment should operate as a cost center. On average, the gains/losses on financial instruments should help protect BMW Group from wild volatility from its many sources of diversifiable risk. Exchange differences are also lumped into OCI and shows the effect of exchange rate differences in the currencies belonging to the many countries BMW Group serves.ConclusionBMW Group has expanded in a plumb short period of time into operations (through direct investment or licensed dealerships) in more than 150 countries. To date, BMW Group has make an especial(a) job expanding andinvesting in foreign markets. In many cases, the use of joint ventures with local companies has helped BMW Group enter new markets. This is usually a less risky undertaking because if the venture fails, they shoulder a smaller risk than their local counterparts. If the venture is successful, then the company transitions smoothly into the new market with greater confidence and consistency. This method has proven to be very effective for BMW Group, especially in the rapid emergence Asian markets where they can test new markets and mitigate risk by transferring most of the risk to their venture partners. BMW group has built strong foreign segments, especially in the United States and China. This has been evidenced in the US by strong brand awareness and brand association coupled with significant overall revenue performance with the US contributing 18% of BMW Groups revenues. BMW Groups strong performance in China is evidenced by a 51% CAGR over the past 5 years which boosted BMWs overall revenue from 53 billion in 2007 to 77 billion in 2012 (CAGR 15%). With their large success in international expansion, they have had mixed success with their hedging strategies. Their gains/losses on financial derivative hedging instruments in 2012 were a large improvement over 2011 with a 770 one million million increase in 2012 compared to a 733 million decrease for 2011. Conversely, BMW Group took a loss in exchange differences from foreign operations of 123 million in 2012 and a 168 million gain and 2011 (Figure 5).Without further detailing the historic patterns of those line items, it seems BMW Group is getting progressively better at managing their transaction exposure and other foreign operations risks. A brief discover at BMW Groups annual statement proves that t hey have done an excellent job identifying potential risks and setting controls and policies to protect themselves. If they can brood to grow their segments in the Americas and Asia, they will continue to establish themselves as a global manufacturer of quality vehicles as is their stated mission. One organizational risk that BMW recognizes and must continue to avoid is using derivative financial instruments for speculative trade instead of loss prevention. If BMW Group can maintain their brand in Europe, continue to grow in their American and Asian segments, and continue to use hedging and derivative tools conservatively as a risk mitigation tool, they will see continued success and rose-cheeked growth with solid future earnings and a steadily growing stock price.Figures expressed in Euros. Figures expressed in thousands.WORKS CITEDAnnual Report 2012. BMW Group Investor Relations / Financial Reports / Annual Report. N.p., n.d. Web. 17 Mar. 2014. . BMW Group Company History M ilestones. BMW Group Company History Milestones. N.p., n.d. Web. 14 Mar. 2014. . BMW stem IN THE UK.. BMW Market About Us. N.p., n.d. Web. 15 Mar. 2014. . BMW Profile & Executives.Bloomberg.com. Bloomberg, n.d. Web. 15 Mar. 2014. . Financial Services. Overview. N.p., n.d. Web. 15 Mar. 2014. . Q3 Report (September 30, 2013). BMW Group Investor Relations Quarterly Report. N.p., n.d. Web. 15 Mar. 2014. .