'BMW Group Essay\r'

'Bayersiche Motoren Werke assembly (BMW multitude) is a German troupe whose ope balancens ar â€Å" instruction on the turn premium segments of the global auto grocery stores (BMW assembly)”. BMW conventioning was founded in 1916 and established its main typeset and provide in Munich, Ger umteen skillful after World struggle I in 1922. Those facilities populate as BMW’s headquarters and flagship plant to this day (BMW mathematical group). BMW root word coordinates its activities in more than cl countries on 6 continents and ope runs 29 manufacturing facilities in 13 of those countries (BMW convocation). Those manufacturing facilities ar concent considerd in westerly Europe with 9 in Ger umteen, 2 in Austria, and 3 in the UK. Its other manufacturing facilities and joint-owned plants ar scattered abroad with 3 in North America, 2 in South America, 2 in Africa, and 7 in Asia (BMW congregation). With BMW, MINI, and Rolls-Royce, the BMW throng owns t hree premium ticks in the global automobile industry. In addition to its substantive position in the motorcycles market with the BMW brand, the BMW assembly as well as offers a victorful range of fiscal work which make up a relatively pure portion of BMW sort’s agree tax tax tax income (BMW classify). BMW host proclaims its segmented revenues according to geographical gross revenue. The graph below breaks BMW aggroup’s oer all told yearbook revenues into 4 geographic categories with 3 subcategories:\r\n work out 1 †general Revenue Growth by Geographic Opemilitary rating portion\r\nExpressed in Euros. offset: BMW free radical’s 2012 yearly stem As shown in construe 1, the European and Asiatic markets in particular allow shown impressive gross revenue harvest since 2009 with CAGRs of 7% and 44%, respectively. BMW host’s revenues from China completely strike increased from €2.76 gazillion to €14.44 billion in 4 years (CAGR:51%). capacious gross revenue growth in the Asian market has proven very moneymaking for BMW pigeonholing who forecasts provided growth, especially in developing markets.\r\n externalise 2 †Business instalments as % of come in Revenues\r\nFigure 2 shows BMW multitude’s segmented revenue as it relates to total annual revenue. This chart emphasizes, again, the growth of BMW chemical group’s Asian segment, the relatively flat percentage of sales in the Americas, and the lean falling off in total revenue coming from Europe. With the majority of BMW chemical group’s manufacturing facilities in Europe, we force see more facilities universe built in Asian countries like China as BMW sort out shifts its focus to lucrative emerging markets in the prox.\r\nFigure 3 †Revenues by Segment for Reporting Purposes\r\nFor key outing purposes, BMW root breaks their arguings into categories: Automotive and some other (Motorcycles, m onetary Services, Other Entities, and Eliminations). Figure 3 offers an prototype of the precise partitioning with subcategories included. See Appendix A for further details.\r\n artificial lake: BMW concourse annual mastery\r\nAs a percentage of total revenue, Figure 3 indicates that self-propelled sales made up 91.4% of BMW mathematical group’s revenue in 2012 and 91.9% in 2011. This slight downward trend outhouse be attributed to the growth of BMW gathering’s monetary services sector which is relatively lancinating having begun in 1993 (BMW Financial Services).\r\nFigure 4 †Growth of chemical equilibrium Sheet Components\r\nSource: BMW sort Annual Statement\r\nFigure 4 offers an insightful peek at BMW base’s Asset/Liability balance. integrity important note is the debt/ firedor balance shown on the decent side of the graph. BMW congregation states its right ratio at 23.1% in 2012 and 22% in 2011 (BMW aggroup). This gist BMW Gro up chooses to finance its operations closely with debt. To aid that decision, BMW Group has an S&P short-term accredit entry rating of A-1 and a long credit rating of A+ allowing BMW Group to borrow at spurn pass judgment (BMW Group). This leave alone be discussed further in our take a chance counsel policy everywhereview. other important note is the ratio of live assets/non-current assets which sits around 33%. BMW Group’s current assets consist nighly of receivables from sales backing and inventories while their big non-current assets consist more or lessly of long receivables from sales pay and lease products. As a footstep of liquidity, BMW’s current ratio for 2012 is 1.04 which signifies that BMW Group maintains an efficient operate cycle and is capable of backchat its pecuniary obligations, even though €32 billion atomic number 18 tied up in non-current receivables. BMW Group’s unlike Exchange (FX) Risk heed Policy\r\n In determine to execute growth, profitability, and sustainable levels of task of products in the future, BMW Group understands that it moldiness expose itself to a dot of calculated jeopardy of infection. In its most recent quarterly disputation to its songholders, BMW Group recognized that, â€Å"Managing run a stakes is a fundamental prerequisite for beingness able to deal victorfully with the constant flow of changes in the relevant political, legal, technical and economical landscapes” (BMW Group). BMW Group’s discussion in its annual report around the many another(prenominal) risks it faces is extensive. The report includes risk topics around sales and marketing, pension obligations, information technology, stinging materials, and many other detailed business components. For this discussion, we impart focus on pecuniary risks and those relating to their external risk instruction.\r\nThe first household of monetary risk is exchange risk. For BMW Group, the sale of vehicles outside the Eurozone gives workion to exchange risk because changes in exchange rates, especially between the US dollar, Chinese renminbi, British pound, Russian rouble, and the Japanese yen, effect BMW Group to performance exposure. BMW Group claims to manage silver risks at both different levels: strategic (medium and long-term) and operating (short and medium-term) (BMW Group). For medium and long-term risks, outside(prenominal) exchange risks are managed by â€Å"natural hedgerow”, or by increase the garishness of purchases denominated in international currencies or increasing the volume of local anesthetic production (BMW Group). An example of strategic risk relief in this context cleverness be the opening of a in the buff plant in South Carolina, USA in 2012 to help reduce unconnected exchange risk in a major sales market. For short and medium-term risks, hedge proceedings are entered into with financial partners of nice credit standing to lower operating risk. In its most recent annual statement, BMW Group clarifies that they precisely use differential coefficient financial instruments for hedge purposes â€Å"in order to reduce gold, engage rate, fresh value, and market hurt risks from operating activities and connect financing requirements” (BMW Group). BMW Group operates under supranational Financial Reporting Standards (IFRS) which requires all differential gear financial instruments (interest, currency swaps, ahead currencies, forward commodities contracts, etc.) to be measured at fair value, regard little of the intention for which they are held.\r\nAt year end, 2012, BMW Group held derived instruments (mostly interest rate swaps) with terms of up to 25 months to hedge interest rates arising on financial instruments with unsettled interest payments over the forecasted two years. BMW Group likewise held differential coefficient instruments (mostly commodity swaps) with t erms of up to 60 months to hedge affectionate material price risks attached to future transactions over the next five 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 Group’s debt ratio is carefully manipulated to discover what BMW Group feels is its optimal dandy structure. BMW Group’s debt ratio has averaged about 78% for the ult five years with no indication of a future change in their annual statement. An important aspect of risk management as it relates to their nifty structure is the careful picking of financial instruments with the objective to achieve matching maturities for their debt requirements and other financial obligations (BMW Group). BMW Group seems to do a good job of quantify their payments and managing the risks associated with those payments to make sure they tush sho ulder the burden of their approximately €70 billion in total financial liabilities (Q3 2013 Report).\r\nanother(prenominal) category for discussion is the risk around BMW Group’s procurement of raw materials. Since the availability and price of certain groups of raw materials are subject to change, BMW Group pays close perplexity to commodities markets to amaze aware of changing landscapes (BMW Group). harmonise to their annual statement, BMW Group utilizes financial derivatives to hedge against price risks for inborn metals like platinum, palladium, aluminum, copper, and lead.\r\nBMW Group also recognizes the risk they face because of the confirming impact changes in the price of crude oil pay off on their production costs. anoint prices affect customers’ behavior around purchasing BMW Group’s products because consumers will often look to out a deputize preferably of absorb higher(prenominal) fuel costs. BMW Group feels that a proper response to this risk is simply to develop and manage efficient and economical engines to reward their value proposition (BMW Group).\r\nBMW Group is concerned about the creditworthiness of its lenders, borrowers, and derivative instruments partners. Every borrower’s creditworthiness is tried and true for all credit financing and lease contracts entered into by the BMW Group (Annual Report). Retailers’ creditworthiness is assessed using validated grading systems integrated into the purchasing process (BMW Group). BMW Group’s boilersuit credit risk related to derivative financial instruments is decrease by the fact that BMW Group will only argue contracts with parties of first-class credit standing. Because of BMW Group’s close attention to detail and aggressive management of its international risk, the general credit risk on derivative financial instruments utilized by BMW Group is considered to be insignifi batcht (BMW Group).\r\nFigure 5 †sectionali sation of Other Comprehensive Income\r\nSource: BMW Group Annual Statement\r\nFigure 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 immaterial 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.\r\nConclusion\r\nBMW Group has expanded in a fairly short time period of time into operations (through engage investment or authorize dealerships) in more than one hundred fifty countries. To date, BMW Group has done an especial(a) job expanding and\r\ninvesting in foreign markets. In many cases, the use of joint opines with local companies has helped BMW Group enter new markets. This is usually a less risky undertaking because if the speculation fails, they shoulder a little 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 rough-and-ready for BMW Group, especially in the quick growing Asian markets where they can test new markets and lower risk by transferring most of the risk to their venture partners. BMW group has built strong foreign segments, especially in the unify States and China. This has been evidenced in the US by strong brand awareness and brand railroad tie coupled with significant boilersuit revenue performance with the US contributing 18% of BMW Group’s revenues. BMW Group’s strong performance in China is evidence d by a 51% CAGR over the past 5 years which boosted BMW’s 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 progress over 2011 with a €770 trillion 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).\r\nWithout further detailing the historical patterns of those line items, it seems BMW Group is getting progressively better at managing their transaction exposure and other foreign operations risks. A abbreviated look at BMW Group’s annual statement proves that they have done an thin job identifying potential risks and background knowledge controls and p olicies to protect themselves. If they can enshroud to grow their segments in the Americas and Asia, they will cross to establish themselves as a global shaper of quality vehicles as is their stated mission. One organizational risk that BMW recognizes and must continue to suspend 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 healthy growth with truehearted future earnings and a steadily growing stock price.\r\nFigures explicit in Euros. Figures expressed in thousands.\r\nWORKS CITED\r\nâ€Å"Annual Report 2012.” BMW Group : Investor transaction / Financial Reports / Annual Report. N.p., n.d. Web. 17 Mar. 2014. . â€Å"BMW Group : Company : account statement : Milestones.” BMW Group : Compa ny : memoir : Milestones. N.p., n.d. Web. 14 Mar. 2014. . â€Å"BMW GROUP IN THE UK..” BMW Market: About Us. N.p., n.d. Web. 15 Mar. 2014. . â€Å"BMW Profile & Executives.”Bloomberg.com. Bloomberg, n.d. Web. 15 Mar. 2014. . â€Å"Financial Services.” Overview. N.p., n.d. Web. 15 Mar. 2014. . â€Å"Q3 Report (September 30, 2013).” BMW Group : Investor Relations : every quarter Report. N.p., n.d. Web. 15 Mar. 2014. .\r\n'