Prospect of hefty fine puts brakes on profits at BMW

Profits at BMW have tumbled more than 70% after the German car manufacturer was forced to put aside €1.4bn to cover a potential fine from the European Union.

Group pre-tax profits for the three months to 31 March fell 76% to €762m, while revenues were off 1% at €22.4bn, although that was marginally ahead of analyst forecasts for €22.3bn.

Net income was down 74% at €588m, which was well above expectations for around €233m.

A total of 605,333 cars were delivered, up 0.1% on the same quarter a year earlier, and 38,606 motorcycles, a 7.7% improvement. BMW said: “Despite an increasingly challenging political and economic environment, deliveries of automobiles to customers were again up on the previous year’s high level, setting a new volume record for the opening three-month period of the financial year.”

The EU Commission is probing whether German car manufacturers worked together to restrict competition in the development and roll-out of emission-reducing technologies. BMW said that it would contest the allegations “with all the legal means at its disposal”.

But it also conceded it was “probable” the Commission would issue a significant fine, meaning it was required to take a short-term provision of around €1.4bn, which had a “particularly negative impact on reported figures”. Also weighing on the numbers was increased competition alongside higher production and personnel costs.

Harald Krüger, chairman of the board of management, said: “The group’s new first-quarter sales record proves that we are putting the right products on the roads, thereby attracting new customers, as well inspiring existing clients. In operational terms, we remain firmly on course and expect the business to benefit from tailwinds, especially in the second half of the year, as numerous new models become available.

“At the same time, we are experiencing the impact of high levels of expenditure in numerous areas, affecting the entire automotive sector.”

Looking ahead, BMW said it was “confident” of achieving volume growth in car sales, where it is targeting a slight increase on the number of deliveries to customers in 2019.

But it added that its ability to influence underlying conditions was “limited”. BMW also said that because of the provision, it was now expecting a full-year EBIT margin for automobiles of between 4.5% and 6.5%, compared to between 6% and 8% previously. Group profit before tax is expected to be “well below the previous year’s level”.

David Madden, market analyst at CMC Markets, said: “Much of today’s bad news was already factored in, but the sourcing of US-China trade relations in the past few days doesn’t bode well for EU carmakers like BMW.”